In 2005, the International Monetary Fund (IMF) published the findings of a mutual evaluation on Mexico's compliance with the Financial Action Task Force's (FATF) recommendations on anti-money laundering (AML) and combating the financing of terrorism (CFT). According to the report, although Mexico was compliant or largely compliant with some of the FATF recommendations, it still had significant shortcomings in its AML/CFT regime; the most significant being the lack of legislation criminalizing terrorist financing. However, in 2007, according to a 2008 U.S. Department of State report, Mexico passed a law criminalizing terrorist financing. This law amends the Federal Penal Code to link terrorist financing to money laundering, and defines international terrorism as a predicate crime if and when committed in Mexico to inflict damage on a foreign state. Despite the passage of this new law, there were other concerns raised by the IMF in its 2005 report, relating to inadequacies in the confiscation regime and in the preventive measures adopted by financial institutions, which the authorities need to address. Moreover, the 2005 IMF report was based on the findings of a mutual evaluation conducted per the 2002 FATF methodology for assessors. The methodology was revised in 2004, and there is little information publicly available assessing Mexico's compliance with the new and revised FATF methodology.

General Overview

In 2003-2004, the Financial Action Task Force (FATF) conducted a mutual evaluation on Mexico's compliance with the FATF recommendations and special recommendations on anti-money laundering (AML) and combating the financing of terrorism (CFT). The findings of this report were published in the International Monetary Fund's (IMF) 2005 Report on the Observance of Standards and Codes (ROSC). However, this assessment was based on the FATF's 2002 methodology of assessing country compliance with the FATF recommendations. In 2004, the FATF revised its methodology. Per a 2006 Financial System Stability Assessment (FSSA) Update by the IMF, the FATF Mutual Evaluation found Mexico "to be not fully compliant with several recommendations, namely: terrorist financing was not criminalized; there was no provision for freezing, seizing, or confiscating terrorist assets; financial institutions were not required to report suspicious transactions related to terrorist financing; and financial secrecy obstructed access to financial information by prosecutors" (p. 7). However, the 2006 IMF FSAP Update notes that since the 2003 mutual evaluation, Mexican lawmakers have taken measure to rectify these shortcomings. The Senate has approved a draft law criminalizing terrorist financing and has sent it to the Chamber of Deputies. The approval of this draft law was expected in late 2006. According to a 2008 report by the U.S. Department of State (DoS), Mexico passed the law criminalizing terrorist financing in 2007 and the "new law amends the Federal Penal Code to link terrorist financing to money laundering and establish international terrorism as a predicate crime when it is committed in Mexico to inflict damage on a foreign state." Mexico is expected to undergo a FATF Mutual Evaluation in 2008.

Money laundering in Mexico is criminalized under the 1996 Article 400-Bis of the Federal Penal Code. The 2005 IMF report noted that money laundering is an all-crimes offense "that incorporates the essential elements required by the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988 (the Vienna Convention) and the United Nations Convention Against Transnational Organized Crime (the Palermo Convention)" (p. 26). As noted above, at the time of the 2005 IMF report, terrorist financing was only punishable as an ancillary offence, but as of 2007 this is no longer the case. Confiscation rules are broadly addressed in the Federal Penal Code and the Federal Penal Procedures Code. However, the 2005 IMF report indicated that significant legislative weaknesses in the Mexican confiscation regime exist, and enforcement was lacking at the time of the mutual evaluation.

Mexico's Financial Intelligence Unit (FIU) (Unidad de Inteligencia Financiera, or UIF) is a unit of the Secretariat of Finance and Public Credit (Secretaria de Hacienda y Crédito Público, or SHCP). Regulated entities in Mexico are required to provide the UIF with suspicious transaction reports (STRs) and cash transaction reports (CTRs). The UIF is then responsible for analyzing and disseminating these STRs and CTRs. In 2007, according to the 2008 DoS report, the UIF received approximately 38,400 STRs and 5,607,000 CTRs. Other agencies involved in monitoring money laundering and terrorist financing activities in Mexico are the Federal Fiscal Attorney's Office (Procuraduría Fiscal de la Federación, or PFF), the Attorney General's Office (Procuraduria General de la República, or PGR), the General Customs Administration (Administración General de Aduanas), the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or CNBV), the National Insurance and Sureties Commission (Comision Nacional de Seguros y Fianzas, or CNSF), and the National Retirement Savings System Commission (Comision Nacional del Sistema de Ahorro para el Retiro, or CONSAR).

According to the 2006 IMF report, several significant initiatives were taken since the mutual evaluation. These addressed some of the concerns identified in the assessment. The 2008 U.S. DoS report notes that "Mexico continues to face challenges with respect to its anti-money laundering and counter-terrorist financing regime, particularly with its ability to prosecute and convict money launderers" but the authorities have taken a proactive approach and made fighting money laundering and drug trafficking a top priority.

The Principles

1. Legal Systems and Related Institutional Measures

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Although the 2005 IMF report addresses some of the requirements of this principle, the report was based on the 2002 FATF methodology, which was since revised, and subsequent to this report, there is insufficient information regarding Mexico's compliance with the FATF recommendations relating to this principle. Money laundering in Mexico is criminalized under the 1996 Article 400-Bis of the Federal Penal Code and is punishable by a term of imprisonment from five to fifteen years and a fine from 1,000 to 5,000 days of wages. The 2005 IMF report noted that money laundering is an all-crimes offense "that incorporates the essential elements required by the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988 (the Vienna Convention) and the United Nations Convention Against Transnational Organized Crime (the Palermo Convention)" (p. 26).

Terrorist financing, at the time of the 2005 IMF report, was "only punishable as an ancillary offence, in that it is a crime to intentionally provide support for the commission of a criminal offence or aid a criminal following the commission of a crime in fulfillment of a promise made before the offence was committed" (p. 4). However, the 2008 U.S. DoS report noted that Mexico passed a law criminalizing terrorist financing in 2007 and the "new law amends the Federal Penal Code to link terrorist financing to money laundering and establish international terrorism as a predicate crime when it is committed in Mexico to inflict damage on a foreign state." Nevertheless, there is insufficient information publicly available regarding the effectiveness of this new law. Confiscation rules are broadly addressed in the Federal Penal Code and the Federal Penal Procedures Code. However, the 2005 IMF report indicated that significant legislative weaknesses in the Mexican confiscation regime exist and enforcement was lacking at the time of the mutual evaluation. The Government of Mexico is a party to the 1988 United Nations (UN) Drug Convention and the UN Convention against Transnational Organized Crime.

Mexico's UIF is a unit of the SHCP. At the time of the 2005 IMF report, the UIF was being referred to as the General Directorate for Transactions Investigation (Dirección General Adjunta de Investigación de Operaciones, or DGAIO). The UIF is responsible for collecting, analyzing, and disseminating STRs and CTRs from regulated entities. In 2007, according to the 2008 DoS report, the UIF received approximately 38,400 STRs and 5,607,000 CTRs.

The 2005 IMF report states that the Attorney General's Office investigates and prosecutes money laundering offences and since 2000 has had a national anti-money laundering unit - the Special AML Unit. Further, according to the report, this unit "has broad powers of investigation at its disposal and can use any investigative methods it considers appropriate (even one not specifically provided for in law), provided that the method does not violate the law" (p. 6).

2. Preventive Measures - Financial Institutions

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Although the 2005 IMF report addresses some of the requirements of this principle, the report was based on the 2002 FATF methodology, which was since revised, and subsequent to this report, there is insufficient information regarding Mexico's compliance with the FATF recommendations relating to this principle. According to the 2005 IMF report the entities regulated and subject to AML/CFT measures are credit institutions, securities firms, investment companies, licensed foreign exchange companies, savings and loan companies, insurance companies, other insurance intermediaries, bond companies, and retirement funds. Per the 2008 U.S. DoS report, the CNBV regulates and supervises banks, limited-scope financial companies, securities brokerage firms, foreign exchange firms, and mutual funds. The Tax Administration Service (Servicio de Administración Tributaria, or SAT) supervises non-licensed foreign exchange retail centers and money remitters. Further, the CNBV is the agency that issues regulations relating to AML/CFT for financial institutions and as a consequence has the power to impose administrative sanctions for noncompliance, revoke licenses, and conduct on-site inspections and off-site monitoring of regulated entities.

The 2005 IMF report indicated that customer identification is required at banks at the time an account is opened or a transaction exceeding US$10,000 takes place. The report notes that anonymous accounts are not permitted by financial institutions, and failure to provide proper customer identifications requirement can be sanctioned by the regulatory authorities by imposing fines. Record keeping rules exist within financial institutions in Mexico, but the 2005 IMF report indicated that these rules are not well-defined and customers' files are not regularly updated. However, the report noted that "the law gives supervisory commission inspectors sufficient access to the records of the financial institutions being inspected, enabling them to perform their tasks appropriately" (p. 8).

Regulated entities in Mexico are required to provide the UIF with STRs and CTRs. The UIF is then responsible for analyzing, and disseminating these STRs and CTRs. In 2007, according to the 2008 DoS report, the UIF received approximately 38,400 STRs and 5,607,000 CTRs. The 2005 IMF report, stated that "there is no express obligation to identify or report transactions suspected of being related to terrorist financing; however, the supervisory commissions have requested financial institutions to include the suspicion of being connected with FT as one of the criteria for considering a transaction to be unusual. As well, the United Nations and OFAC lists of potential terrorists and terrorist organizations have been disseminated to all financial institutions so that reports can be made concerning any natural or legal persons included on those lists" (p. 8-9).

With regard to bank secrecy laws, the 2005 IMF report indicated that financial institutions report first to their supervisory agencies, which then report it to the UIF. According to the 2005 IMF report, "bank and trust secrecy continue to impede many aspects of Mexico's AML/CFT system, particularly for law enforcement, prosecutorial and judicial authorities during investigations and prosecutions" (p. 3). However, per the 2008 U.S. DoS report, amendments to the Banking Law that were approved in April 2005 allow specific government entities, such as the PGR, to receive records directly from banks without prior approval from the CNBV.

Mexico's financial institutions are required to implement internal AML programs, training, and stringent employee screening procedures per the 2005 IMF report. Moreover, the same report also notes that "foreign subsidiaries of banking entities authorized to operate in Mexico can also be subject to on-site inspections by their home supervisory authority" (p. 9).

3. Preventive Measures - Designated non-Financial Business and Professions

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According to the 2008 U.S. DoS report, casinos, offshore banks, lawyer, accountants, couriers, and brokers are presently not subject to anti-money laundering reporting requirements in Mexico. However, the report does state that "A 2005 provision of the tax law requires real estate brokerages, attorney, notaries, accountants, and dealers in precious metals and stones to report all transactions exceeding U.S. $10,000 to the SAT, which shares that information with the UIF."

4. Legal Person and Arrangements & Non-Profit Organizations

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There is little information publicly available regarding Mexico's compliance with the recommendations of this principle. However, the 2008 U.S. DoS report indicates that "in 2006, nonprofit organizations were made subject to reporting requirements for donations greater than U.S. $10,000."

5. National and International Co-operation

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Per the 2005 IMF report, Mexico can provide mutual legal assistance in criminal matters in accordance with international treaties and conventions to which it is a party, and in cases where no treaty exists, Mexican courts can still sanction a mutual legal assistance, provided a regulatory request letter is given by a foreign court. Nonetheless, the 2005 IMF report concluded that "the lack of specific mutual legal assistance legislation inhibits Mexico's ability to provide timely and effective formal mutual legal assistance in money laundering and terrorist financing cases" (p. 7). Further, as reported by the 2005 IMF ROSC, Mexico does not have specific legislation addressing the enforcement of foreign confiscation orders, although confiscation may take place based on domestic proceedings, provided a conviction and confiscation order is issued in Mexico. According to the 2008 U.S. DoS report, requests for forfeiture of assets from criminal activity made by the U.S. authorities to the Mexican authorities have been rarely successful. The U.S. DoS report notes that there is a draft legislation pending in the Mexican Congress that would address the issue of enforcement of foreign confiscation orders.

Extraditions are possible in Mexico under the International Extradition Act (IEA), which, according to the IMF's 2005 report, "establishes the procedures for authorizing extradition pursuant to a treaty or when no bilateral extradition treaty applies" (p. 7). However, the IMF report noted that the IEA requires that a formal complaint be issued in the requesting country and may restrict the extradition process.

Mexico has entered into several bilateral treaties and has ratified several international conventions. The 2005 IMF report noted that Mexico had in place 17 bilateral treaties and was party to the Vienna and Palermo Conventions. Mexico is party to the UN Convention against Corruption, the UN International Convention for the Suppression of the Financing of Terrorism, and the Inter-American Convention against Terrorism. Mexico is a member of the FATF and the Financial Action Task Force for South America (GAFISUD). In addition, Mexico participates in the Caribbean Financial Action Task Force as a cooperating and supporting nation. The UIF is a member of the Egmont Group, and Mexico participates in the Organization of American States' Inter-American Drug Abuse Control Commission's Experts Group to Control Money Laundering.