Mexico pushes money laundering up the agenda

Mexico City

The US anti-drugs Merida Initiative, announced in late October, comes as Mexico struggles to get to grips with money laundering at smaller financial institutions and tackle its moribund legal system. The US initiative, through which Mexico’s northern neighbour pledges $1.4 billion of funds to fight drug running, underlined both Mexico’s readiness to tackle the problem under president Felipe Calderón and just how serious the problem has become. Mexico is now the undisputed drugs gateway into the US.

There has been a sea-change in mentality. Authorities have recovered drugs and this is perhaps the first ever time that Mexico is seriously fighting back against drug traffickers, says Alejandro Tovar, a senior compliance offer for Scotiabank Financial Group, Mexico. These attempts to tackle the problem have already unleashed a wave of violence as traffickers fight back.

Difficulties for authorities and banks in controlling laundering include the high use of cash in the economy. An emerging issue is the use of smaller financial institutions and non-financial institutions to launder. Traffickers have become more specialised and sophisticated as the government cracks down. That has seen a surge in laundering through smaller institutions, such as bureaux de change, over the last two years.

The Mexican government has belatedly realised it needs to change laws, but it’s questionable how fast and far change will be. It is seeking to amend money-laundering legislation that took a one-size-fits-all approach, covering everything from large multinational banks through to small institutions with complex risk management systems in mind by working on separate, simpler legislation for smaller institutions.

The Mexican Banking Association expects to be presented with the draft before the end of the year, with publication slated for the first or second quarter. The problem is that it is unclear just how much of a priority the issue is in Congress, says Tovar.

The other issue is the creaking judiciary. Mexico has put in place strict rules governing reporting times for unusual and suspicious activities from banks and the national financial intelligence unit has cleaned up its act in the last year with much stronger analysis. But cases still languish in the country’s slow court system and there are no plans to introduce a separate layer of specialised courts, as has been the case in other countries with similarly log-jammed legal systems.

For banks, the issue of money laundering from drug money has risen to pole position. “We know Mexico is a key entry point for drugs into the US from Colombia and the southern part of the country. We have had to improve our systems and particularly our KYC processes,” says Tovar. Still, the problem should be seen in context, cautions Tovar. “There’s lots of publicity regarding Mexico’s drug problem and the resulting violence and this generates the perception that money laundering is prevalent.” In fact, much of the money is laundered in the US and Colombia, says Tovar.

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