## cr17405-mexicodar ## Source details **Canonical URL:** [cr17405-mexicodar](https://www.imf.org/-/media/files/publications/cr/2017/cr17405-mexicodar.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17405-mexicodar.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17405-mexicodar.pdf.json) --- ### Overview - Onsite visit: February 28 to March 16, 2017. - Purpose: Summary of Mexico’s AML/CFT measures, assessment of compliance with FATF 40 Recommendations and effectiveness, and recommendations to strengthen the system. ### Key findings (executive) - Mexico has a mature AML/CFT regime with well-developed legal and institutional framework but faces significant ML risk from organized crime (drug trafficking, extortion), corruption, and tax evasion. - National Risk Assessment (NRA) finalized June 2016; actions taken but not sufficiently comprehensive or prioritized to ensure appropriate resource allocation at federal, state, and community levels. - Financial sector: good understanding of primary ML threats; DNFBPs’ (notably notaries, lawyers, accountants) appreciation of ML risks limited. - Beneficial ownership (BO) identification is limited; FIs unduly rely on customer self-declarations; DNFBPs generally do not identify BO. - FIU functions well, integrated large data sets, produces operational/strategic analysis; spontaneous disseminations to PGR are limited (see FIU section). - PGR historically did not prioritize ML investigations; ML investigations and prosecutions are reactive, parallel financial investigations rare; prosecutions and convictions for ML are very low. - Confiscation and forfeiture are not systematically pursued; provisional measures underused; FIU’s blocked persons’ list (BPL) used frequently but final confiscations are low relative to risk. ### ML/TF risks and context - Economy and demographics: - Economy: US$1.26 trillion (2015). - Population: 119.5 million (2015); approximately 76.5 percent urban. - Informal economy estimate: 23.6 percent of GDP (authorities’ preliminary estimate for 2015). - Main ML/TF threats: drug trafficking (including OCGs), corruption, tax evasion; other sources: kidnapping, extortion, IPR violations, human trafficking. - Cross-border and cash risks: - Large cross-border flows, significant cash circulation (pesos and US$). - U.S. dollar cash restrictions since 2010 reduced US$ cash transactions; Mexican pesos cash use increased. - Typical ML methods: shell/front companies to conceal BO, real estate purchases, high-value goods, bulk cash smuggling across U.S.–Mexico border. - TF risk: classified "low-medium." ### Overall effectiveness and technical compliance (summary) - Improvements since 2008 assessment; residual risks from organized crime, corruption, and tax evasion remain significant. - Strengths: - Strong legal/institutional framework for criminalization of ML/TF and financial intelligence. - Substantial results in risk understanding, TFS, and international cooperation. - Weaknesses: - Preventive measures: BO identification, STR quality/timeliness, DNFBP regulation/supervision, entity transparency. - Investigations/prosecutions of ML and confiscation require significant improvement. ### Effectiveness Ratings (selected) - IO.1 Risk, policy and coordination: Substantial - IO.2 International cooperation: Substantial - IO.3 Supervision: Moderate - IO.4 Preventive measures: Low - IO.5 Legal persons and arrangements: Moderate - IO.6 Financial intelligence: Moderate - IO.7 ML investigation and prosecution: Low - IO.8 Confiscation: Low - IO.9 TF investigation and prosecution: Moderate - IO.10 TF preventive measures and financial sanctions: Substantial - IO.11 PF financial sanctions: Substantial ### Technical compliance (selected) - R.1 – Assessing risk and Applying Risk-Based Approach: LC - R.6 – Targeted Financial Sanctions—Terrorism and Terrorist Financing: C - R.10 – Customer Due Diligence: PC - R.12 – Politically Exposed Persons: LC - R.24 – Transparency and BO of Legal Persons: PC - R.25 – Transparency and BO of Legal Arrangements: NC - R.35 – Sanctions: PC - R.37 – Mutual Legal Assistance: PC - R.39 – Extradition: LC ### Financial Intelligence Unit (FIU) — data, analysis, and dissemination - Since 2013 FIU integrated more than 650 million records from 71 sources related to around 14 million subjects. - FIU products: - Generated 7,473 notes of analysis (January 2013–December 2016) covering 17,094 subjects; 78 percent internal, 22 percent disseminated. - From 2010 to December 2016: PGR made 4,635 requests to FIU; after PGR direct access, PGR conducted 1,322 queries (2014–Dec 2016); SAT conducted 16,772 queries (2014–Dec 2016). - Reports and trends: - STR/UTR annual series (2010–2016): 74,538; 78,236; 88,504; 108,003; 148,949; 167,295; 213,330 (selected data points preserved). - Cash U.S. Dollar Transactions Reports (millions) 2010–2016: 4.6; 6.2; 5.9; 6.0; 6.6; 6.0; 5.7. - Cash Transactions Reports (millions) 2010–2016: 3.7; 5.5; 6.3; 4.8; 3.9; 4.4; 4.6. - Operational metrics: - From January 2013 to December 2016, FIU generated 508 responses to national authority requests covering transactions from 2,020 natural and legal persons. - FIU used 1,083,783 CTRs; 277,921 Notices of VA; 41,898 international transfer reports in responses. - Case analysis timelines (2016): Minimum 3 working days; Average 61; Maximum 213. - Disseminations to PGR: - From 2013 to June 2016, FIU disseminated 317 cases with the PGR related to ML involving Mex$233,987 million associated with requests for prosecution. ### FIU operational outcomes and notable cases - Best Egmont Case Award (2014) — network of 42 shell companies, 1,500 individuals; seizures included US$13.4 million across 39 bank accounts and one property approx. Mex$6 million; arrests and imprisonment of leader and collaborator; no convictions at time of report. - FIU–FinCEN cooperation: shared 138,297 reports since 2013; complemented investigations of 105 individuals in Mexico. ### ML investigations, prosecutions, convictions (PGR and LEAs) - Investigations initiated (annual): - ML investigations initiated: 2012: 531; 2013: 464; 2014: 415; 2015: 426; 2016: 438 (reported totals). - Investigations → prosecutions: - Investigations leading to prosecutions: 2010: 115; 2011: 108; 2012: 145; 2013: 111; 2014: 109; 2015: 76; 2016: 43. - FIU requests for prosecution (annual): 2010: 52; 2011: 39; 2012: 35; 2013: 84; 2014: 87; 2015: 109; 2016: 107. - Crimes identified in FIU requests (selected totals by year): - Drug-related crimes (2010–2016 counts): 24; 11; 5; 24; 29; 31; 15. - Tax offense requests (2013–2016): 7; 3; 22; 40. - Convictions and conviction rates: - ML prosecutions: 2013: 111; 2014: 109; 2015: 76; 2016: 43; Total: 339 (2013–2016). - ML prosecutions as autonomous offense (2013–2016): 8; 10; 2; 16; Total 36. - ML convictions (years): 2013: 40; 2014: 23; 2015: 34; 2016: 6. - Judicial statistics indicate extremely low conviction rates; NRA reports ML conviction rate fell from 20 percent to 5 percent (2010–2014). - Specialized units and capacity: - UEIORPIFAM and UEAF established; multiplicity of units causes coordination/evidence-sharing difficulties. - Resources appear insufficient relative to low outcomes. ### Confiscation, seizures, FIU blocking, and asset recovery - PGR seizures and confiscations: - PGR seized US$1.3 billion pursuant to 119 ML investigations; confiscated in relation to ML so far: US$934,965.40. - Assets recovered from abandoned seizures: US$7,943‚369.62 (0.61 percent of overall assets seized). - FIU BPL (2014–2016 aggregated): - Natural Persons designated: 609; Amount frozen Mex$ (millions) 1,672.1; Amount frozen US$ (millions) 18.0. - Legal Persons designated: 838; Amount frozen Mex$ (millions) 1,060.2; Amount frozen US$ (millions) 9.6. - Total US$ frozen (2014–2016 totals) by FIU: 22.84; 21.78; 129.96; Total 174.58 (US$ millions by year and total preserved as presented). - FIU sent 166 requests for prosecution after blocking accounts over last three years; PGR pursued only four prosecutions. - UEAF seizures and values (selected totals): - UEAF has seized approximately US$71,739,979.84 (reported aggregate). - UEAF confiscation achieved: Mex$1,890,000.00 (approximately US$102,106.97) derived from one case in 2016 (confiscation granted in 2017). - Aggregate seizure vs final confiscation (2013–2016): - From US$1.35 billion seized, only approximately US$14.5 million have been finally deprived (overall total in US$ 2013–2016: $3,910,821.47; $3,549,038.98; $2,869,994.41; $4,214,700.40; Total $14,544,555.27 — figures preserved as in source). - Observations: - Confiscation practice not commensurate with Mexico’s ML/TF risk profile; lack of defined national policy to pursue POC; judicial reluctance and capacity constraints limit confiscation outcomes. - Technical deficiencies in cross-border declaration regime impair pursuit/confiscation of falsely declared currency movements. ### Terrorist financing (TF) and targeted financial sanctions (TFS) - TF risk: assessed as "low-medium"; TF criminal framework in place (Articles 139 to 139 quinquies CPF); TF penalties: imprisonment 15–40 years and fine 400–1,200 days. - UEITA (specialized unit) exists but lacks protocols/manuals for prioritizing TF cases; investigations intelligence-based and rarely progress to criminal investigations. - TF prosecutions: none to date. - TFS framework: - Resolution January 2014 established comprehensive TFS system pursuant to UNSCRs 1267/1373/1718/1737. - FIU maintains BPL for financial sector and LPV for DNFBPs; supervisors notify reporting entities within 24 hours; reporting entities must freeze and report within 24 hours. - Mexico achieved substantial effectiveness for IO.10 and IO.11; private sector demonstrates understanding of freezing/reporting obligations though DNFBP supervision weak. ### Preventive measures, CDD, STRs, and DNFBPs - CDD and BO: - FIs generally implement basic CDD and record-keeping adequately, but BO identification is limited across sectors; for majority of legal persons not categorized high risk, only first-layer legal ownership is obtained. - Amendments to regulations in February/March 2017 (not in force at onsite) intended to extend BO identification obligations. - STR/UTR reporting: - Overall STR/UTR volumes increased; quality improved for banks but issues remain with timeliness and substance; DNFBP reporting very low. - Selected STR totals (by year totals preserved): 2014 UTR/STR 145,128; 24h Reports 4,076. 2015 UTR/STR 150,429; 24h Reports 5,113. 2016 UTR/STR 125,455; 24h Reports 8,043; Reports upon FIU Request 80,088. - STRs by sector (selected): Banks 2016 UTR/STR 61,008; 24h Reports 5,964; Money remitters 2016 UTR/STR 29,856; 24h Reports 966. - PEPs: - Foreign PEPs treated as high risk; domestic PEP treatment weak—FIs rate very small portion of domestic PEPs as high risk; DNFBPs not subject to PEP requirements. - DNFBPs supervision and coverage: - SAT supervises DNFBPs but is significantly under-resourced; SAT inspected less than 0.2 percent of entities under its remit in last three years. - Notaries: central gatekeepers; compliance weak in BO identification; large notary registration numbers: public notaries estimate 4,000+; number registered with FIU: 3,726. - Lawyers and accountants: large populations (~450,000 lawyers; ~600,000 accountants); AML/CFT registration low; no STRs filed by lawyers or accountants in past three years (at time of report). - Simplified accounts and financial inclusion: - Levels 1–3 accounts established with specified caps and safeguards; Level 1 cap 750 UDI (approx US$224) etc.; FIU found no misuse of Level 1/2 accounts; Level 3 not analyzed. ### Supervision, inspections, and sanctions - Supervisory agencies: CNBV, CNSF, CONSAR, SAT (DNFBPs and VAs). - CNBV: - Developed risk models (CEFER); AML/CFT risk accounted for seven percent of overall risk weighting. - Staffing: 82 full-time AML/CFT supervisors plus 17 temporary staff for ~3,300 institutions (about 2,000 medium- to high-risk). - Inspections (CNBV totals): 2014: 40 ordinary, 14 special, 5 investigation; 2015: 46 ordinary, 21 special, 0 investigation; 2016: 56 ordinary, 15 special, 2 investigation. - CNSF and CONSAR: inspection programs and specialist AML/CFT inspectors; CNSF 9 specialist AML/CFT inspectors; CONSAR inspects at least every two years. - SAT: - Responsibility for DNFBPs; limited resources: 16 officials for offsite/onsite oversight of approximately 64,000 entities at time of assessment. - Inspections May 2014–March 2017: Notaries 33; Purchase and sale of real estate 27; Gambling and lottery 15; DPMS 3; Professional services (lawyers and accountants) 0; Total 118. - SAT inspected less than 0.2 percent of entities for which it is responsible in the preceding three years. - Sanctions practice: - Remedial actions geared to financial penalties; historically low penalties under pre-2014 law; post-2014 higher maximums exist but effectiveness yet to be judged. - CNBV financial penalties (US$ equivalents): Offsite 2014: 1,537 sanctions total $2,921,937 avg $1,849; Onsite 2014: 7 sanctions $5,370,658 avg $767,236 (selected figures preserved). - SAT tends to apply minimum fines; revocation powers seldom used. ### Beneficial ownership, legal persons, and arrangements - Registers and access: - Two federal registers: RFC (all legal persons) and RPC (commercial legal persons); single federal register system fully operational only since September 2016. - Six states have backlog of pre-September 2016 companies not yet in federal registers: Michoacán, Nuevo Léon, San Luis Potosi, Sinaloa, Tamaulipas, and Ciudad de México. - No centralized BO register; BO identification limited and often relies on investigative techniques or international assistance. - Company formation and notaries: - Most legal person formation (except Sociedad por Acciones Simplificada partial online regime) requires notary or public broker; notaries must report new registrations to FIU since September 2013. - Notaries’ compliance with BO obligations weak; notaries cannot refuse incorporation if legal prerequisites met even if concerned about strawmen. - Fideicomisos (trusts): - Trustees must be FIs; assets under fideicomisos around Mex$7 trillion (one bank example: 9,400 fideicomisos managed by bank, only ~50 required RFC registration). - Registration mechanisms exist (RFC, Trust Control and Transparency System, Bank of Mexico Information Department) but not all trusts are required to register; access modalities to registries by FIU/LEAs unclear. - Legal persons transparency: - No general obligation for companies to maintain/update BO information; no specific sanctions for failure to maintain shareholder registers; any act not registered in books generally lacks legal validity. - Immediate Outcome 5: Mexico achieved moderate effectiveness for IO.5. ### International cooperation, MLA, and extradition - MLA and extradition framework generally solid; PGR (DGPI/DAJI) central authority for MLA/extradition. - MLA statistics (2010–2016): - Total MLA requests received: 1,236; Implemented as of January 2017: 1,022; Outstanding: 214. - MLA requests with ML component received: 155; Implemented: 117; Outstanding: 38 (alternative Mexican figures disputed). - ML-related MLA requests by country (selected): U.S. 34; Colombia 21; Spain 12; Honduras 19; Panama 10; Peru 17. - Mutual Legal Assistance limitations: - Policy preference to favor other forms of cooperation and use MLA “when strictly necessary” (effective with U.S. but limits broader MLA use). - Lack of formal case management system and guidelines for prioritizing foreign requests; reported execution times "between 5 and 12 months." - No statutory framework governing controlled deliveries or joint investigation teams; PGR not proactive in seeking MLA for transnational ML cases. - Extradition (2010–2015): - Government granted 689 extradition requests; 64 associated with ML; 531 persons actually extradited (22 for ML-related offenses). - FIU-to-FIU cooperation: - Active FIU exchanges (Egmont, FinCEN); average FIU-to-FIU response time 20–30 days; FIU signed 41 MOUs; FIU–FinCEN shared 138,297 reports since 2013. - Immediate Outcome 2: Substantial effectiveness for IO.2. ### Prioritized recommended actions (selected) - Prioritize ML investigations and allocate additional resources; strengthen financial investigation and internal coordination within prosecution units at federal and state levels; increase specialization in PGR units dealing with ML and corruption. - Integrate confiscation as a national AML/CFT policy objective. - Enhance STR quality via further guidance and increase FIU disseminations to support ML investigations. - Initiate parallel financial investigations where appropriate; provide PGR and Federal Police with training and technical expertise. - Improve FIs’ and DNFBPs’ (notaries, lawyers, accountants) understanding and management of corruption-related ML risks by deepening NRA analysis and extending PEP requirements to DNFBPs. - Strengthen BO measures by: extending BO identification requirements introduced in February/March 2017 amendments; discourage reliance on customer self‑declarations; ensure adequate, accurate, current BO information of Mexican legal persons/arrangements is available to competent authorities at the federal level. - Review resources for AML/CFT supervision with immediate attention to SAT which is significantly under-resourced. - Review financial penalties to ensure effectiveness, proportionality, and dissuasiveness, particularly for larger institutions; SAT should establish methodology to apply sanctions above minimum levels. - Ensure substantive CFT compliance inspections of DNFBPs by SAT or another competent authority. - Adopt legislative measures to broaden international cooperation capacity; establish a case management system for MLA/extradition; PGR to be more proactive on transnational ML investigations. ### Key statistics (selected exact figures preserved) - Mexico economy: US$1.26 trillion (2015). - Population: 119.5 million (2015). - Informal economy: 23.6 percent of GDP (2015 preliminary). - FIU database integration: more than 650 million records from 71 sources; about 14 million subjects. - STR/UTR yearly series (selected): 74,538; 78,236; 88,504; 108,003; 148,949; 167,295; 213,330 (2010–2016 data points). - Cash US$ Transactions Reports (millions) 2010–2016: 4.6; 6.2; 5.9; 6.0; 6.6; 6.0; 5.7. - FIU budget: Mex$69.6 million (2010) → Mex$185 million (2016). - FIU staff: 138 (2010) → 164 (2015) → 146 (2016). - PGR seizures: US$1.3 billion seized pursuant to 119 ML investigations; confiscated related to ML: US$934,965.40. - FIU disseminations to PGR (2013–June 2016): 317 cases; associated amount Mex$233,987 million. - UEAF seized approx. US$71,739,979.84; confiscation achieved Mex$1,890,000.00 (approx US$102,106.97). - DNFBP numbers (selected): Notaries ~4,000+ (estimate); Notaries registered with FIU: 3,726; Lawyers ~450,000; Accountants ~600,000. - FIs (Table 1 assets in millions of pesos as of December 2015, selected): - Banks: 44; 7,699,658; AML/CFT Supervisory Authority: CNBV. - Development banking institutions: 6; 1,547,177. - Insurance companies: 102; 1,164,846; AML/CFT Supervisory Authority: CNSF. - Retirement fund administrators: 11; 2,550,896; AML/CFT Supervisory Authority: CONSAR. - SAT inspections May 2014–March 2017: Notaries 33; Purchase and sale of real estate 27; Professional services (lawyers and accountants) 0; Total SAT inspections: 118. _International Monetary Fund — cr17405-mexicodar (excerpt)._ ### EXECUTIVE SUMMARY __________________________________________________________________________ 9 ### EXECUTIVE SUMMARY ### Overview - This report provides a summary of the anti-money laundering/combating the financing of terrorism (AML/CFT) measures in place in Mexico as at the date of the onsite visit (February 28 to March 16, 2017). - It analyzes the level of compliance with the Financial Action Task Force (FATF) 40 Recommendations and the level of effectiveness of Mexico’s AML/CFT system, and provides recommendations on how the system could be strengthened. ### Key Findings - 1. Mexico has a mature AML/CFT regime, with a correspondingly well-developed legal and institutional framework. There has been a significant improvement in some areas of the country’s AML/CFT regime compared to that which existed when the country was last assessed in 2008. It is nonetheless confronted with a significant risk of money laundering (ML) stemming principally from activities most often associated with organized crime, such as drug trafficking, extortion, corruption, and tax evasion. - 2. Most of the key authorities have a good understanding of ML and terrorist financing (TF) risks, and there is generally good policy cooperation and coordination. Mexico finalized its national risk assessment (NRA) in June 2016 and has since taken some high-level actions to mitigate the risks identified in the NRA. These actions—although leading to some concrete results—have not been sufficiently comprehensive nor prioritized to have resulted in an appropriate allocation of resources at the federal, state, and community levels. A national strategy is being developed based on the NRA findings. The success of these measures will depend on their proper implementation. - 3. The financial sector demonstrates a good understanding of the primary ML threats from organized crime groups and associated criminal activities as well as tax crimes, but the recognition of corruption as a main threat is uneven. While recognizing the general threat of organized crimes facing Mexico, designated non-financial businesses and professions’ (DNFBPs) appreciation of the ML risks appears limited. Financial institutions’ (FIs) and DNFBPs’ understanding of more complex ML techniques, such as the misuse of legal persons, is limited. - 4. Financial intelligence and other relevant information are made available by the financial intelligence unit (FIU) and accessed on a regular basis by competent authorities. Although the FIU functions well and is producing good financial intelligence, the volume of financial intelligence disseminated to the Procuraduría General de la República (PGR) is limited in number resulting in a low number of financial investigations. - 5. Until relatively recently, the PGR did not rank the identification and investigation of ML as one of its key priorities. ML is not investigated and prosecuted in a proactive and systematic fashion, but rather on a reactive, case-by-case basis, notwithstanding the fact that some high-profile investigations have recently been conducted. In view of the serious threats posed by the main predicate offenses (e.g., organized crime or drug trafficking), the competent authorities seem to accord far more priority to the investigation of such offenses than to ML. Consequently, the number of prosecutions and convictions for ML are very low. Significant shortcomings were found in the way in which ML cases are investigated. Specifically, only very rarely are parallel financial investigations conducted and ML is seldom prosecuted as standalone offense. The level of corruption affecting law enforcement agencies (LEAs), in particular at the state level, undermines their capacity to investigate and prosecute serious offenses. - 6. Confiscation of proceeds and instrumentalities is not systematically pursued as a policy objective, and not commensurate with the ML/TF risks. The provisional measures available to the authorities are not being used properly and in timely manner, except for the use of FIU’s blocked persons’ list (BPL). Suspicious and falsely declared cash is not being adequately confiscated. *International Monetary Fund — EXECUTIVE SUMMARY (onsite visit: February 28 to March 16, 2017).* ### 7. Overall, Mexico has a solid institutional and legal framework in place to investigate and ### 7. Overall, Mexico has a solid institutional and legal framework in place to investigate and prosecute TF and impose targeted financial sanctions (TFS) ### Institutional and legal framework — overall findings - Mexico has a solid institutional and legal framework to investigate and prosecute TF and impose TFS. - Authorities have provided financial institutions (FIs) with red flags to detect potential TF cases, and the FIU has conducted some analysis related to TF. - Gap: Relevant authorities need better tools in training, expertise, and priority setting to effectively detect and disrupt TF. ### Beneficial ownership (BO) — key shortcomings - Beneficial owners are being identified only to a limited extent, systematically weighing on entities’ effectiveness in assessing and managing ML/TF risks. - Shortcomings in the legal framework lead FIs to seek to identify beneficial owners in only limited circumstances (authorities promulgated amendments to regulations which they claim will address this gap but these were not in effect at the time of the onsite visit). - Where FIs are required to identify beneficial owners (legal persons categorized as high risk and natural persons), FIs unduly rely on customers’ self-declaration. - For the majority of legal persons that are not categorized as high risk, FIs need only obtain information on corporate customers’ first layer of legal ownership without seeking to reach the natural persons who ultimately own or control the entity. - DNFBPs generally believe it is not their role to identify beneficial owners. ### Risks and general situation - Amount of proceeds generated by predicate crimes committed in and outside of Mexico is high (NRA and open source documents). - Main domestic proceeds-generating crimes divided into three tiers of magnitude: (i) domestic organized crimes, including drugs and human trafficking, (ii) corruption, and (iii) tax evasion. - Mexico faces particular risks related to laundering proceeds derived from foreign predicate crimes related to Mexican transnational organized crime (e.g., in the U.S., and to a much lower degree South and Central America). - Banks are most at threat; brokerage firms and DNFBPs (notably notaries and real estate agents) are also exposed. - Typical ML methods: use of shell and front companies to conceal BO, purchase and sale of real estate and high-value goods, cash smuggling across the U.S.–Mexico border. - Bank of Mexico analysis: restrictions on FIs receiving cash in U.S. dollars resulted in a significant decrease in the volume of U.S. dollars cash-in and cash-out of the financial system; use of Mexican pesos as cash has increased. - Risk of TF appears to be relatively low; authorities and private sector classify overall TF risk as "low-medium." ### Overall level of effectiveness and technical compliance - Mexico’s AML/CFT regime has significantly improved since its last assessment in 2008. - Significant residual ML risk principally from organized crime (drug trafficking, extortion), corruption, and tax evasion. - Strong legal and institutional framework for combating ML/TF and proliferation financing (PF), particularly on criminalization of ML and TF and financial intelligence. - Weaknesses in key preventive measures: identification of beneficial owners, suspicious transaction reporting, regulation and supervision of DNFBPs, and entity transparency. - Effectiveness: substantial results in understanding and combating risks, TFS, and international cooperation; more significant improvements needed in investigation and prosecution of ML, and confiscation. ### Assessment of risks, coordination, and policy setting - NRA concluded in June 2016 with involvement of all competent authorities and private sector; developed with technical assistance of Inter-American Development Bank and following FATF guidance. - NRA relies more on FIU information than law enforcement information; did not properly reflect magnitude of vulnerability from absence of readily available and accurate BO information, nor assess risks posed by each type of legal person. - FIU, LEAs, and SAT have independently conducted analyses of companies at higher risk of being misused for ML/tax evasion. - Mexico developing a national strategy based on NRA findings; two high-level groups created in November 2016 for coordinated AML/CFT policy and actions. - Actions taken: new AML/CFT regulations, improved agency coordination, feedback to FIs and DNFBPs. However, actions not sufficiently comprehensive nor prioritized to ensure appropriate allocation of resources at federal, state, and community levels. - Implementation constrained by lack of capacity (e.g., SAT) and high turnover of senior officials. - Coordination: generally good on ML between FIU, PGR, and supervisors; less so between LEAs and PGR. Coordination on TF issues is less developed. - No sectors exempted from AML/CFT requirements; authorities have added vulnerable activities beyond the standard (e.g., car dealers). - Financial sector closely involved in NRA development; DNFBP involvement more limited. Extensive outreach by FIU and supervisors to communicate NRA results. ### Financial intelligence, money laundering investigations, and confiscation - Competent authorities at federal, state, and local levels regularly receive and access a wide range of financial intelligence from the FIU. - FIU produces good operational and high quality strategic analyses; several competent authorities have direct access to the FIU database. - However, financial intelligence is not regularly used to support ML/TF investigations and trace assets; FIU spontaneous disseminations to the PGR related to ML and underlying offenses are generally low. - Factors impeding ML investigations and asset tracking: (i) lack of reporting by DNFBPs, delays in FIU disseminations, deficiencies in cash couriers' regime; (ii) lack of BO information at federal and state levels; (iii) lack of skills of the PGR and LEAs. - Institutional framework exists to investigate ML and predicate offenses, but authorities accord far more priority to predicate offense investigations than ML. - Two specialized units established within the PGR to undertake ML investigations at the federal level; no equivalent at state level. Multiplicity of units causes coordination and evidence-sharing difficulties. - Financial and human resources (including specialized training) allocated to these units do not appear sufficient given extremely low results in investigations, prosecutions, and convictions. - Corruption at LEAs, particularly state level, undermines capacity to investigate and prosecute serious offenses. - Low conviction rate indicates deficiencies in initiation and conduct of investigations (e.g., investigations opened without sufficient reasonable grounds; deficiencies in methodology and financial investigation; overly long procedures; lack of internal coordination). - Very rarely is a parallel ML investigation conducted when investigations into predicate offenses are initiated. - Proceeds and instrumentalities of crime are rarely confiscated and not pursued as a policy objective. - FIU has worked to improve timeliness of provisional measures via the BPL system. - Technical deficiencies in cross-border declaration system impair targeting and confiscation of falsely declared cross-border movements of currency. - Number of confiscations is very low given Mexico’s risk profile. ### Terrorist financing (TF) and proliferation financing (PF) - Authorities and private sector understand TF risks, classified as "low-medium"; main focus on STRs involving high-risk jurisdictions. - Institutional framework to investigate and prosecute TF exists, including Specialized Unit on Terrorism, Arms Stockpiling, and Trafficking (UEITA). - UEITA lacks protocols or manuals containing guidelines for clear identification and prioritization of potential TF cases. - Investigations by UEITA are based on intelligence gathered by FIU or civil intelligence agency and generally do not proceed to initiation of criminal investigations. - Absence of TF cases results in lack of experience within prosecuting body, diminishing capacity to identify and investigate TF using criminal procedure law. - TF is not an offense for which legal persons may be held criminally liable under Mexican law. - Mexico has a solid legal and regulatory framework for implementing TFS related to TF and PF; FIs and DNFBPs demonstrated understanding of freezing and reporting obligations. - System to detect, freeze, and report assets related to ML (same system for TFS) appears to be effective, though no positive matches for TF or PF have been identified. - Weak supervision of DNFBPs raises concerns over compliance in the non-financial sector; BO deficiencies may impact detection of sanctions evasion. - Mexico has yet to implement a risk-based system for targeted monitoring of its non-profit organization (NPO) sector; authorities have conducted a revised risk assessment and are reviewing NPO regulations. ### Preventive measures and reporting - Core FIs demonstrate good understanding of primary ML threats from organized crime; recognition of corruption as a main threat is uneven. - DNFBPs did not demonstrate adequate appreciation of ML risks and have limited understanding of complex ML techniques (e.g., misuse of legal persons) and TF risks. - FIs and most DNFBPs generally understand AML/CFT obligations including customer due diligence (CDD), record keeping, and reporting. Quality of basic CDD measures and record keeping of FIs appears good in general but impacted by technical deficiencies. - Lawyers and accountants have a lower level of awareness of AML/CFT obligations. - All sectors appear to be identifying customers, but BO identification is limited (see Beneficial ownership section). - Core FIs’ methodologies for customer risk categorization are not robust; FIs only rate a very small portion of domestic politically exposed persons (PEPs) as high risk. - DNFBPs are not subject to requirements to identify foreign or domestic PEPs; risks posed by domestic PEPs are managed only to a limited extent. - Quality of STRs has generally improved over past few years, but concerns remain about substance, timeliness, and low level of reporting by DNFBPs. - Basis of reporting obligations of FIs is somewhat blurred between suspicious and unusual transactions; unusual transaction reports (UTR)/STR reporting by large FIs is not always prompt. - Reporting by DNFBPs is generally poor in both quantitative and qualitative terms; lawyers and accountants have not filed a single STR in the past three years. ### Supervision - Financial sector supervisors have a good understanding of risks within their sectors and have developed sound models to differentiate risks between institutions. - Supervisors have adopted risk-based approaches to annual onsite inspection programs; inspectors increasingly identify key areas of risk and engage with institutions on those aspects. - Oversight of DNFBPs is less developed and significantly under-resourced. - SAT employs an AML risk model but is significantly under-resourced and, within the last three years, has inspected fewer than 0.2 percent of the entities for which it is responsible. - SAT has no authority to monitor for CFT compliance. - Generally, sanctions have not been applied, to date, in an effective, proportionate and dissuasive manner. *Source: cr17405-mexicodar (IMF).* ### 39. Sanctions are not being applied in an effective, proportionate, and dissuasive manner. ### 39. Sanctions are not being applied in an effective, proportionate, and dissuasive manner. ### Application of sanctions and remedial framework - Financial supervisors have a number of remedial actions available, but the system is geared very much towards the application of financial penalties for non-compliance with specific obligations. - Due to the extended time lag in achieving a final resolution with the institutions, the majority of sanctions applied up to end-2016 were based on pre-2014 provisions, under which the penalties were extremely low. - The current legislation potentially provides for more stringent penalties, but the extent to which they will result in more proportionate and dissuasive sanctions (especially for the larger institutions) can only be judged in due course. ### Outreach and supervised sectors - Supervisors, often in cooperation with the FIU, have made welcomed efforts to conduct outreach to the regulated sectors. - The financial sector considers that outreach has significantly improved their understanding of their obligations. - Virtually all outreach to the DNFBPs has been undertaken by the FIU rather than the SAT, focusing primarily on reporting obligations, and also addressing the results of the NRA, typologies, and red flag indicators. ### Transparency of legal persons and arrangements (Chapter 7—IO.5; R.24–25) - Definitions and creation processes: - The different types, forms, and basic features of legal persons and arrangements are defined in the Mexican law, and the processes for their creation are described at official government websites. This is public information and can be accessed on the Internet. - NRA treatment and risk understanding: - The NRA does not specifically differentiate risks associated with different types of legal persons, although it mentions that using front companies is one of the most widespread ML techniques. - LEAs, the FIU, and SAT appear to have a good understanding of the risks related to the misuses of the legal persons and arrangements for criminal purposes. - Authorities report the most widespread phenomenon is the misuse of shell and front companies to perpetrate predicate offenses such as self-dealing, embezzlement, and tax evasion, and to invest illicit proceeds from organized criminality and corruption in real estate, restaurants, shops, and other businesses in Mexico, the U.S., or other foreign jurisdictions. - There appears to be a not insignificant risk of the misuse of fideicomisos (trusts), although all fideicomisos have to be registered in one way or another. ### Safeguards and limitations on misuse - Protective measures in place: - Bearer shares, nominee shares, and nominee directors are not allowed in Mexico. - Formation of all types of legal persons (with one exception) has to be conducted through either public notaries or public brokers, who are subject to AML/CFT requirements, including CDD and record-keeping and immediate reporting of this information to the FIU. - In the case of fideicomisos, the trustees can only be FIs, which are subject to full range of AML/CFT obligations. - All fideicomisos have to be registered either in the Registro Federal de Contribuyentes (RFC), or Trust Control and Transparency System, or Information Department of the Financial System of the Bank of Mexico. - Effectiveness limitations: - These measures, however, are effective only to a limited extent to address the risks of misuse of legal persons and arrangements. ### Company records, registers, and beneficial ownership (BO) - Share transfers and records: - There is no obligation to involve a notary when transferring shares in the company if there is no change in the constituting documents, and there is no change in the capital. - The administration of the legal person is legally required to keep a record on the books of any transferring of shares. This impacts the ability of competent authorities to obtain up-to-date information regarding legal ownership of companies in a timely manner. - Federal registers and backlog: - The current system of single registers at the federal level (i.e., Registro Público de Comercio—RPC and RFC) has been fully operational only since September 2016. - There are six states (Michoacán, Nuevo Léon, San Luis Potosi, Sinaloa, Tamaulipas, and Ciudad de México) where there is a backlog of companies created before September 2016 that have not yet been entered into the single federal registers. - Where a legal person has not yet been entered in the RFC/RPC, it may take up to a week for the authorities to retrieve information. - Notaries and BO compliance: - The level of compliance with BO obligations among notaries remains weak. - Given that notaries are central to ensuring the accuracy and authenticity of information submitted to the federal registers, weak compliance raises questions regarding the accuracy of that information. - Identification of BO and sanctions: - To identify BO, authorities often rely on investigative techniques or international assistance, which are time-consuming and do not ensure timely access to BO information. - There are no specific sanctions foreseen for failure to maintain a register of shareholders or members and update it accordingly (for legal persons); however, any act that is not registered in the books of the legal entity will not have legal validity. - Sanctions available with regard to notaries and the financial institutions that act in the trustee capacity are not applied effectively. ### International cooperation (Chapter 8—IO.2; R.36–40) - Legal framework and practice: - Mexico has a solid legal and institutional framework in place to seek and provide MLA as well as for extradition. - Authorities frequently rely on other forms of international cooperation to exchange information with other countries. - Policy approach and shortcomings: - Mexico has decided as a policy matter to strengthen and favor other forms of cooperation while only pursuing MLA “when strictly necessary.” This strategy has produced substantial results with the U.S. - The effectiveness of MLA is hampered by: - the lack of specific guidelines for prioritizing foreign requests; and - the lack of legal provisions governing controlled deliveries and joint investigation teams. - As regards seeking MLA from other countries, the main shortcoming is that the PGR is neither proactive nor seems to accord a high priority to pursuing MLA when the offense has a transnational element and evidence or assets are located abroad. ### Prioritized recommended actions for Mexico - Prioritize the investigation of ML and allocate additional resources; strengthen financial investigation and internal coordination within the prosecution units, at the federal and state level. In parallel, the PGR should increase the level of specialization of its units, particularly within those dealing with ML and corruption. - Integrate confiscation as policy objective within the national AML/CFT policies. - Enhance the quality of STRs by providing further guidance to reporting entities, and increase FIU disseminations to support ML investigations. - Initiate parallel financial investigations in accordance with Mexico’s ML/TF risks; provide training and technical expertise to PGR and Federal Police. - Improve FIs’ and DNFBPs’ (in particular notaries, lawyers, and accountants) understanding of ML risks from corruption and their ability to manage such risks by: - deepening the NRA analysis of corruption as an ML threat; - requiring entities to determine whether a beneficial owner is a PEP and apply controls in line with the standard; - extending the requirements on PEPs to DNFBPs; and - providing guidance on assessing and managing risks associated with domestic PEPs. - Strengthen measures on BO by: - extending the requirements on identifying beneficial owners including those of legal persons introduced in the February/March 2017 amendments to the entities that are not covered; - engaging all FIs and DNFBPs (in particular, notaries, lawyers, and accountants) to clarify supervisory expectations regarding the requirements on beneficial owners, and providing guidance on best practices; - discouraging the undue reliance on customers’ self-declarations; and - ensuring that adequate, accurate, and current BO information of Mexican legal persons and arrangements is available to competent authorities in a timely manner, by requiring that such information be obtained at the federal level. - Review the resources applied to AML/CFT supervision in light of the risk profiles emerging from models developed by the supervisors; immediate attention should be applied to the SAT, which is significantly under-resourced by any measure. - Review the financial penalties available to supervisors to establish whether they can realistically be applied in a manner that is effective, proportionate and dissuasive, especially in relation to larger financial institutions. - Immediate action should be taken by the SAT to establish a methodology for applying sanctions other than at the minimum level provided under the law. - Ensure that the DNFBPs are subject to substantive CFT compliance inspections by either the SAT or another competent authority. - Adopt the necessary legislative measures to allow Mexico to provide the widest possible international cooperation. - Establish a case management system to facilitate the follow-up of both passive and active requests for assistance and adopt proper guidelines describing how requests should be prioritized. - The PGR should take a more proactive approach to ML investigations that have a transnational dimension. ### Effectiveness and technical compliance ratings (selected) - Effectiveness Ratings (High, Substantial, Moderate, Low) - IO.1 Risk, policy and coordination: Substantial - IO.2 International cooperation: Substantial - IO.3 Supervision: Moderate - IO.4 Preventive measures: Low - IO.5 Legal persons and arrangements: Moderate - IO.6 Financial intelligence: Moderate - IO.7 ML investigation and prosecution: Low - IO.8 Confiscation: Low - IO.9 TF investigation and prosecution: Moderate - IO.10 TF preventive measures and financial sanctions: Substantial - IO.11 PF financial sanctions: Substantial - Technical Compliance Ratings (selection) - R.1 – Assessing risk and Applying Risk-Based Approach: LC - R.6 – Targeted Financial Sanctions—Terrorism and Terrorist Financing: C - R.10 – Customer Due Diligence: PC - R.12 – Politically Exposed Persons: LC - R.24 – Transparency and BO of Legal Persons: PC - R.25 – Transparency and BO of Legal Arrangements: NC - R.35 – Sanctions: PC - R.37 – Mutual Legal Assistance: PC - R.39 – Extradition: LC ### ML/TF risks and context (high-level points) - Mexico has a US$1.26 trillion economy (2015), making it the fifteenth largest economy in the world, and the second in Latin America. - Population estimated at 119.5 million (2015), approximately 76.5 percent lives in urban areas. - Main ML/TF threats identified: drug trafficking (including in the context of organized crime groups), corruption, and tax evasion. - Other significant sources of laundered funds: kidnapping, extortion, intellectual property rights violations, and human trafficking. - Large amounts of proceeds of crime generated in foreign jurisdictions (e.g., the U.S. and possibly Central America) could be flowing into Mexico through international wire transfers or in cash. - Mexico is a major transit country for cocaine and heroin, and a source country for heroin, marijuana, and methamphetamine destined for the U.S. - Official data shows that the amounts have decreased significantly after strict U.S. dollar cash restrictions were established for the Mexican financial system in 2010. *Source: cr17405-mexicodar - 39. Sanctions are not being applied in an effective, proportionate, and dissuasive manner.* ### 57. POCs are laundered in Mexico through a diverse set of methods and using multiple ### 57. POCs are laundered in Mexico through a diverse set of methods and using multiple ### Methods and channels of money laundering (ML) - Organized Crime Groups (OCGs) rely on: - bulk cash smuggling in both directions of the U.S.–Mexico border; - traditional bank and wire transfers; - trade-based ML schemes, particularly since Mexico placed restrictions on FIs for receiving U.S. cash in 2010. - OCGs accumulate property of all types in Mexico and abroad: money and foreign currency, vehicles, weapons, jewelry, urban and rural properties used as safe houses, and licit businesses (including via shell companies). - Significant cash use occurs in economic sectors including trading companies, restaurants, hotels, nightclubs, and building and transport companies. - POC from other jurisdictions can be laundered in Mexico; the NRA shows 114 requests from 20 countries for international legal assistance concerning ML crimes (including Colombia, Panama, Peru, Honduras, and the U.S.). ### Corruption, tax evasion, and predicate offenses - Corruption: - Corruption is both a source of illicit proceeds (POC) and an enabler of ML and its predicate offenses. - Some OCGs can bribe or intimidate authorities, particularly at state and local levels and, to a lesser extent, at the federal level. - Mexico ranked 95 in Transparency International’s 2015 perception of corruption index. - For OECD comparisons: on a scale of 1 to 5 (1 being “not at all corrupt” and 5 being “extremely corrupt”), Mexico ranked 3.8 and was ranked the most pervasive among OECD countries (OECD Economic Surveys Mexico Report; January 2015). - World Justice Project Rule of Law Index (absence of corruption): Mexico ranks 24 out of 30 in its regional group and 32 out of 37 in its income group. - The NRA recognized “perception of corruption” as highly vulnerable to ML but failed to assess corruption’s full significance as a main ML threat. - Tax evasion: - Tax collection is low, though it has increased in recent years; deficiencies in the judicial system have led to few convictions and incarcerations for tax fraud. - A study commissioned by the SAT estimates tax evasion and tax avoidance at Mex$483,875 million (equivalent to US$23,341 million approximately based on current exchange rate) in 2012. - SAT published lists in December 2015 identifying suspected non-existent transactions valued at 442,954 million pesos linked to 63,000 companies; authorities attributed revenue effects exceeding 3,448 million pesos. - Terrorist financing (TF): - TF risks appear much lower than ML risk. There are no known international terrorist organizations operating in Mexico. - Media reports claiming terrorist training camps (most recently April 2015) were found unsubstantiated. - Neighboring foreign authorities do not consider terrorist illegal border crossing an imminent or significant threat within Mexican borders. - The NRA concludes the potential existence of national terrorists or implantation of terrorist cells, the possibility of large funds being raised to finance terrorism, and the existence of foreign terrorist fighters in Mexico is a low risk. ### ML/TF vulnerabilities in the financial and non-financial sectors - Financial sector characteristics and risks: - Regionally well-connected financial sector, a sophisticated regulatory framework, and a large cash-based economy pose significant AML/CFT challenges. - The seven largest banks (the G-7) present the highest ML risk; they account for about 80 percent of total bank assets. - G-7 banks feature product and service risk characteristics (cash transactions, exchange transactions, domestic and foreign transfers, transactions through commission agents allowing at least one party to not be identified). - G-7 banks have a high percentage of CTRs, STRs, and U.S. dollar CTRs involving transactions in high predicate-offense areas (e.g., the northern border). - Quarterly cross-border wire transfer reports (TIF) show a high percentage involving high-risk foreign jurisdictions. - Other vulnerable channels: - Brokerage firms (offering money/value transfer services and handling large amounts of cash in U.S. dollars) and various money service providers (exchange houses, exchange centers, and money transmitters) are high risk. - Economy and structural vulnerabilities: - Informal economy estimated at 23.6 percent of GDP (Authorities’ preliminary estimates for 2015). - Low financial inclusion, weak border controls, and high-volume smuggling of U.S. dollars complicate detection of criminal vs. licit flows. - Proliferation of cash and reluctance of certain people to use the financial system are significant vulnerabilities. - Criminal justice outcomes: - Confiscation and conviction rates appear to be low; currency seized and convictions seem low relative to Mexico’s exposure to drug and organized crime ML. ### National Risk Assessment (NRA) process, findings, and limitations - NRA process: - Mexico’s first NRA concluded in June 2016 after a two-year government-wide ML/TF risk assessment exercise. - The process was led by the FIU with participation from lawmakers, supervisors, Banco de México, INEGI, intelligence services, LEAs, and the PGR. - The NRA used suspicious and threshold transaction reports as key quantitative data and benefited from private sector consultations. - Credibility and coverage: - Background information used was credible and factual; focused on ML risks from criminal activities mainly inside the country, sectors affected, and economic consequences of ML/TF. - The assessment relied heavily on FIU information; supervisory authorities provided hard data for regulatory/supervisory sections. - Shortcomings identified: - NRA focused on “perception of corruption” and measures to tackle corruption but failed to assess corruption’s full significance as a main ML threat. - Risks posed by legal persons and arrangements were not fully discussed. - NRA could better reflect ML/TF trends and typologies used in the large informal economy (e.g., trade-based ML). - Mexico could improve analysis on amounts of POC generated abroad and laundered in/through Mexico (notably from Central America and the Caribbean), and analyze corruption-related ML risks with more clarity and depth. ### Scoping of higher-risk issues examined by assessors - Areas warranting focused attention: - Banking sector (especially G-7) as highest ML risk given threats of drug trafficking, corruption, and tax evasion; examine correspondent banking, mitigation strategies, U.S. dollar use, and trade-based ML. - Brokerage firms and money service providers: assessment of ML/TF risk appreciation, mitigation, and controls. - AML/CFT supervision quality for G-7 banks, brokerage firms, MVTS, and commercial bank institutions. - Prevention of misuse of companies and access to beneficial ownership (BO) and control information by competent authorities. - Placement of cash (including U.S. cash smuggled into Mexico) into the financial system and efforts to address associated risks. - Measures by authorities (LEAs, prosecutor’s office, judiciary) and international cooperation to increase ML convictions and confiscations of POC. - Coordination between financial inclusion policies and AML/CFT measures, given Mexico’s efforts and leading role in promoting financial inclusion. - Areas of lesser risk and attention: - Insurance sector assessed as possible lower ML/TF risk. - Some obliged sectors identified by the NRA as lower ML risk: Public Trust Providers, property leasing, prepaid cards, transportation and custody of cash and valuables, receipt of donations, professional services, and monetary value storage instruments. ### Materiality and structural context - GDP and sectoral composition: - GDP at market price in 2015: Mex$18,127,177.52. - Sectoral shares: primary 3.61 percent, secondary 32.7 percent, tertiary 63.62 percent. - Mexico ranked fifteenth worldwide by GDP size in 2015. - Currency and financial sector: - In 2013, the peso held the eighth place among the most transacted currencies in the world and was the most transacted currency in emerging countries (Bank for International Settlements). - Financial sector assets amounted to 90 percent of GDP in 2015; over half were commercial banking assets. - Development banks reached around 10 percent of financial sector assets by end-2015. - Pension funds, mutual funds, and insurance companies account for 30 percent of financial sector assets. - Non-deposit-taking FIs (SOFOMES), savings and credit institutions, and deposit warehouses are small but important for microfinance and financial inclusion. - DNFBPs: - All types of DNFBPs are present; largest sector by assets is vehicle dealers, followed by real estate dealers and precious metals and stones dealers. - Cash circulation and U.S. dollar flows: - Large circulation of physical cash (pesos and US$) is a concern. - Considerable reduction in transactions with U.S. dollars from 2007 to 2014, but surplus and export of U.S. dollars continue to be significant (US$5 billion in 2014). - From 2010 to 2014, SHCP issued AML/CFT regulatory modifications to limit collection of U.S. dollars in affected sectors. - Recent increase in use of Mexican pesos: Mexican pesos grew at an average annual rate of 13.2 percent, whereas the rate for transfers was 5.7 percent. - Structural elements and rule of law: - Some key structural elements for effective AML/CFT controls do not appear fully present: political and institutional stability exist, but accountability and rule of law are relatively weak. - Mexico has reformed its criminal judicial system from a written to an oral “adversarial” system; the new system is fully operational for state-level offenses in all states, with shortened investigation stages, but prosecution and LEAs still need to adapt to new procedural requirements. *Source: IMF mission summary of Mexico NRA and ML/TF vulnerability analysis (excerpt).* ### 76. Corruption is one contextual factor that may significantly influence the effectiveness of the ### cr17405-mexicodar - 76. Corruption is one contextual factor that may significantly influence the effectiveness of the ### Corruption and contextual risks - Corruption is an enabler of ML and its predicate offenses. - Traditionally weak criminal justice system contributes to a public sector perceived as being highly corrupt at least at the state and local levels. - Institutional weaknesses exist in local security forces in areas that are hubs for organized crime (e.g., Veracruz, Baja California Sur, Sinaloa, and Jalisco). - Authorities are concerned about the need to reduce OCGs’ capability of bribing or intimidating authorities, particularly at state and local levels and, to a lesser extent, at the federal level. - Laws of the National Anti-Corruption System enacted on July 18, 2016: - Create an Anti-Corruption Prosecutor and specialized anti-corruption courts. - Extend anti-corruption obligations beyond the federal level to include all levels of government. - Oblige Mexican states to implement their own local anti-corruption systems. - Implementation is identified as the key to real change and to supporting the effectiveness of the AML/CFT regime. ### Informality - Informality is uneven across sectors: commerce—44 percent, manufacturing—23 percent, construction—11 percent. - Fifty-seven percent of workers have an informal employment relationship. - A majority of small businesses still operate in the informal sector. - Government actions to address informality: - Creation of a new tax regime for micro- and small enterprises to promote formalization of the workforce. - A comprehensive 2014 strategy to “Go Formal,” which pools benefits and resources of different programs and strengthens inspections regarding social security obligations. - The NRA identified high use of cash and a relatively large informal economy as significantly increasing the risk that illicit proceeds may be re-channeled into the regulated formal economy. ### Financial inclusion - Financial inclusion remains high on the authorities’ agenda. - According to the latest FSAP, only 29 percent of the poorest Mexican population have an account, compared to an average of 41 percent in Latin America. - Introduction of Levels 1, 2, and 3 accounts aims to balance promoting financial inclusion and managing ML/TF risks. ### AML/CFT strategy and progress - Since the 2010 AML/CFT Strategy, Mexico has: - Issued or amended several laws and regulations to criminalize ML/TF consistent with the FATF standard. - Improved the efficiency of prevention and combating of ML. - Established necessary obligations for FIs (including financial supervisory and CDD requirements). - Incorporated DNFBPs and other risky businesses and professions into the AML/CFT regime. - Established an asset freezing regime for terrorists, TF, and ML. - Improved national coordination of agencies. - Enhanced the effectiveness of the judicial and anti-corruption system. - Following conclusion of the NRA in June 2016, Mexico is finalizing a revised national strategy to address identified ML/TF risks. ### Legal and institutional framework - ML and TF are federal crimes; federal authorities directly participate in prevention and combat, with possible collaboration from state or municipal authorities within their competence. - National authorities participating in AML/CFT prevention and fight include multiple ministries, agencies, and law enforcement and operational bodies. ### Ministries and key roles - Ministry of Finance and Public Credit (SHCP): - Issues AML/CFT regulations applicable to FIs and other obligated businesses; supervises through its decentralized bodies; receives and analyzes reports and information relating to ML/TF. - Undersecretary prepares regulations applicable to FIs through: - Banking, Securities, and Savings Unit (Unidad de Banca, Valores y Ahorro). - Insurance Pensions and Social Security Unit (Unidad de Seguros Pensiones y Seguridad Social). - Development Banking Unit (Unidad de Banca de Desarrollo). - Decentralized supervisory agencies (órganos desconcentrados) under SHCP: - National Banking and Securities Commission (CNBV). - National Insurance and Sureties Commission (CNSF). - National Retirement Savings System Commission (CONSAR). - Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores): - Negotiates and signs treaties, transmits rogatory letters, assists in MLA and extradition matters. ### FIU - Unidad de Inteligencia Financiera (FIU) is housed in the SHCP. - The FIU is the national central authority for reception, analysis, and dissemination of financial information relating to ML/TF cases. ### Law enforcement and operational bodies - Attorney General’s Office (PGR): - Responsible for investigating and prosecuting all federal crimes, including ML and TF. - SEIDO has primary responsibility for criminal ML and TF enforcement. - SEIDO’s six specialized units: - Specialized Unit for the Investigation of Offenses Against Health (Special Drug Offenses Unit). - Specialized Unit for the Investigation of Operations with Resources of Illicit Origin and Forgery or Alteration of Currency (Special AML Unit). - Specialized Unit for the Investigation of Terrorism and Traffic of Weapons (Special Antiterrorism Unit). - Specialized Unit for the Investigation of Kidnappings. - Specialized Unit for the Investigation of Traffic of Undocumented Persons, Minors, and Organs (Special Human Trafficking Unit). - Specialized Unit for the Investigation of Vehicle Theft. - Regional PGR offices prosecute ML offenses within their locality when not handled by national units. - PGR is assisted by the Agencia de Investigación Criminal and handles MLA requests. - Federal Police: - Under the Ministry of the Interior (SEGOB). - Main objectives include safeguarding life and rights, implementing public security policy, preventing crimes, and investigating crimes under direction of the Public Ministry of the Federation in specific cases. - Has a dedicated AML unit under the drugs department to assist the Public Ministry of the Federation in ML investigations, coordinating with other police corps. - Federal Ministerial Police (Policía Federal Ministerial): - Under the authority and immediate command of the PGR. - Acts as direct auxiliary of the Agents of the Public Ministry of the Federation; responsible for investigation of specific events and subsequent indictment. ### Customs and asset management - General Customs Administration (Administración General de Aduanas): - Administrative unit of the SAT. - Receives declarations of cash or monetary instruments exceeding US$10,000 in value being transported across the border and reports these declarations to the FIU. - In 1999 created the Supporting Unit for Fiscal and Customs Inspection to prevent smuggling of money, drugs, tobacco, liquor, arms, cars, and jewelry. - Public Sector Assets Management and Disposal Service (SAE): - Established under Article 76 of Federal Law for the Administration and Disposition of Public Assets. - Objective: strengthen public finances and property rights through effective management and transfer of property and enterprises, including destruction of assets and liquidation of enterprises assigned to it. - Can administer, dispose of, or destroy public sector property directly or through trustees, liquidators, or administrators. - Supporting committees include Committee of Insured Assets and Committee of Donations. - Committee of Insured Assets supports SAE regarding administration, transfer, and destruction of insured, confiscated, and abandoned assets within federal criminal proceedings transferred to SAE. ### Other financial sector bodies - Banco de México: - Constitutionally autonomous central bank (Article 28). - Main purposes: provide national currency and attain stability of purchasing power; promote healthy development of the financial system and foster the good operation of payment systems. ### Financial sector structure and DNFBPs - The financial sector is dominated by banks and concentrated in conglomerate structures; the seven largest banks (G-7) account for about 80 percent of total bank assets. - Large foreign presence, with rapid integration into the global financial system. - Diverse range of non-core financial intermediaries: cooperative savings and loans companies, credit unions, multiple purpose finance companies. - Money services businesses (MSBs) include money remitters, exchange centers (currency exchange only), and exchange houses (remittance and currency exchange). - Money remitters and exchange centers are supervised only for AML/CFT purposes; exchange houses also regulated for prudential purposes. - Exchange centers can only deal with cash or traveler’s checks and are subject to a cap of US$10,000 per customer per day. - Around 1,500 exchange centers, many in northern states. - Entities providing limited financial services on a very small scale are categorized as VA and are subject to AML/CFT requirements. ### Key statistics (as presented) - Sectoral informality: commerce—44 percent; manufacturing—23 percent; construction—11 percent. - Informal employment: Fifty-seven percent of workers. - Financial inclusion: 29 percent of the poorest Mexican population have an account; Latin America average 41 percent. - Table 1: Types of Financial Institutions (numbers as of December 2015; Assets in Millions of Pesos as of December 2015) - Banks: 44; 7,699,658; AML/CFT Supervisory Authority: CNBV. - Development banking institutions: 6; 1,547,177. - Brokerage firms: 36; 575,574. - Multiple purpose finance companies (SOFOME ER): 34; 380,497. - Cooperative savings and loans companies (SOCAP): 145; 100,930. - National Development Financial Entity for Agricultural, Rural, Forest and Fisheries: 1; 48,605. - Credit unions: 92; 45,877. - Popular financial companies (SOFIPO and SOFINCO): 45; 26,978. - General deposit warehouses: 14; 12,516. - Investment fund operators: 34; 9,166. - Exchange houses: 8; 619. - Investment fund distributors: 7; 209; AML/CFT Supervisory Authority: CNBV. - Unregulated multiple purpose finance companies (SOFOME ENR): 1,443; Assets: Unknown. - Exchange centers: 1,215; Assets: Unknown. - Money remitters: 51. - Investment advisors: 24; Assets: Unknown. - Insurance companies: 102; 1,164,846; AML/CFT Supervisory Authority: CNSF. - Bonding companies: 15; 23,979. - Retirement fund administrators: 11; 2,550,896; AML/CFT Supervisory Authority: CONSAR. - FIs Categorized as VA (Numbers as of 2014) - Traveler’s checks companies: 7; Assets: Unknown; AML/CFT Supervisory Authority: SAT. - Value storage cards companies: 1/ 34. - Loans, money lending and credit companies: 10,020; 7,871,982. - Credit and service card companies: 700; 1,363,516. - Transportation and custody of cash and valuables companies: 60; Assets: Unknown. - 1/ These also include prepaid cards, vouchers, and coupons companies. ### Activities covered under the FATF Standard (selected mapping) - Acceptance of deposits and repayable funds: Banks, development banks, SOFIPOs, SOCAPs, SOFINCOs, credit unions, investment funds. - Lending: Banks, development banks, SOFIPOs, SOCAPs, SOFINCOs, credit unions, SOFOMEs, loans/money lending and credit companies, credit card and service card companies, pawn shops. - Transfer of money or value (formal or informal): Banks, development banks, SOFIPOs, SOCAPs, SOFINCOs, exchange houses, brokerage firms, money remitters, retirement fund administrators. - Issuing and managing means of payment: Banks, development banks, SOFIPOs, SOCAPs, SOFINCOs, SOFOMEs, traveler’s checks companies, value storage cards companies (including prepaid cards, vouchers and coupons companies). - Trading in money market instruments, foreign exchange, transferable securities, commodity futures: Banks, development banks, brokerage firms, investment funds, retirement fund administrators, exchange houses, exchange centers. - Participation in securities issues and related services: Banks (including development banks), SOCAPs, SOFOMEs, credit unions, brokerage firms, investment funds, investment advisors. *Source: Excerpt from the IMF country report chapter content provided.* ### 9. Individual and collective portfolio ### 9. Individual and collective portfolio ### Covered sectors and DNFBPs - Banks, development banks, brokerage firms, SOFOMEs, retirement fund administrators, investment funds and investment advisors undertake individual and collective portfolio management. - Banks, brokerage firms, investment funds, transportation and custody of cash and valuables companies, and warehousing companies provide safekeeping and administration of cash or liquid securities on behalf of other persons. - Banks, development banks, brokerage firms, SOFOREs, investment funds, and retirement fund administrators otherwise invest, administer, or manage funds or money on behalf of other persons. - Insurance institutions, intermediaries, and mutual insurance societies conduct underwriting and placement of life insurance and other investment related insurance (including insurance undertakings and to insurance intermediaries (agents and brokers)). - Banks, development banks, exchange houses, and exchange centers conduct money and currency changing. - Mexico has subjected all types of DNFBPs to AML/CFT requirements. Notaries are key gatekeepers in company formation, real estate transactions, and authentication of identification documents. - There are large numbers of professionals: around 450,000 lawyers and around 600,000 accountants offering a wide range of services; only a very small percentage belong to associations/colleges; no information on how many perform covered activities and thus are subject to AML/CFT obligations. - Registration with the FIU is low in several sectors; for lawyers and accountants, AML/CFT registration is described as extremely low. ### Table 3 — Key DNFBP statistics (as reported) - Gambling and lottery: Total Numbers as of 2014: 1,041; Fixed Assets as of 2014 (Millions of Pesos): 9,766,732; Number of Operators Registered with the FIU as of Onsite: 237; AML/CFT Supervisory Authorities: SAT. - Real estate agents: Total Numbers as of 2014: Unknown; Fixed Assets as of 2014 (Millions of Pesos): 50,044,017; Number of Operators Registered with the FIU as of Onsite: 12,717. - Marketing of precious metals and stones: Total Numbers as of 2014: 13,767; Fixed Assets as of 2014 (Millions of Pesos): 100,640,105; Number of Operators Registered with the FIU as of Onsite: 2,961. - Transportation and custody of cash and valuables: Total Numbers as of 2014: 60; Fixed Assets as of 2014 (Millions of Pesos): Unknown; Number of Operators Registered with the FIU as of Onsite: 54. - Lawyers: Total Numbers as of 2014: Unknown; Fixed Assets as of 2014 (Millions of Pesos): Unknown; Number of Operators Registered with the FIU as of Onsite: 2,484. - Accountants: Total Numbers as of 2014: Unknown; Fixed Assets as of 2014 (Millions of Pesos): Unknown; Number of Operators Registered with the FIU as of Onsite: [not specified in table]. - Public notaries: Total Numbers as of 2014: 4,000+ (estimate as of onsite); Fixed Assets as of 2014 (Millions of Pesos): 2,526,429; Number of Operators Registered with the FIU as of Onsite: 3,726. - Public brokers: Total Numbers as of 2014: 411; Fixed Assets as of 2014 (Millions of Pesos): Unknown; Number of Operators Registered with the FIU as of Onsite: 342. - Source line accompanying table: NRA (tables 86 and 88), Annex 1 of the MEQ, FIU. ### Preventive measures and legal framework - Preventive measures for various FIs are embedded in primary laws governing the respective sectors and further detailed in regulations issued by the SHCP pursuant to those laws. - Since 2008 Mexico has amended laws and regulations to strengthen the AML/CFT framework, including amendments enhancing transparency on trusts (2014) and allowing further information sharing among Mexican banks and foreign FIs (2014). - Latest amendments to the regulations were issued in February/March 2017 applicable to FIs with transitory periods for existing FIs; these transitory provisions varied and were not in force during the onsite visit and therefore not considered in the report’s analysis. - Once in effect, the February/March 2017 amendments would strengthen obligations of certain FIs, including on identifying beneficial owners and assessing ML/TF risks based on customers, products and services, geographical factors and delivery channels. - Entities carrying out financial activities categorized as VA are subject to the same legal framework as DNFBPs. - DNFBPs were brought into the AML/CFT regime in 2014; additional high-risk activities (e.g., vehicle dealers and art dealers) are also subject to AML/CFT requirements. - DNFBP obligations are embedded in the Federal Law for the Prevention and Identification of Transactions with Illicit Proceeds and further spelled out in its Regulations and General Regulations; measures apply above sector-specific thresholds. ### Legal persons and arrangements - Mexican private entities include: “societies” of civil or commercial nature; labor unions; professional associations; cooperative and mutual societies; other associations with legal purpose provided they are “not unknown” by law; and foreign private entities governed by foreign law. - Since September 2016 Mexico has a Sociedad por Acciones Simplificada (Simplified Company by Shares) created to stimulate small business: can be formed electronically through the Public Registry of Commerce, does not require a minimum stock capital, requires a minimum of two partners, and company income is capped at five million pesos, after which the company must be transformed into a usual company. - Legal arrangements to segregate rights or obligations include fideicomisos and “associations in participation” (joint ventures). ### Supervisory arrangements - The SHCP is responsible for overall regulation of compliance with AML/CFT obligations; operational responsibility is delegated to CNBV, CNSF, CONSAR, and SAT. - CNBV, CNSF, and CONSAR have broad powers to supervise licensed and registered institutions for prudential and AML/CFT compliance: conduct inspections, request relevant information, and apply sanctions for non-compliance. CNBV does not have explicit power to revoke a banking license for breaches of AML/CFT failings. - SAT is responsible for monitoring and ensuring compliance of all VA (including defined financial activities and DNFBPs) with AML/CFT obligations but does not have authority to monitor for CFT compliance. SAT can perform inspections and request information; its sanctioning powers (through the SHCP) are limited to imposing financial penalties, except for notaries, public brokers and customs agents where it can revoke an authorization. ### International cooperation - Mexico has a legal and institutional framework to seek and provide information and cooperates with many countries, especially the U.S. - The international cooperation unit within PGR is the central authority for incoming and outgoing MLA and extradition requests; Ministry of Foreign Affairs is consulted for some requests. - Supervisors, FIU, and LEAs also cooperate bilaterally with foreign counterparts. ### National AML/CFT policies and coordination — Key Findings - Authorities’ understanding of ML and TF risks is good but less so regarding the widespread risk of corruption. - The NRA was concluded in 2016 with involvement of all competent authorities and the private sector; it does not specifically differentiate risks associated with different types of legal persons, though it notes front companies are a widespread ML technique. - Two high-level groups were created in November 2016 to develop and coordinate revision of AML/CFT policy; authorities are finalizing and documenting a comprehensive national strategy to address identified ML/TF risks and prioritize actions. - Coordination on ML issues between the FIU, PGR, and supervisors is generally good, but coordination between LEAs and PGR is weaker. Coordination on TF issues is less developed. - No sectors are exempted from AML/CFT requirements; authorities added some VAs beyond the standard (e.g., car dealers). - Financial sector was closely involved in the NRA; DNFBP involvement was more limited. FIU and supervisors have conducted extensive outreach to reporting entities about NRA results. ### National AML/CFT policies and coordination — Recommended Actions - The next NRA should better anticipate emerging trends in predicate offenses and associated ML risks. - Strengthen inter-agency cooperation among LEAs at the federal and state level. - Ensure a more comprehensive analysis of TF risks and vulnerabilities of certain sectors, products or services, and enhance communication to concerned agencies to improve understanding of TF risks. - Further revise the vulnerability analysis of DNFBP sectors such as notaries, lawyers, and accountants. - Finalize updating the national strategy and document national policy following the publication of the NRA to coordinate prioritization of key risks through prevention, avoidance, and mitigation measures. - Take additional steps to improve DNFBPs’ awareness of the results of the national assessments of ML/TF. ### Immediate Outcome 1 (Risk, Policy and Coordination) — Country’s understanding of its ML/TF risks - The NRA process established a basis for private sector and government agencies to better understand Mexico’s ML/TF risks; where higher threats and vulnerabilities were identified, a consistent national understanding emerged. - FIU conducted several FI and VA sectoral risk assessments; confidential agency-level risk assessments by key federal LEAs (e.g., terrorism) exist. - Overall, Mexico attained a good level of understanding of its ML risks through a risk assessment process finalized in June 2016. - Good understanding of ML risks within the FIU and financial supervisors; less so within SAT which supervises DNFBPs. - TF focus has been on STRs involving high-risk jurisdictions and FIU database analysis; FIU produced a special NPO monitoring program in early 2017 based on a SAT-provided pattern and monitors TF trends related to groups such as ISIL and al Qaeda as published by FATF. - Mexico lacks clear policies to identify or designate terrorist organizations; competent authorities were not clear whether some groups operating in regions or conflict zones are considered terrorist organizations in Mexico. - Knowledge of ML risks associated with drug trafficking is particularly well developed. - Corruption was not identified as a major threat for ML in the NRA; however, FIU and PGR show growing recognition of corruption-related ML risks, including layering and integration in and outside Mexico, and cases of grand corruption (e.g., cited case of Governor Duarte in Veracruz). - The NRA relies on many information sources but gave more weight to FIU information. Supervisory risk assessments differ slightly from the NRA basis but reach broadly similar conclusions. NRA’s findings do not appear reasonable in rating notaries and professionals as low risk given exposure to misuse of legal persons. - The NRA could better anticipate emerging ML risks associated with the large informal economy and could detail estimates of proceeds of crime generated abroad and laundered in Mexico and the laundering channels. ### National policies to address identified ML/TF risks - Two high-level groups on AML and CFT act as the main national policy coordination mechanism; major policy changes are tabled at these groups under FIU and PGR leadership. - AML/CFT policies, activities, and resource allocations are not sufficiently focused on addressing ML/TF risks identified in national and agency-level risk assessments; some agencies lack annual performance goals. - Mexico does not have a comprehensive policy to prioritize financial investigation and prosecution of ML as a standalone offense; financial intelligence, investigation, prosecution, conviction, and sanctions are not functioning coherently to mitigate ML risks. - Financial sector supervisors have developed risk-based approaches for onsite inspections; little evidence SAT has developed a risk-based approach to supervision. - The two high-level groups include agencies coordinating operational implementation and facilitate information sharing on emerging threats. Preliminary measures were introduced in February 2017 to prioritize actions to mitigate identified threats and vulnerabilities. - Identification of threats and vulnerabilities has not yet impacted resource allocation by competent authorities; authorities noted a comprehensive AML/CFT national strategy is still underway and about to be finalized. The new strategy should also prioritize coordination of AML/CFT with anti-corruption and tax evasion policies. *Source: NRA (tables 86 and 88), Annex 1 of the MEQ, FIU* ### 116. Furthermore, the Mexican state has taken concrete actions to promote a thorough ### cr17405-mexicodar - 116. Furthermore, the Mexican state has taken concrete actions to promote a thorough ### Coordination between AML and Anti‑Corruption Agencies - Legal provisions enacted to enable coordination between AML and anti‑corruption authorities. - The FIU has entered into collaboration agreements with: - Federal Ministry of Public Function - Superior Auditor of the Federation - Council of the Federal Judicial Branch - Constitutional amendment published in 2015 created the National Anti‑Corruption System to implement coordinated federal and state action on audit of public funds, analysis of information, and investigation of corruption cases. - High‑Level Groups have approved seven policies or actions, including: - Establishment of protocols for initiation of parallel investigations related to ML, prioritizing predicate offenses with highest illicit proceeds according to the NRA. - Presentation of a bill to Congress regarding asset forfeiture to increase administrative authorities’ powers. ### Exemptions, Enhanced and Simplified Measures - Mexico does not exempt any activities covered in the standard from AML/CFT requirements. - Financial authorities issued simplified low transaction banking account identification and monitoring provisions (2009–2011) to facilitate access to banking for the unbanked. - Low risk deposit accounts are classified into three levels for AML/CFT purposes (see criterion 1.8 in the TCA). - Level 1: minimal opening requirements; safeguards include limitations on deposits and balances, inability to transfer funds, limited transaction range; assessed as low risk. - Level 2 and Level 3: progressively relax thresholds on deposits and balances and impose stricter identification requirements. - FIU analysis indicates average monthly balances of Level 1 and Level 2 accounts were well below caps; no detected misuse of Level 1 and Level 2 for ML/TF. No analysis on Level 3 accounts. - Mexico lacks clear requirements for properly assessing risks before allowing simplified measures by FIs categorized as VAs and DNFBPs. - Mexico identified certain activities/sectors as ML risk and subjected them to AML/CFT requirements (examples: car dealers and art dealers). - Measures introduced to restrict cash use in certain circumstances: - Justifications required for cash payments above a certain threshold. - Restrictions on receiving U.S. dollars in cash payments above specified amounts. - Restrictions on use of cash in pesos for purchasing real estate and vehicles and other products/services (e.g., precious metals and stones). - NRA indicates: - Surplus of U.S. dollars dramatically reduced over past years. - Use of Mexican pesos as cash has continued to grow except where restrictions were established. ### Operational Objectives and Activities of Competent Authorities - Financial sector supervisors largely agree with NRA conclusions and have developed sector risk assessments based on more substantive/diverse data. - Situation less clear for SAT. - FIU regularly adapts policies based on operational and strategic analysis; could better focus on core functions (receipt, analysis, dissemination) and refrain from or reduce involvement in complementary functions (e.g., blocking accounts, tactical analysis requiring field operations) or envisaged future functions (e.g., financial investigations). - LEAs and the PGR should allocate more resources and align objectives and policies to pursue ML, parallel investigations, and TF. ### National Coordination and Cooperation - Recently created High Level Groups on AML/CFT have started coordinating national policies but with few concrete results to date. - Good coordination on ML issues between FIU and supervisors; less coordination between LEAs and PGR. Coordination on TF is far less developed. - Banking supervision law foresees exchange of information, including confidential information, among SHCP, Banco de México, CONSAR, Institute for the Protection of Bank Savings, National Commission for the Protection of Financial Service Users, and CNBV; MOUs used where appropriate. - CNBV and FIU cooperation strengthens financial supervisors’ annual inspection programs; FIU provides feedback reports used to plan inspections and is informed of inspection outcomes. - Communication channels between FIU and supervisors include written feedback reports, information requests, controlled access to FIU databases, and working level meetings. ### Private Sector Awareness of Risks - Mechanisms in place to ensure FIs, DNFBPs, and other sectors are aware of NRA results; NRA summary is public on FIU website and private sector participated. - FIU and CNBV promote risk‑sensitive implementation through meetings with top management, training programs, and seminars. - Other supervisors less proactive in raising sector‑specific awareness; risk information not sufficiently customized. - Private sector representatives generally aware of and agreed with NRA findings, but some DNFBPs disagree with NRA’s assessment of their sector risk—potentially due to insufficient involvement or low awareness of AML/CFT responsibilities. - FIU remains primary conduit for risk information and guidance, heavily oriented to depository sector, brokerage firms, and MVTS; primary distributor of general AML/CFT guidance including to DNFBPs. ### Overall Conclusions on Immediate Outcome 1 - Mexico has achieved a substantial level of effectiveness for IO.1. ### Legal System and Operational Issues — Key Findings (IO.6–8) - Mexico produces good financial intelligence but lacks a comprehensive policy to prioritize financial investigation and prosecution of ML as a standalone offense. - Component parts (financial intelligence, investigation, prosecution, conviction, sanctions) are not functioning coherently to mitigate ML risks. - Number of ML convictions and confiscations is low. Immediate Outcome 6 - FIU functions well and produces operational and strategic analyses that generally serve PGR in launching ML and associated predicate crime investigations. - FIU has resources and skills to collect/use a wide variety of intelligence; several authorities have direct access to FIU database. - FIU’s spontaneous disseminations to PGR relating to ML and underlying offenses are generally low. - Financial intelligence is not often appropriately used by PGR to launch ML/TF investigations and trace assets. - Weak cash courier declaration system, weak reporting from DNFBPs, shortcomings in reporting regime, and lack of BO information impact FIU’s ability to analyze and share accurate/timely intelligence. Immediate Outcome 7 - Until recently, PGR did not prioritize ML investigations; focus has been on predicate offenses by OCGs (mainly drug trafficking). - Two specialized units established: UEIORPIFAM and UEAF, but no standard operating procedures for when to initiate ML investigations; parallel ML investigations are very rarely opened alongside predicate investigations. - Prioritization processes and criteria unclear; ML rarely investigated/prosecuted as standalone offense. - Conviction rate extremely low; investigations suffer from: - Initiation without sufficient reasonable grounds - Deficiencies in investigation methodology - Overly long procedures - Lack of internal coordination between specialized units at federal and state level - Lack of expertise - Financial information from FIU is underused; special investigation techniques rarely employed; no statutory provision for controlled deliveries. - Shortcomings in IO.2 (limited international cooperation) negatively impact ML investigations. Immediate Outcome 8 - Proceeds of crime (POC) are not effectively confiscated; no defined policy to pursue POC; POC investigations not part of overall investigative strategy. - FIU has sought to improve timeliness of provisional measures via BPL system, but this has not improved confiscation levels. - Technical deficiencies in cross‑border declaration system hinder pursuit/confiscation of falsely declared/suspicious cross‑border currency movements. - Lack of resources, capacity, and expertise limit ability to prioritize ML and predicate investigations and to trace/confiscate POC. - Lack of complete confiscation statistics complicates assessment; available statistics suggest number of confiscations is low in absolute terms and relative to Mexico’s risk profile. ### Recommended Actions (Selected by Immediate Outcome) Immediate Outcome 6 - FIU should increase timely spontaneous disseminations of information/intelligence relating to ML and underlying crimes. - FIU should increase number of additional requests for information for operational analysis and dissemination, especially from DNFBPs. - In coordination with supervisors, FIU should improve guidance and feedback to reporting entities to enhance quality of STRs from FIs and quantity of STRs from DNFBPs. Immediate Outcome 7 - PGR should: - (i) prioritize investigation of ML at federal and state levels; - (ii) ensure ML is treated as a priority by units investigating main predicate offenses; - (iii) raise awareness on use of international cooperation tools for evidence gathering and seizing assets abroad. - Institutionally, PGR should strengthen internal coordination between units at federal and state levels and establish clearer criteria delimiting competences; increase specialization of units dealing with ML. - Operationally, PGR should develop a manual describing: - (i) when an ML investigation should be initiated; - (ii) criteria for prioritizing cases; - (iii) investigation methodology to secure necessary evidence, making best use of financial information and special investigation techniques. Immediate Outcome 8 - Integrate confiscation as a major policy objective within national AML/CFT policies and strategies. - Practice initiation of parallel financial investigations in accordance with Mexico’s ML/TF risks; provide training and technical expertise to PGR. - Develop internal procedures for cooperation and coordination between PGR and FIU to prioritize investigations that can lead to assets subject to confiscation. - Fix technical deficiencies in the declaration system to pursue and effectively confiscate falsely/not disclosed cross‑border currency movements. - Consider finalizing and implementing assets forfeiture legal framework reform to enhance the confiscation regime. ### Immediate Outcome 6 — Use of Financial Intelligence and Other Information (Details and Statistics) - Mexican authorities, especially PGR and LEAs, have comprehensive access to financial intelligence but do not often use it to develop evidence and trace criminal proceeds related to ML, predicate offenses, and TF. - PGR and SAT have direct access to FIU information and increasingly access it; financial investigations often triggered by FIU spontaneous disseminations rather than initiation of parallel ML investigations by PGR. - FIU signed several MOUs to facilitate controlled access and use (including conducting queries) of financial intelligence by SAT and PGR. - From 2010 to December 2016: - PGR made 4,635 requests for information to the FIU. - After PGR obtained direct access to FIU database, PGR conducted 1,322 queries (period from 2014 to December 2016). - SAT conducted 16,772 queries through controlled access (2014 to December 2016). - Some specialized agencies do not sufficiently access the FIU database to launch ML investigations. Table 4. Number of Controlled Access to FIU Information (by Year and Requestor) - 2014: - SAT (by Number of Queries): 8,829 - PGR (by Number of Queries): 998 - Requests by Other Concerned Agencies (by Number of Persons): 10,293 - 2015: - SAT (by Number of Queries): 5,890 - PGR (by Number of Queries): 4 - Requests by Other Concerned Agencies (by Number of Persons): 48,908 - 2016: - SAT (by Number of Queries): 2,053 - PGR (by Number of Queries): 320 - Requests by Other Concerned Agencies (by Number of Persons): 144,726 Table 5. Top Requestors of Information from the FIU (PGR Information Requests — selected totals) - Total across listed units: 1,104 (2010), 1,305 (2011), 1,105 (2012), 455 (2013), 252 (2014), 128 (2015), 145 (2016) - Examples of unit‑level request patterns: - Specialized Unit in Financial Analysis: 7 (2013), 6 (2014) - Specialized Unit in the Investigation of Crimes Related to Kidnapping: 64 (2010), 92 (2011), 69 (2012), 24 (2013), 13 (2014), 8 (2015), 4 (2016) - Specialized Unit in the Investigation of Transactions with Illicit Proceeds and Currency Falsification or Alteration: 407 (2010), 546 (2011), 358 (2012), 163 (2013), 116 (2014), 65 (2015), 24 (2016) - Specialized Unit in the Investigation of Crimes Related to Health: 306 (2010), 383 (2011), 277 (2012), 102 (2013), 17 (2014), 22 (2015), 77 (2016) - The FIU database contains a wide range of financial, administrative, and law enforcement information, including a high number of STRs and CTRs. Most information is fully integrated (e.g., STRs, CTRs); other information accessed directly (e.g., commercial databases) or indirectly (e.g., SPEI Interbank Transfers, Informative Tax Returns F35). *Source: cr17405-mexicodar - 116. Furthermore, the Mexican state has taken concrete actions to promote a thorough (IMF PDF chapter excerpt).* ### 135. Since 2013, the FIU integrated more than 650 million records from sources mentioned ### cr17405-mexicodar - 135. Since 2013, the FIU integrated more than 650 million records from sources mentioned ### Data integration, sources, and scope - Since 2013, the FIU integrated more than 650 million records from the sources listed into its database. - Seventy-one (out of 100) sources of information were integrated into its data warehouse. - The information is related to around 14 million subjects and is easily accessed and searched. - The wide range of information and data provide the FIU with good matching capability and with the capability to quickly identify targets and possible POC. - Table 6 — Types of information accessed and integration status (summary of entries): - Financial information: STRs, CTRs, Cash Couriers — I, DA. Includes operations through SPEI, Cecoban, U.S. dollar transactions, information collected by the Central Bank of Mexico. - Tax information: General data of taxpayers and annual federal tax returns at federal and state levels — DA. - Foreign trade information: Yearly information of foreign trade operations, import and exports (SIINCO), U.S.–Mexico customs requests (Trade Transparency Unit) — I, DA. - Law enforcement information: Judicial orders and prison records — I, IA. - Corporate information: Register of the Ministry of Economy (SIGER) — DA (not up-to-date, missing some states). - National population registry: National population registry, social security registration, federal government information related to directors, contracts, reports, salaries, subsidies, services, concessions and permits — DA. - Information on assets: Notarial operations, asset declarations of public officials, consultation of public officers with administrative penalties — I, DA. - Immigration information: Entries/exits of nationals and foreigners, passenger/flight/airline/payment method information — I, IA. - Open sources and specialized software: e.g., world compliance, national statistics, judicial statistics — DA. ### International cooperation and data sharing - The FIU and the U.S. FinCEN share STRs and other relevant information on an annual basis or as needed. - Since 2013, the two FIUs shared 138,297 reports that resulted in complementing the investigation of 105 individuals in Mexico. - Intelligence notes are regularly sent to domestic and foreign agencies including the SAT, Ministry of Defense, civil intelligence agency, Ministry of Marine, OFAC, DEA, ICE. - Example operational outcomes from FIU products: - 829 subjects analyzed in 2015 and 599 in 2016 for intelligence notes. - FIU product to the National Electoral Institute resulted in cancellation of registration and other sanctions for identified parties. - FIU program sent to the Ministry of Energy resulted in cancellation of a company’s ability to participate in auctions. - Many intelligence notes resulted in investigations or designations in the U.S. ### Quality of information and impediments to use - Three categories of impediments to effective use of financial intelligence: 1. Quality of information: some accessed information is not complete or up to date. 2. Use of financial intelligence: accessed information does not always lead to ML financial investigations. 3. TF-specific impediments: particularly related to TF cases. - Specific quality issues: - FIU lacks readily available accurate BO information of legal persons and arrangements; commercial register basic information is not always up-to-date. - Border declaration reports often relate to smuggling of cash rather than declaration-regime suspicions. - Quality and quantity of STRs may be lacking. - Drivers of STR quality problems: - (i) reporting from non-bank FIs and DNFBPs is still low or poor quality; - (ii) reporting regime lacks clarity about distinction between unusual and suspicious; - (iii) guidance and feedback not fully aligned with main ML risks (e.g., no specific guidance on PEPs in relation to proceeds of corruption, or typologies specific to tax evasion or organized crimes). - Use impediments: - PGR requires the FIU’s explicit consent to prosecute when shared information is obtained from FIs. - Lack of capacity and proactiveness in launching parallel investigations by PGR’s newly established units. - Example PGR use metrics (2013–2016): - PGR made around 1,439 consultations/access to the FIU database that resulted in opening 80 investigations. - Of the 80 investigations: 65 are still ongoing, 15 cases resulted in 35 arrests, seven seizures, and two convictions. ### Terrorist financing (TF) specific observations - Few cases have been proactively disseminated by the FIU to intelligence services for TF. - FIU proactively analyzes patterns and information it deems suspicious for TF, but competent authorities do not seem to proactively access/use FIU information to launch TF investigations. - Most FIU access by competent authorities is related to ML and underlying crimes, less so to TF. ### STRs, CTRs, reports received, and trends - Competent authorities use STRs and CTRs when spontaneously disseminated by the FIU. - The amount of information received by the FIU increased in the last three years cited: - In 2012, the FIU received 12 million reports. - In 2015, the amount had grown to 20.1 million reports (i.e., almost a 68 percent increase). - Figures and time-series provided (summarized values preserved where shown in source visuals): - Suspicious Transaction Reports and Internal Concerning Transaction Reports: shown annually for 2010–2016 (data points in source figures include 74,538; 78,236; 88,504; 108,003; 148,949; 167,295; 213,330). - Cash U.S. Dollar Transactions Reports (millions) annual series 2010–2016 include values: 4.6; 6.2; 5.9; 6.0; 6.6; 6.0; 5.7. - Cash Transactions Reports (millions) annual series 2010–2016 include values: 3.7; 5.5; 6.3; 4.8; 3.9; 4.4; 4.6. - From January 2013 to December 2016, the FIU generated 508 responses to requests for information from national authorities, covering transactions from 2,020 natural and legal persons. - For responding to requests from authorities, the FIU used: - 1,083,783 CTRs - 277,921 Notices of VA - 41,898 reports of international transfers - The FIU identified two suspicious individuals and 27 legal persons during 2015–2016 for the National Electoral Institute, resulting in cancellation of registration and other sanctions. ### Additional requests to reporting entities and FIU inquiry activity - The FIU makes additional information requests to reporting entities to extend financial analysis and trace assets; however, such additional requests are limited, especially to DNFBPs. - Processing authorizations for use of data adds burden on the FIU. - Table 7 — Number of FIU requests of additional information by sector (selected figures preserved exactly): - Banks: 2015 = 112; 2016 = 75; 2017 = 43 - Non-bank FIs: 2015 = 5; 2016 = 4; 2017 = 4 - Transportation and custody of cash and valuables: 2015 = 15; 2016 = 1 - Notaries: 2015 = 3; 2016 = 2 - Lawyers and accountants: 2015 = 2; 2016 = 1 - Credit and services cards: 2015 = 5; 2016 = 7; 2017 = 1 - Donations received by NPOs: 2015 = 1 - Outsourcing: 2016 = 1 - Total: 2015 = 149; 2016 = 89; 2017 = 50 ### FIU analysis, dissemination, and operational outcomes - The FIU’s analysis and dissemination support operational needs of competent authorities through spontaneous and upon-request disseminations. - Spontaneous disseminations are not leading to a sufficient number of financial investigations by the PGR; FIU focuses on well-documented cases with high prosecution probability. - Intelligence sharing domestic outcomes example: - FIU information to INE resulted in cancellation of registration for some 121 individuals and companies as national suppliers. - FIU analysis metrics (January 2013 to December 2016): - Total of 7,473 notes of analysis generated. - These notes included information on 17,094 subjects. - 78 percent of subjects analyzed generated notes for internal use; 22 percent were analyzed for dissemination as intelligence products. ### Risk assessment models and monitored lists - FIU risk assessment approach: - First-level models evaluate first transactions of a subject by source of information to identify illicit-related transactions within a data source. - From 2016, a global risk model includes all reports and notices received to detect possible ML. - Models to detect/evaluate transactions related to TF or corruption have been generated with specific variables and parameters. - Risk rating outcomes: - Almost 98 percent of subjects reported for suspicious, relevant, and internal transactions are rated from 0 to 5. - Two percent of such subjects have a rating of 5 to 10. - Among subjects with risk rating higher than 9.5: - 37 natural persons (60 percent of analyzed subjects) were included in requests for prosecution in the BPL or in intelligence notes. - 22 legal persons (70 percent of analyzed subjects) were included in those products. - Table 8 — Subjects examined by risk assessment models (as of December 2016): - Natural persons: 13,426,918 - Legal entities: 711,055 - Table 9 — Statistics of lists monitored by the FIU (selected exact figures preserved): - Designations or inquiries from other authorities: Number of Lists = 14; Entities Registered in the List = 541,048; Matches Identified in the Database (Exact) = 25,130; Matches Identified in the Database (Partial) = 22,458 - UN Resolutions: Number of Lists = 15; Entities Registered in the List = 4,394; Matches Identified (Exact) = 0; Matches Identified (Partial) = 6 - Register of VA: Number of Lists = 11; Entities Registered in the List = 1,251,541; Matches Identified (Exact) = 99,681; Matches Identified (Partial) = 21,996 - Politically exposed persons: Number of Lists = 4; Entities Registered in the List = 1,329,747; Matches Identified (Exact) = 38,686; Matches Identified (Partial) = 198,189 - FIU products: Number of Lists = 6; Entities Registered in the List = 25,284; Matches Identified (Exact) = 12,489; Matches Identified (Partial) = 9,767 - Supervision: Number of Lists = 6; Entities Registered in the List = 18,249; Matches Identified (Exact) = 5,210; Matches Identified (Partial) = 1,648 - Other authorities: Number of Lists = 4; Entities Registered in the List = 76,825; Matches Identified (Exact) = 10; Matches Identified (Partial) = 7,430 ### Strategic analysis studies and outputs - The FIU regularly conducts strategic analysis to identify ML/TF trends and methods and shares intelligence reports with reporting entities and concerned agencies. - The FIU provides supervisory authorities with analysis of the quality and quantity of reports filed by reporting entities. - Sample of strategic analysis studies conducted by the FIU (Name — Year — Type) — selected studies preserved exactly as listed: - The physical flow of dollars in the Mexican Financial System — 2010 — Spontaneous - Analysis of cash (U.S. dollars) transactions in the Mexican Financial System 2010–2016 — Spontaneous - Monthly reports on the behaviors of the transactions reports received by the FIU 2010–2016 — Spontaneous - Analysis of financial transactions related to requests of prosecution made by the FIU 2012–2014 — Spontaneous - Proportion of the vulnerability of ML by state 2012–2016 — Spontaneous - Studies of cash transactions related to international transfers of funds 2013–2014 — Spontaneous - Analysis of transactions related to the Route of Money typology 2013 — Spontaneous - Analysis of cash withdrawals made by public entities 2014–2016 — Spontaneous - Effects of tax on cash deposits on the number of cash transaction reports: ex post evaluation 2014 — Spontaneous - Monitoring of international transfers related to tax havens 2014–2016 — Requested - Text Mining Analysis of ML sentences 2015 — Spontaneous - Reports of risk jurisdictions on TF 2014–2016 — Spontaneous - Feedback reports of reporting entities 2012–2016 — Both - Analysis of UTR related to Central America 2013 — Spontaneous - Reports on the behavior of transactions in various federal entities 2013–2016 — Requested - Analysis of UTRs related to various countries of interest 2013 — Spontaneous - Descriptive analysis on the behavior of Notices of VA 2014 — Spontaneous - Programs of foreign nationality subjects with UTRs in Mexico 2014 — Spontaneous - Programs of subjects of U.S. nationality with UTRs in Mexico 2013–2016 — Requested - Analysis of companies with irregularities in the textile sector 2015 — Requested - NRA 2016 — Spontaneous - Sectoral studies on VA in the financial and non-financial system 2016 — Spontaneous - Study on transactions related to Title Insurance Companies in the US 2015–2016 — Requested - Transfer transactions detected on the southern border of Mexico 2016 — Spontaneous - Report of Panama Papers 2016 — Spontaneous - Report of Bahamas Leaks 2016 — Spontaneous - Analysis of indicators related to cases of the FIU 2016 — Spontaneous - Analysis of transactions related to subjects in the National Registry of Penitentiary Information 2016 — Spontaneous - Program FIs proposed for supervision visits 2016 — Requested - Analysis of information related to suppliers of governmental entities 2016 — Requested - Identification of ML networks in geographical areas based on the strategic analysis of information 2017 — Requested - Gas station program 2017 — Requested - Analysis of NPOs 2017 — Spontaneous *Source: cr17405-mexicodar - 135. Since 2013, the FIU integrated more than 650 million records from sources mentioned.* ### 159. FIU disseminations to PGR: From 2013 to June 2016, the FIU disseminated 317 cases with ### 159. FIU disseminations to PGR: From 2013 to June 2016, the FIU disseminated 317 cases with ### FIU disseminations and outcomes - From 2013 to June 2016, the FIU disseminated 317 cases with the PGR related to ML. - An amount of Mex$233,987 million is related to these requests for prosecution. - The spontaneous disseminations are mostly related to proceeds of drug crimes and corruption. - Although most disseminated cases lead to successful prosecutions, the number of FIU spontaneous disseminations is very low relative to the large volume of reports received. ### Notable FIU-triggered case — Box 1 (2014 Best Egmont Case Award) - Network detected and disrupted: 42 shell companies located in Mexico and abroad providing ML services through independent agents charging a fee of one to five percent. - Trigger: risk model designed in the FIU for prioritization of reports; a series of STRs with high-risk elements (virtual offices inconsistent with customer activity; significant number and amounts of international transfers in a short period; recipients with wide-ranging economic activities inconsistent with profiles). - Operations performed by the network: raising funds (many in cash), currency exchange, national and international transfers, some operations not routed through the financial sector. - Beneficial ownership: difficult to identify; shareholders were low-profile employees; coordination with U.S. FinCEN identified the network leader, the 42 companies, and more than 1,500 individuals involved. - Main destinations of transfers: U.S., Panama, Hong Kong, and China. - Law enforcement actions and seizures: - Interception of communications; identification of leader, 38 collaborators, and two operational offices. - Arrest warrant for the leader and one collaborator on charges of ML and organized crime; they were subsequently imprisoned while judicial process continued. - Thirty-nine bank accounts secured with a total of US$13.4 million and two properties. - One property seized for a value of approximately Mex$6 million. - Convictions: There are no convictions in this case. ### Transaction reports, STRs, and intelligence products - Intelligence products (excluding programs) incorporated 4.4 million reports sent by commercial banks, representing 94 percent of all reports associated with those products. - A total of 54,541 STRs have been part of intelligence products; this represents nine percent of all reports of such transactions received from 2012 and June 2016. - Forms of intelligence products disseminated by the FIU: - notes: intelligence analysis and diagnostics; - answers to requests for information from national authorities; - answers to requests for information from international authorities; - operations analysis report; - programs: massive analysis of groups of subjects. ### Requests for ML prosecution — subjects, counts, and amounts - Number of requests for ML prosecution presented by the FIU (annual totals shown): - 2010: 52 - 2011: 39 - 2012: 35 - 2013: 84 - 2014: 87 - 2015: 109 - 2016: 107 - Table 11 — Crimes identified in the formulated requests for prosecution (annual counts): - Drug-related crimes: 2010: 24; 2011: 11; 2012: 5; 2013: 24; 2014: 29; 2015: 31; 2016: 15 - Crimes committed by public officials (embezzlement, corruption, bribery): 2010: 1; 2011: -; 2012: -; 2013: 1; 2014: 1; 2015: 7; 2016: 4 - Violation to the General Population Law: 2010: 4; 2011: -; 2012: 4; 2013: 4; 2014: 3; 2015: 3; 2016: 0 - Extraction and theft of hydrocarbons: 2010: 1; 2011: -; 2012: -; 2013: 4; 2014: 1; 2015: 0 - Theft / stolen vehicle: 2010: -; 2011: -; 2012: 1; 2013: 2; 2014: -; 2015: 1; 2016: 0 - Kidnapping: 2010: -; 2011: 1; 2012: -; 2013: 1; 2014: 2; 2015: 1; 2016: 1 - Extortion: 2010: -; 2011: -; 2012: -; 2013: -; 2014: 1; 2015: 2; 2016: 0 - Fraud: 2010: -; 2011: -; 2012: -; 2013: 1; 2014: 3; 2015: 5; 2016: 7 - Organized crime: 2010: -; 2011: -; 2012: -; 2013: 4; 2014: 3; 2015: 3; 2016: 8 - Tax offense: 2010: -; 2011: -; 2012: -; 2013: 7; 2014: 3; 2015: 22; 2016: 40 - Undetermined: 2010: 22; 2011: 27; 2012: 25; 2013: 36; 2014: 41; 2015: 34; 2016: 32 - Others (related with credit institutions law, terrorism, human trafficking, child pornography, and corruption) - Total annual counts: 2010: 52; 2011: 39; 2012: 35; 2013: 84; 2014: 87; 2015: 109; 2016: 107 - Table 12 — Amount associated with requests for prosecution for a previous crime (Millions of Pesos): - Undetermined: 2010: 1,163; 2011: 70,481; 2012: 3,683; 2013: 8,018; 2014: 18,940; 2015: 9,540; 2016: 11,968 - Organized crime: 2013: 1,497; 2014: 27,720; 2015: 50; 2016: 22,778 - Tax crimes: 2013: 7,969; 2014: 12,572; 2015: 12,076; 2016: 6,265 - Health-related crimes: 2010: 7,946; 2011: 1; 2013: 10,506; 2014: 126; 2015: 3,948; 2016: 1,089 - Other: 2010: 349; 2013: 15; 2014: 27; 2015: 13,597; 2016: 15,742 - Total amounts (Millions of Pesos) by year: 2010: 9,457; 2011: 70,482; 2012: 3,683; 2013: 28,005; 2014: 59,384; 2015: 39,211; 2016: 57,841 ### FIU resources, operational issues, and analysis process - Budget: - FIU budget tripled from 2010 (Mex$69.6 million) to 2016 (Mex$185 million). - Approximately half of the budget is allocated for salaries; remainder covers premises, IT infrastructure, and other costs. - From 2010 until 2016, the FIU received subsidies from the U.S. government to upgrade IT infrastructure. - Staffing: - Number of employees increased from 138 to 164 in 2015, with a decrease to 146 in 2016. - Use of LBP for TFS/blocking powers: - In December 2014, FIU power to block accounts through the LBP for TFS regime was amplified to cover designations of money launderers. - This power is often used and could result in tipping off suspicious persons when the case is disseminated to prosecution. - FIU allocates three full-time persons to impose and defend these blocking decisions before the courts, resources that could otherwise be used for core FIU functions. - Case analysis timelines (2016) — Table 13: - Minimum number of working days between reception and dissemination of a case: 3 - Average: 61 - Maximum: 213 - Observations: - Analysis of cases sent for prosecution is often slow and requires collecting high volumes of data and additional information, delaying dissemination. - Large numbers of cases are closed without dissemination for lack of suspicion. - FIU could consider sending more cases to LEAs for further investigation at an earlier stage rather than holding cases for further internal analysis. ### Terrorist financing (TF) cases and outcomes — Table 14 - FIU TF cases by year — Number of individuals analyzed / disseminated / shared: - 2013: Number of Individuals Analyzed: 23; Number of Individuals Disseminated to the Civil Intelligence Agency: 6; Disseminated to Immigration: 6 - 2014: Number of Individuals Analyzed: 10; Number of Individuals Disseminated to the Civil Intelligence Agency: 1 - 2015: Number of Individuals Analyzed: 78; Number of Individuals Disseminated to the Civil Intelligence Agency: 23; Shared with U.S. FBI: 1 - 2016: Number of Individuals Analyzed: 37; Number of Individuals Disseminated to the Civil Intelligence Agency: 20; Shared with U.S. FBI: 1; Request for Prosecution with PGR: 7 - Total (2013–2016): Number of Individuals Analyzed: 148; Number of Individuals Disseminated to the Civil Intelligence Agency: 50; Disseminated to Immigration: 6; Shared with U.S. FBI: 2; Request for Prosecution with PGR: 7 - Outcomes: - FIU analyzed and disseminated few TF suspicious cases; after investigations none resulted in TF prosecutions. - Twelve of the fifty individuals disseminated to the civil intelligence agency are still being monitored; two are also being investigated by the U.S. FBI. - Authorities determined none of the subjects met the criteria for designation under UN Security Council Resolution 1373. - Seven persons referred to competent authorities were investigated and had their cases reclassified as ML cases related to trafficking of persons by organized crime; no terrorism or TF evidence was found. ### Cooperation and information exchange - The FIU and other competent authorities cooperate, coordinate, and exchange financial information to a great extent. - Access to FIU financial information is appreciated by PGR and SAT, but has resulted in the launch of few ML investigations; the vast majority of ML investigations and prosecutions have been triggered by FIU spontaneous disseminations. - Cooperation agreements: - The FIU increased cooperation agreements from 10 in 2010 to 24 in 2016. - PGR and SAT have controlled access to the FIU database. - FIU roles and opinions: - FIU provides opinions on AML/CFT matters to other authorities (e.g., Comisión Nacional de Hidrocarburos, Comisión Nacional de Seguridad, INE). - FIU, through SHCP audit services, is subject to testing of computer systems, networks, and web applications to find vulnerabilities. - Constraints in cooperation: - Regular use of FIU account-blocking power can undermine cooperation with PGR by tipping off subjects and delaying provisional measures. - Coordination efficient at federal level but less so at state and community levels: state prosecutors and state LEAs cannot access FIU information directly and must request it from the FIU, which must file a complaint for ML prosecution to proceed. - Overreliance of PGR and LEAs on the FIU to collect information rather than using their own powers can delay the exchange of financial intelligence. ### Effectiveness and conclusions for Immediate Outcome 6 - Overall conclusion: Mexico has achieved a moderate level of effectiveness for IO.6. ### Immediate Outcome 7 — ML investigation and prosecution: observations and institutional capacity - Historical priorities: - Until recently, the PGR did not prioritize identification and investigation of ML; steps taken include creation of specialized units. - ML is still not investigated and prosecuted in a proactive and systematic fashion; approach remains reactive and case-by-case. - Procedural requirement: before PGR can bring a prosecution for ML committed through the financial system, the FIU must first file a complaint in accordance with the last paragraph of Article 400 bis Federal Civil Code (CCF); this can delay prosecutions and undermine PGR powers. - Significant corruption affecting LEAs, particularly at state level, undermines capacity to investigate and prosecute serious offenses. - Specialized units and resources: - UEIORPIFAM (part of SEIDO): 2015 budget Mex$60,514,325 (US$2,990,714.10); staff of 100 (2015). - UEAF (established July 2013, part of PGR): tasked with financial and accounting analyses of ML transactions and ML investigations; 2015 budget Mex$23,765,675 (US$1,174,706); staff of 111 (2015). - Relationship between UEAF and UEIORPIFAM unclear; some case-by-case cooperation (Denim, Sonora, Juarez). - The multiplicity of units investigating ML creates coordination difficulties and undermines effectiveness; non-specialized units lack depth of expertise. - Financial, human resources, and training allocated to specialized units do not appear sufficient relative to results. - Training: - Between 2012 and 2017, a total of 25 ML training initiatives were organized, some in cooperation with the U.S., France, and Spain. - Since 2016, training activities (especially for UEAF staff) have focused on implementing the adversarial system rather than ML-specific skills. - Informe de la Auditoría Superior de la Federación (2016 Annual Report) recommends analysis of PGR training needs and development of a capacity-building program with regular updates and specialization. - Identification and initiation of ML investigations: - Existing procedures (standard operating procedure for OC investigations and mandatory internal procedure for ML) do not lay down criteria describing when an ML investigation should be initiated. - No appropriate protocol for the Federal Police identifying circumstances to initiate ML investigations when preliminary inquiries into predicate offenses exist; this contributed to a very low number of ML investigations deriving from predicate offenses. - After the onsite visit, Mexican authorities adopted a protocol setting out duties of different actors (prosecutors, police, experts, the FIU) involved in ML investigations. - Comparative activity levels (Table 15 — Preliminary investigations initiated at federal level): - Corruption preliminary investigations: 2012: 3,755; 2013: 3,065; 2014: 4,410; 2015: 3,810; 2016: 1,702 - Tax offenses preliminary investigations: 2012: 7,568; 2013: 2,418; 2014: 1,798; 2015: 1,573; 2016: 455 - Organized crime preliminary investigations: 2012: 2,270; 2013: 1,302; 2014: 1,299; 2015: 1,057; 2016: - - ML preliminary investigations: 2012: 531; 2013: 464; 2014: 415; 2015: 426; 2016: 178 - Note: figures for drug trafficking preliminary investigations were omitted due to unreliable and inconsistent statistics. - Observations: - PGR accords far more priority to investigating predicate offenses than to ML. - When investigations into predicates (corruption, tax, OC) are initiated, parallel ML investigations are very rarely opened, suggesting lack of coordination or awareness between units. *Source: cr17405-mexicodar - 159. FIU disseminations to PGR: From 2013 to June 2016, the FIU disseminated 317 cases with* ### 181. The PGR (see Table 16) appears to identify most ML cases from information sent by ### cr17405-mexicodar - 181. The PGR (see Table 16) appears to identify most ML cases from information sent by ### Identification and sources of ML investigations - The PGR appears to identify most ML cases from information sent by different national authorities (such as customs or the Federal Police) and foreign authorities (almost entirely with U.S. agencies, e.g., DEA/ICE), and, to a lesser extent from FIU disseminations. - The FIU’s role in the identification of ML cases has increased in recent years. - Table 16 — Comparative Table Showing the Origin of ML Investigations: - Total ML investigations 1/: - 2012: 531 - 2013: 464 - 2014: 415 - 2015: 426 - 2016: 438 - ML investigations triggered by various sources (customs, federal police, foreign authorities): - 2012: 129 - 2013: 124 - 2014: 105 - 2015: 148 - 2016: 198 - ML investigations triggered by the FIU disseminations: - 2012: 35 - 2013: 84 - 2014: 87 - 2015: 109 - 2016: 37 - 1/ The authorities did not identify the origin of the other remaining investigations. ### Prioritization and coordination issues - There is a lack of clear criteria for prioritization of ML cases: - It is not possible to ascertain whether priority is given to ML investigations over other investigations. - It is not possible to ascertain whether priority is given to complex over simple cases, or to domestic over foreign predicate offenses. - Coordination uncertainties: - It was not possible to determine how the different specialized units coordinate internally within SEIDO. - It was not possible to determine how the PGR coordinates work at the federal and state level, or how it coordinates with other authorities such as customs and tax authorities in ML investigations. ### Investigations, investigative techniques, and timelines - Between 2010 and 2014, the number of prosecutions (consignaciones) was very low compared with investigations initiated (averiguaciones previas) (25 percent). - Table 17 — Figures on ML Investigations and Prosecutions 1/: - Investigations initiated: - 2010: 461 - 2011: 479 - 2012: 531 - 2013: 464 - 2014: 415 - 2015: 426 - 2016: 438 - Investigations leading to prosecutions: - 2010: 115 - 2011: 108 - 2012: 145 - 2013: 111 - 2014: 109 - 2015: 76 - 2016: 43 - 1/ One comment must be made on these figures: since the different sets of figures provided for the number of investigations initiated in 2015 and 2016 were significantly different, they could not be usefully considered and were excluded from the table. - The investigation cycle does not permit conclusions on investigation duration or time required for measures such as: - (i) identifying the holders of bank accounts; - (ii) obtaining information from public registries; or - (iii) gathering information on BO where legal persons are under investigation. - Investigative techniques: - The only special investigative technique that seems to be used in ML investigations is wiretapping. - No specific examples were provided of undercover agents or controlled deliveries being used. - Lack of regulation of controlled deliveries (deficiency noted in R.31) negatively impacts effectiveness in complex investigations. ### Adversarial system implementation (Box 2) — effects on AML/CFT prosecutions - Criminal procedure reform: transition from inquisitorial to adversarial system. - Since 2008, the Mexican federal government has spent roughly US$3 billion to support state governments’ efforts to transition to the new system. - As of June 18, 2016, the adversarial system had been implemented in all 32 offices of the PGR. - Expected prosecutorial effects: - Under the new system, prosecutors will have greater discretion to prioritize their caseloads and may decide not to investigate or prosecute some cases appearing to have little importance. - This discretion purportedly allows directing departmental resources towards other strategic priorities. - The PGR has adapted institutional structure, specialized units, and operational skills, and provided specialized training to prosecutors; the impact of these measures cannot be assessed at present. ### Consistency of investigations/prosecutions with national threats and risk profile - Main asset-generating activities: organized crime, drug trafficking, corruption and tax offenses. - Organized crime poses a very high ML threat in Mexico; proceeds of drug trafficking and production are principal source of ML funds. - Illicit funds also originate from corruption, extortion, kidnapping, human trafficking, theft of oil-based products and minerals; tax evasion constitutes an important ML threat. - Responsibility for investigation/prosecution: - SEIDO’s Specialized Unit for Investigations into Crimes Against Health: investigates and prosecutes drug trafficking by OCGs. - Specialized Prosecution Office on Corruption (FADC): responsible for corruption; unclear if FADC conducts financial investigations or requests assistance from UEAF (no examples provided). - Federal Fiscal Attorney’s Office (Procuraduría Fiscal Federal within the SHCP): responsible for tax offenses investigations/prosecutions. - SEIDO groups specialized units with competence to investigate offenses committed by OCGs. - Standard operating procedure: “Integration Procedures for Preliminary Inquiries in Organized Crime” applies to OCG investigations. - Despite structures, low prosecution and conviction rates undermine effectiveness against corruption and tax evasion. ### Corruption case statistics and effectiveness - Table 18 — Corruption Cases: - Investigations initiated: - 2013: 3,065 - 2014: 4,410 - 2015: 3,810 - 2016: 1,702 - Total: 12,987 - Prosecutions: - 2013: 492 - 2014: 502 - 2015: 397 - 2016: 353 - Total: 1,744 - Convictions: - 2013: 10 - 2014: 11 - 2015: 17 - 2016: 13 - Total: 51 - Observations: - Between 2013 and 2016, only 2.9 percent of prosecutions ended in conviction. - A 2015 study indicates only seven prosecutions/investigations were initiated out of a total of 444 disseminations (1.6 percent) made by the Auditoria Superior de la Federación between 1998 and 2012. - These figures suggest an extremely low level of effectiveness against corruption. ### Tax evasion case statistics and effectiveness - Table 19 — Tax Evasion Cases: - Investigations initiated: - 2013: 2,418 - 2014: 1,798 - 2015: 1,573 - 2016: 455 - Total: 6,244 - Prosecutions: - 2013: 1,235 - 2014: 747 - 2015: 691 - 2016: 303 - Total: 2,976 - Convictions: - 2013: 326 - 2014: 222 - 2015: 213 - 2016: 118 - Total: 879 - Observations: - Low prosecution-to-investigation and conviction-to-prosecution ratios. - Sharp fall in investigations initiated between 2013 and 2016 and a fall in convictions by more than half. ### Types of ML cases prosecuted and self-laundering - Judicial decisions analysis (convictions and acquittals): - Most ML charges relate to: - concealment: 22 percent - transport: 15 percent - custody: 15 percent - administration: 5 percent - transfer: 3 percent - deposit: 2 percent - remaining: 38 percent not assigned any specific method of commission - 62 percent of all ML charges were filed in the context of OC. - 42 percent of ML charges were in the context of drug trafficking. - FIU information was requested only in 16 percent of the convictions. - ML prosecuted as autonomous offense is rare. - Table 20 — Types of ML Cases Prosecuted: - Number of ML prosecutions: - 2013: 111 - 2014: 109 - 2015: 76 - 2016: 43 - Total: 339 - Number of prosecutions for ML as an autonomous offense: - 2013: 8 - 2014: 10 - 2015: 2 - 2016: 16 - Total: 36 - Number of prosecutions for self-laundering: - 2013: 5 - 2014: 10 - 2015: 2 - 2016: 4 - Total: 21 ### Convictions, conviction rates, and sanctions - Conviction trends: - Huge disparity between number of prosecutions and number of convictions; conviction rate extremely low. - NRA: ML conviction rate between 2010 and 2014 fell from 20 percent to 5 percent. - Other figures provided by Mexican authorities (Consejo de la Judicatura Federal): - conviction rates of 36 percent, 21 percent, 44 percent, and 13 percent for 2013, 2014, 2015, and 2016, respectively (based on very few prosecutions). - Mexico had never prosecuted or convicted a legal person of ML until recently (June 2016) because legal persons could not be prosecuted for ML prior to that date. - Table 21 — Figures on ML Prosecutions and Convictions 1/: - Number of prosecutions: - 2010: 115 - 2011: 108 - 2012: 145 - 2013: 111 - 2014: 109 - 2015: 76 - 2016: 43 - Number of convictions: - (blank for 2010–2012) - 2013: 40 - 2014: 23 - 2015: 34 - 2016: 6 - Number of convicted persons: - 2010: 12 - 2011: 19 - 2012: 19 - 2013: 17 - 2014: 11 - 2015: 15 - 2016: 10 - 1/ One comment must be made on these figures: it is not clear why the number of convictions is higher than the number of persons convicted between 2013 and 2016. - Sanctions under Article 400 bis Código Penal Federal (CPF): - Natural persons: imprisonment of between five and fifteen years and a fine of between 1,000 and 5,000 days at the stipulated daily rate (día multa). - Analysis indicates most convictions fall within the lower end of the penalty scale; based on nature of offending, ML sanctions following conviction appear effective, dissuasive, and proportionate. ### Alternative measures and prosecutorial discretion - Discretionary prosecution principle (principio de oportunidad): - Prosecutor may decide not to prosecute if compensation has been given or guaranteed to the victim. - Principle applies where prosecutor decides not to proceed, not specifically where a conviction cannot be secured. - No cases were provided illustrating practical application of this principle in ML investigations. ### Overall assessment on Immediate Outcome 7 - Mexico has achieved a low level of effectiveness for IO.7. ### Confiscation (Immediate Outcome 8) — legal framework and practice - Mexico has an appropriate legal framework to support both criminal and civil (non-criminal based) proceedings to confiscate property and POC. - Property and proceeds seized, abandoned, and confiscated are managed by the Public Sector Assets Management and Disposal Service (SAE). - Since the last assessment, volume of seized and confiscated assets has slightly increased; efforts fall short and are not commensurate with Mexico’s risk profile. - Confiscation policy and practice: - Confiscation of criminal POC, instrumentalities, and property of equivalent value is not being pursued as a policy objective. - Post-NRA High Level Groups approved seven policies, including one for establishing protocols regarding initiation of parallel investigations related to ML; expected positive impact on confiscations, but too early to determine effect. - The PGR, assisted by Federal Police, has not given priority to parallel financial investigations to trace assets. - No information provided on application of confiscation of property of equivalent value. - Tools and capacity: - Mexico has criminal and administrative tools to seize and freeze criminal proceeds and instrumentalities subject to confiscation. - PGR has not developed a strategy to prioritize investigations to follow the money and locate/restrain illegal assets. - Most ML investigations are triggered by the FIU and are not the result of parallel financial investigations; authorities are not proactive in tracing illegal assets generated by predicate-offense investigations. - This is mainly due to lack of capacity and expertise to conduct financial investigations by competent authorities (see IO.7). - Convictions and confiscation outcomes: - Number of convictions decreased between 2013 and 2016. - Only a few convictions resulted in confiscation. - Authorities provided some 35 successful cases, of which only three resulted in confiscation. - Low volume of confiscation mostly due to judiciary reluctance to confiscate where evidence linking seized assets to the conviction is weak. _International Monetary Fund — cr17405-mexicodar (excerpted content unit)_ ### 206. The PGR has seized US$1.3 billion, pursuant to 119 ML investigations. However, there has ### 206. The PGR has seized US$1.3 billion, pursuant to 119 ML investigations. However, there has ### Seizures, confiscations, and abandonments - PGR seized US$1.3 billion pursuant to 119 ML investigations; confiscated in relation to ML so far: US$934,965.40. - Low number of confiscations attributable to deficiencies identified under IO.7 (e.g., deficiencies in investigation methodology, overly long judicial procedures, and lack of internal coordination). - Volume of abandoned assets is slightly higher; assets recovered from seized abandonments: US$7,943‚369.62 (which is only 0.61 percent of overall assets seized). - Limited claims by rightful owners lead to loss of right in rem and application of assured property for the benefit of the state. ### FIU administrative freezing / BPL system and frozen assets - December 2014: FIU initiated administrative freezing/blocking of accounts held by FIs of listed persons (BPL) to prevent capital flight and allow provisional measures by the PGR; freezing actions are periodically challenged but assets typically remain frozen during investigations. - Freezing focused mainly on bank accounts; may tip off listed persons and lead to liquidation/flight of other assets as PGR does not appear proactively to pursue following FIU freezing actions. - FIU statistics: some 2,056 accounts at FIs frozen, of which 2,020 were bank accounts; BPL designations mainly related to drug trafficking, corruption, OCG, and tax crimes. - Table 22 aggregates (2014–2016): - Natural Persons: # designated 609; Amount of assets frozen Mex$ (millions) 1,672.1; Amount of assets frozen US$ (millions) 18.0; Total US$ (millions) 108.32 (annual breakdown: 14.50, 9.49, 84.33). - Legal Persons: # designated 838; Amount of assets frozen Mex$ (millions) 1,060.2; Amount of assets frozen US$ (millions) 9.6; Total US$ (millions) 66.26 (annual breakdown: 8.34, 12.30, 45.63). - Total US$ (millions) (2014, 2015, 2016, Total): 22.84, 21.78, 129.96, 174.58. - Nationals: # designated 1,405; Amount of assets frozen Mex$ (millions) 2,731.8; Amount of assets frozen US$ (millions) 27.6. - Foreign: # designated 42; Amount of assets frozen Mex$ (millions) 0.6; Amount of assets frozen US$ (millions) 0. - FIU sent to the PGR 166 requests for prosecution after blocking accounts over last three years; PGR pursued only four prosecutions. - FIU cooperation with U.S. OFAC resulted in listing of 98 persons. ### Seizures by PGR based on BPL and related totals - Table 23 (2014–2016): US$ (millions) seized by PGR based on BPL system: $3.98, $0.9, $0.27; Total US$ (millions) $17.4, $13.5, $32.5, $63.4. - FIU reports US$63.4 million seized by the PGR (no information on whether FIU freezing facilitated final confiscations or abandonments/forfeiture). ### Civil asset forfeiture and SAE management of seized assets - Civil asset forfeiture introduced in 2008; not used actively. Authorities cite restrictions in the scope of application (ML offenses not included) and lack of prosecutors' capacity. Authorities preparing amendments to the Constitution to expand forfeiture scope to include ML. - SAE manages seized assets via criminal processes and civil forfeiture; difficulties managing seized assets due to lack of authority to sell seized assets whose value may deteriorate prior to final confiscation order. A protocol regarding sale of such assets has been recently approved. ### Confiscations of proceeds from foreign/domestic predicates and proceeds located abroad (UEIORPIFAM and UEAF) - Confiscation achieved to only a limited extent. ML investigations pursued by UEIORPIFAM within SEIDO and the UEAF; UEIORPIFAM focus mainly on OC and drug trafficking. - UEAF reported seizures (Table 24): - ML Seizures (cash Mex$): 3,560,951; 3,241,000; 7,234,477; Total 14,036,428. - ML Seizures (Assets count): 0; 4,855; 48; Total 4,903. - ML Seizures (Estimated value Mex$): 0; 395,675,860; 395,675,860; Total 791,351,720. - Total Mex$* (ML): 192,380; 398,921,715; 402,910,385; Total 802,024,480. - Total approx. in US$ (ML): 10,393; 21,551,686; 21,767,174; Total 43,329,253. - ML Seizures Resulting from Predicate Offense (cash Mex$): 290,190; 9,089,702; 42,351,886; Total 51,731,778. - ML Seizures Resulting from Predicate Offense (Estimated value Mex$): 0; 0; 474,150,742; Total 474,150,742. - Total Mex$* (predicate): 290,190; 9,089,702; 516,502,655; Total 525,882,547. - Total approx. in US$ (predicate): 15677.47; 491069.80; 27903979.20; Total 28410726.47. - Total Final in US$ (combined): 26,070.76; 22,042,756.20; 49,671,152.89; Total 71,739,979.84. - Note: Cash and estimated values provided in Mex$ (US$1 = 18.51 approx.). - UEAF has seized approximately US$71,739,979.84. Confiscation achieved: Mex$1,890,000.00 (approximately US$102,106.97) derived from one case in 2016 (confiscation granted in 2017). - UEAF requested confiscation of cash from one case in 2016 for Mex$1,890,000, granted in 2017. ### Seizures by different PGR units (Table 25) — selected highlights and totals - Specialized Unit on Investigation of Transactions with Resources of Illicit Proceed and Falsification or Alteration of Currency (UEIORPIFAM): - Cash total US$* by year: 28,237,329.8; 122,303,054.16; 17,059,175.18; 14,849,235.44; Total 182,448,794.6. - Real estate value US$: 4,838,573.7; 517,225.45; 8,722,896.54; 1,650,729.34; Total 15,729,425.1. - Vehicles value** US$: 299,566.99; 1,077,564,167.42; 1,818,691.79; 60,420.58; Total 1,079,742,846.8. - Others value*** US$: 54,513,357.2; 15,588.49; 856,052.40; 130,672.99; Total 55,515,671.0. - Total US$: 87,888,827.7; 1,200,400,035.5; 28,456,815.9; 16,691,058.3; Total 1,333,436,737.5. - Other PGR units reported substantial seizure figures across cash, real estate, vehicles, and other assets; aggregate reporting across units amounts to very large nominal totals in different currencies (data provided in different currencies; totals expressed in Mex$ with US$1 = 18.51 approx.). - Aggregate observation: several PGR units seized approximately 40,000 physical assets (e.g., aircraft, real estate, vehicles). ### Physical assets confiscated vs seized - From US$1.35 billion of assets seized, only approximately US$14.5 million have been finally deprived. - Table 26 — Physical Assets Confiscated (2013–2016 totals): - Real estate: 6, 8, 11, 6; Total 31. - Aircraft: 0, 3, 0, 0; Total 3. - Trucks: 45, 46, 32, 24; Total 147. - Vehicles: 153, 177, 114, 81; Total 525. - Trailers: 15, 11, 7, 2; Total 35. - Perishable goods: 11, 6, 8, 13; Total 38. - Archaeological goods: 0, 1, 0, 0; Total 1. - Other: 402, 477, 500, 314; Total 1,693. - Total confiscated physical assets: 632, 729, 672, 440; Total 2,473. - Several PGR units seized approximately 40,000 physical assets but only confiscated 2,473 number of assets; no information provided on the value of those confiscations. ### Confiscations, abandonments, and forfeitures — aggregate values (Table 27) - Mex$ confiscated in criminal cases (2013–2016): $1,018‚051.70; $668‚894.80; $498‚293.00; $200‚934.50; Total $2,386‚174.00. - Mex$ forfeited (2013–2016): $13,748‚000.00; $19,700‚890.00; $7,556‚720.00; $14,395‚087.00; Total $55,400‚697.00. - Mex$ abandoned (2013–2016)1/: $41,680‚765.67; $10,146,671.91; $7,663,483.00; $5,108‚134.23; Total $64,599‚054.81. - Total in Mex$2/ (2013–2016): $56,446‚817.37; $30,516‚456.71; $15,718‚496.00; $19,704‚155.73; Total $122,385‚925.81. - Total approx. in US$ (2013–2016): $3,049‚530.92; $1,648‚647.04; $849‚189.41; $1,064‚514.09; Total $6,611‚881.46. - US$ confiscated in criminal cases (2013–2016): $861‚287.55; $21‚456.00; $583‚298.00; $69‚059.00; Total $1,535‚100.55. - US$ forfeited (2013–2016): $0.00; $1,796‚583.00; $1,437‚478.00; $39‚439.00; Total $3,273‚500.00. - US$ abandoned (2013–2016): $3.00; $0.00; $29.00; $2,591‚294.20; Total $2,591‚326.20. - Total in US$ (2013–2016): $861‚290.55; $1,818‚039.00; $2,020‚805.00; $2,699‚792.20; Total $7,399‚926.75. - Euros confiscated/forfeited/abandoned reported with totals and approximate conversion to US$; Total in US$ for euros (2013–2016): 0; $82,352.94; 0; $450,394.12; Total $532‚747.06. - Overall Total in US$ (2013–2016): $3,910,821.47; $3,549,038.98; $2,869,994.41; $4,214,700.40; Total $14,544,555.27. - Footnotes: - 1/ Abandonment figures aggregated from UEIORPIFAM (PGR) and Council of the Federal Judicature. - 2/ Cash and estimated values provided in Mex$ (US$1 = 18.51 approx.). - 3/ Cash and estimated values provided in euros (US$1 = 0.85 euros approx.). ### International cooperation and assets abroad - PGR does not pursue complex international ML cases. Only one MLA request was made for seizing assets abroad; Mexico replied to one incoming MLA to seize assets domestically. - Authorities are not proactive in seeking assistance for international cooperation in an appropriate and timely manner due to lack of capacity to pursue parallel financial investigations and inability to prioritize investigations to trace assets. ### Cross-border movement of currency and BNIs (Table 28 and related) - Amounts in Table 28 relate to seizures from critical incidents (smuggling) of cash and BNIs; no information on whether they resulted in confiscations. - Serious legal deficiencies: false declaration is not an offense; SAT has no power to stop or restrain currency suspected of being related to ML, predicate crimes, or TF. - SAT proactive measures: National Targeting Center (CPED) developed alert system to detect atypical conduct and inconsistencies in passenger declarations and cargo; shares information with Federal Police, PGR, INAMI, and Customs. - Table 28 selected figures (2014–2017 excerpts): - 2014 Entry: Number false declarations detected (US$10,000–30,000): 110; Amount detected: 163,138,215; Number false declarations > US$30,000: 50; Amount detected and seized > US$30,000 and referred to the PGR: 220,124,617; Amounts seized in US$: 11,892,199. - 2014 Exit: 86; 34,220,010; 36; 372,885,703; 20,145,094. - 2015 Entry*: 121; 82,277,952; 81; 531,070,168; 28,690,986. - 2016 Entry*: 208; 123,152,005; 71; 9,271,486,761; 500,890,694. - 2017 (January–February) Entry: 45; 17,980,181; 22; 3,037,146,943; 164,081,412. - Note: * Domestic transit, unknown. ### Consistency of confiscation results with ML/TF risks and national policies - Mexico’s confiscation results are limited and not commensurate with ML/TF risks. - Authorities developed a protocol to pursue parallel investigations which might positively affect confiscation volume, but no specific asset-pursuit/confiscation policy articulated to make crime unprofitable. - Law enforcement and asset recovery focus mainly on predicate offenses (i.e., drug trafficking) by OCGs; recovery of POCs from corruption and tax evasion not actively pursued. - Table 29 — Critical Incidents by Customs Point (2014–2017 totals): notable totals include CRITIC TOLUCA: 161; GUADALAJARA: 65; AICM: 49; CANCÚN: 29; others listed with smaller totals. ### Overall effectiveness and immediate outcomes - Mexico has a low level of effectiveness for IO.8. - Immediate Outcome 9 (TF investigation and prosecution) findings: - Institutional framework exists (UEITA) but PGR lacks protocols/manuals for clear identification and prioritization of TF cases. - UEITA investigations appear to rely on FIU or civil intelligence intelligence and often do not proceed to criminal investigation initiation. - TF is not among offenses for which legal persons may be held criminally liable. - Immediate Outcomes 10 and 11 (TFS for TF and PF): - Only one case to demonstrate effective implementation of TFS related to TF or PF. - Private sector demonstrates clear understanding; FIs more compliant than DNFBPs. - Mechanism for implementation of TFS used often to freeze assets in ML cases; identification of false positives indicates active use. - Financial sector supervisors monitor reporting entities for TFS compliance; SAT not supervising majority of DNFBPs. - Lack of private sector access to timely and up-to-date BO information for legal entities increases sanctions evasion risk. - Non-profit organizations (Immediate Outcome 10): - NPO sector broadly supervised as a DNFBP; risk-based targeted monitoring not fully implemented. - Authorities identified higher risk entities via a 2017 risk assessment and are revising regulations to implement FATF revisions related to NPOs. ### Recommended actions (selected) - TF offense (IO.9): - Strengthen assessment of TF risks across all sectors vulnerable to TF. - PGR should reinforce UEITA capacity to identify potential TF cases and conduct investigations using financial investigation and criminal procedure law techniques; develop TF-specific investigation manual and specialized training; reinforce coordination with FIU and civil intelligence agency. - Include TF in list of offenses for which legal persons may be held criminally liable. - Targeted financial sanctions related to TF and PF (IO.10–11) — Mexico should: - Increase resources to more effectively monitor DNFBPs for compliance with TFS obligations. - Improve interagency coordination related to TF to better detect potential cases for criminal investigations. - Implement more targeted outreach and monitoring of the NPO sector based on the revised 2017 risk assessment. - Relevant Immediate Outcomes assessed in this chapter: IO.9–11. Recommendations relevant for effectiveness: R.5–8. *Italic source: IMF Mexico report content provided in the supplied PDF excerpt.* ### 227. Mexico demonstrated a reasonable understanding of its TF risk. Mexico’s NRA identifies TF ### 227. Mexico demonstrated a reasonable understanding of its TF risk. Mexico’s NRA identifies TF ### TF risk assessment and strategic context - Mexico’s NRA identifies TF as “low-medium risk.” - The 2014–2018 National Security Program identifies terrorism as one of the five risks and threats for Mexico. - The NRA describes TF threat as predominantly derived from external dynamics related to: - the country’s geographical position; - the porosity of its border; and - corruption enabling criminal networks to be used as a platform for international terrorism. - Mexico considers the greatest indirect risk of terrorism to be posed by trafficking of undocumented persons, specifically the possibility that networks facilitating illegal immigration to the U.S. might be used as a vehicle for Islamic terrorism. - Despite the NRA, Mexican authorities’ main TF focus is on STRs provided by FIs involving high-risk jurisdictions, and it is not clear whether adequate prioritization is being given to detection and disruption of potential TF activities. ### TF identification and investigation processes - In September 2015, the FIU established a TF risk evaluation model based on indicators to analyze and evaluate STRs provided by FIs involving high-risk jurisdictions. - Where the FIU identifies a potential TF case via the model, it disseminates information to the UEITA for potential criminal investigation. - Between 2010 and 2015, 310 requests were sent to the FIU seeking financial intelligence and confirmation of the evidence held by the UEITA. - Box example (2014): FIU’s risk model triggered an investigation; cash transfers were linked to individuals with links to Syria and Lebanon; UEITA requested information via plataforma México; investigation resulted in charges for organized crime and human trafficking rather than TF. - The PGR could not point to clear mechanisms (protocols or manuals) for identification and prioritization of potential TF cases. - UEITA investigations appear to be intelligence-based and do not routinely proceed to the next level of initiating criminal investigations employing investigation techniques. - Between December 1, 2006 and November 30, 2014, 28 preliminary investigations (averiguaciones previas) were opened into potential terrorist offenses. - The UEITA conducted three terrorism investigations involving violent acts (caso Campeche, caso Estado de Mexico, and caso Jalisco); no TF evidence was found and investigations were closed without terrorism charges being brought to court. - Mexico has never prosecuted a case of TF; some preliminary TF investigations identified other crimes such as human trafficking, some investigated jointly with the FBI. ### Institutional framework, cooperation and coordination - Mexico has a specific legal and institutional framework for investigation and prosecution of TF offenses. - Within SEIDO, the PGR has UEITA to investigate and prosecute TF. - Other agencies (border, public security, intelligence) cooperate with UEITA to gather evidence. - Authorities demonstrated effective use of international cooperation channels, particularly with the U.S., to detect potential TF activities. - Mexico has two High Level Groups on ML and TF/PAMD established to implement the national strategy on TF investigations; these are interdisciplinary and specialized and meet at regular intervals. - The High Level Group on TF/PAMD’s main objective is to propose establishment, analysis, creation, review and assessment of institutional policies for preventing TF/PAMD. - Mechanisms to ensure coordination between UEITA and actors such as the FIU, CANDESTI, the civil intelligence agency, and LEAs could be improved. - CANDESTI is the interagency body coordinating national security policy including UN obligations; the CANDESTI Task Force on Terrorism (chaired by the FIU) designates pursuant to 1373 and proposes de-listings pursuant to UNSCRs 1267 and successor resolutions. - The CANDESTI Task Force on Terrorism membership: PGR, the civil intelligence agency, FIU, Federal Police, Immigration, Ministry of Communications and Transport, the Army, the Navy, and the SRE. ### Effectiveness and legal sanctions - Article 139 quarter as read with Article 139 of the CCF: natural persons liable to imprisonment of between 15 and 40 years and a fine of between 400 and 1,200 days at the stipulated daily rate upon conviction for TF. - TF penalties are proportionate relative to penalties for other offenses. - TF is not included in offenses for which legal persons can be held criminally liable under the CCF. - At time of onsite visit, there had been no prosecutions or convictions for TF offenses, and no sanctions had been imposed. - Mexico has used alternative criminal justice and administrative disruption measures (e.g., deporting foreign residents deemed to pose a potential threat), but these measures were not employed because TF conviction was impracticable; such cases are not relevant to the prosecution criterion. - Mexico achieved a moderate level of effectiveness for IO.9. ### Targeted Financial Sanctions (TFS) and implementation - Mexico passed a resolution in January 2014 establishing a comprehensive system for implementing TF- and PF-related TFS pursuant to UNSCRs 1267, 1373, 1718, 1737, and relevant successor resolutions. - Mexico amended several financial laws in 2014 and issued regulations to establish freezing obligations for FIs and DNFBPs. - Regulations established parameters for inclusion on Mexico’s domestic BPL (applies to financial sector) and the Related Persons List (LPV, applies to DNFBPs); both lists incorporate UN designations and are publicly available on the Ministry of Finance (SHCP) website and disseminated immediately (within 24 hours) when there are changes. - Mexico has no cases demonstrating implementation of TFS pursuant to UNSCRs 1267 or 1373. - Authorities demonstrated a clear process for checking UN lists, incorporated into the domestic BPL, and reported a significant number of accounts frozen (and subsequently reported to the FIU) related to domestic designations for ML. - FIs and DNFBPs generally understand their obligations and procedures for asset identification and freezing; several false positives have been reported to the FIU indicating private sector compliance with TFS mechanisms despite absence of TF cases. - TFS implementation process: - Mexico Mission to the UN informs CANDESTI members of 1267 list changes immediately; - FIU immediately informs AML/CFT supervisors (CNBV, CONSAR, CNSF, and SAT); - Supervisors notify reporting entities within 24 hours; - Reporting entities must immediately suspend (within 24 hours) acts, transactions, or services with designated customers and freeze identified funds or assets; - FIs and DNFBPs must submit a report to the FIU within 24 hours of identifying funds/assets or blocking transactions. - FIs and DNFBPs are subject to sanctions for TFS non-compliance, but authorities have never identified a compliance failure and therefore have levied no sanctions. - Financial sector supervisors monitor reporting entities for TFS compliance; DNFBP supervisor (SAT) is not supervising the large majority of reporting entities under its purview, including for TFS compliance, raising concerns about detection gaps. - Regarding UNSCR 1373 implementation: - Mexico has never received a request from a foreign jurisdiction, and has never designated an individual or entity of its own motion. - Any Task Force member can propose a target; Task Force has met one time to discuss a potential target and determined the individual did not meet criteria. - Only the FIU has brought a potential UNSCR 1373 case to the Task Force (on one occasion). - Agencies generally rely on FIU financial intelligence before opening investigations or considering designations. ### Use of preventive domestic measures and blocking lists - Authorities used the BPL to block funds as a preventive measure during investigations of potential TF links; individuals added to BPL during Egmont exercise on foreign terrorist fighters remained on BPL because links to ML and organized crime were found despite no known terrorism link. - Inability of reporting entities to obtain timely accurate BO information for legal entities is a vulnerability for sanctions evasion through legal entities and arrangements. - Mexican authorities are mitigating this by publishing an amended regulation obligating all reporting entities to identify beneficial owners regardless of risk profile; these revised regulations are entering into force in October 2017. - Government actions include inter-connectability of registries and updating of states’ information. ### NPO sector oversight, targeted approach and outreach - Approximately 257,000 NPOs in Mexico, of which roughly half fall into the FATF-defined NPO category. - Current regulations governing NPOs are more extensive and burdensome than FATF requires, and not consistent with risk-based approach in revisions to R.8. - All NPOs receiving tax-deductible donations are supervised for AML/CFT given their classification as VAs; NPOs receiving donations above the US$6,500 threshold are subject to the same requirements as DNFBPs. - At onsite, authorities had not implemented a targeted oversight/outreach approach consistent with recent R.8 changes, but plan regulatory revisions and have taken steps including a revised sectoral risk assessment in February 2017. - In the revised assessment, the FIU assessed approximately 13,000 of the 125,000 NPOs that fall under the FATF definition using SAR reporting, identifying a small subset most likely to be abused based on FIU TF risk model factors (including ability to conduct international wire transfers and geographic location of wire recipient). - FIU issued general guidance to FIs and DNFBPs (including NPOs) on TF risk: “Guidance on Indicators to Detect Possible Transactions related to TF” and “Guidance on the Most Common Transactions Performed by Foreigner Terrorist Fighters” (issued in 2015 and 2016). - FIU plans more targeted outreach to higher-risk NPOs identified in the revised 2016 assessment. - SAT (responsible supervisor for NPOs) did not demonstrate understanding of NPO sector vulnerabilities to TF and relegated TF-related monitoring responsibility to the FIU. - FIU identified several cases of suspected NPO-related TF based on SAR analysis and passed these to the civil intelligence agency; to date no TF links were found and none led to criminal investigation. - Stakeholder views: interviewed humanitarian NPO and NPO Association which viewed the sector as low risk for TF, noting most organizations are locally based, spend funds locally, and few conduct international transactions. *Source: cr17405-mexicodar - 227. Mexico demonstrated a reasonable understanding of its TF risk. Mexico’s NRA identifies TF* ### 256. As previously noted, to date authorities have not identified any funds or assets related to ### cr17405-mexicodar - 256. As previously noted, to date authorities have not identified any funds or assets related to ### Terrorist Financing (TF) detection and targeted financial sanctions (TFS) - To date authorities have not identified any funds or assets related to TF, either through the implementation of TFS or through the process of a TF investigation. - The use of the TFS freezing regime for domestic ML designations has been successful and demonstrates that in cases where there is a positive UN match related to TF, reporting entities have the tools to proceed with their freezing obligations in a timely manner. - Mexico assesses its TF risk to be low and has implemented several measures to mitigate TF risk, including mechanisms to detect and target TF through TFS; however, no TF has been detected to date. - There has been some monitoring of and outreach to the NPO sector (as part of the FIU’s broad outreach to DNFBPs), and authorities are taking steps towards implementing a more targeted approach since the revised NPO assessment. - Limited resources and attention devoted to combating TF may impact Mexico’s ability to detect potential TF cases and identify targets for criminal prosecution or for designation. - Mexico has achieved a substantial level of effectiveness for IO.10. ### Immediate Outcome 11 (PF Financial Sanctions) — implementation and practice - Mexico lacks many examples demonstrating broad implementation of TFS related to PF, though procedures for implementing TFS related to PF are the same as for TF. - The private sector demonstrated clear understanding of obligations from receipt of notification of changes to the UN lists to the requirement to freeze any identified funds or assets and block any transactions without delay. - Authorities have utilized TFS authorities on one occasion to freeze an asset belonging to an entity designated under UNSCR 1718 (Mu Du Bong case). - Mexico has achieved a substantial level of effectiveness for IO.11. ### CANDESTI Task Force and interagency coordination - The CANDESTI Task Force on Nuclear and Biological and Chemical Weapons is the sub-group responsible for coordinating national policy on proliferation and PF, including implementation of PF-related TFS pursuant to UNSCRs 1718 and successor resolutions, and UNSCR 1737 and successor resolutions. - CANDESTI membership includes SEGOB, FIU, SEDENA, SEMAR, SRE, PGR (as indicated in the footnote listing: SEGOB, FIU, SEDENA, SEMAR, SRE, PGR). - The Task Force includes the Ministry of Foreign Affairs (SRE), SHCP, the FIU, SAT’s General Administration of Customs, Ministry of Energy, Ministry of Economy, and the PGR, among others. - The Task Force is considering a proposal of a draft Law on Strategic Trade which will, among other reforms, strengthen export controls related to dual use goods, and expand the range of criminal and administrative sanctions related to proliferation activity. ### Identification of assets and the Mu Du Bong case - To date, authorities have not detected any attempt by an individual or entity designated under PF sanctions (UNSCRs 1718, 1737, or 2231) to use the Mexican financial system, and no funds have been identified related to PF. - The Mu Du Bong case demonstrates the government’s willingness and capacity to implement TFS where an asset related to a PF designation is identified. Box: Case of DPRK Ship Mu Du Bong, 2014 - In July 2014, Mexican authorities seized the Mu Du Bong, a North Korean ship that ran ashore in Mexican waters, after the UN notified them of the possibility that the ship might be owned by Ocean Maritime Management Company (OMM), a North Korean entity sanctioned under UNSCR 1718. - In February 2015, the UN Panel of Experts completed its report to the 1718 Committee, in which it confirmed that OMM was the ship’s owner and therefore subject to UN sanctions. - Authorities held the ship at the Port of Tuxpan until ordering it to be dismantled in April 2016. ### Detection vulnerabilities and beneficial ownership (BO) issues - Deficiencies outlined in IO.5 raise concerns over whether assets or funds held by a designated entity or individual can be detected by the private sector at account opening or transaction time. - Reporting entities’ inability to obtain in a timely manner accurate and up-to-date information on the BO of legal entities is a vulnerability that may increase potential for sanctions evasion through the use of legal persons and arrangements. - Mexican authorities are taking measures to mitigate this shortcoming by publishing an amendment of CDD regulations that will go into force in October 2017. ### Trade, export controls, and training on proliferation risks - Mexico conducts some trade with Iran, which may increase the risk of proliferation and PF activity; authorities noted this trade is limited. - Authorities demonstrated mitigation measures, including strict export controls on dual use goods and training on proliferation and PF-related issues to relevant federal agencies, including customs and law enforcement officials. - Officials received several trainings from international experts (e.g., Inter-American Committee against Terrorism/Organization of American States and International Atomic Energy Agency) on identification of dual-use goods, interagency exchange of information and coordination, investigative techniques, and best practices on prosecutions and sanctions implementation. ### FIs and DNFBPs’ understanding of obligations and compliance - FIs and DNFBPs demonstrated an understanding of TFS obligations and reported regular communication from supervisors on changes to UN lists. - Reporting entities received official notices in 2015 and 2016 informing them of obligations, including CDD and reporting requirements; the FIU issued three separate documents providing guidance to reporting entities on high-risk countries, including Iran and North Korea. - Larger institutions (particularly banks) use software that automatically checks changes to the lists, allowing potential identification of matches prior to receiving notification from authorities. ### Supervisory monitoring and enforcement - Financial sector supervisors monitor reporting entities for compliance as part of overall supervisory programs. - The CNBV conducts regular onsite visits to verify policies and procedures for identifying customers listed on the BPL, verifies application, and runs tests on automated systems’ detection capability. - The CNSF conducts onsite visits to observe procedures used by bonding and insurance companies and tests to ensure insured and bonded persons are not designated under any UNSCR. - Weak supervision of the DNFBP supervisor raises concerns about whether violations in the non-financial sector are being identified; SAT noted that during onsite inspections it has verified DNFBPs are checking the AML portal for changes to UN lists but SAT has conducted minimal onsite examinations (see IO.3). - There have been no sanctions levied on reporting entities for compliance violations related to TFS obligations, but there have been sanctions regarding noncompliance with the BPL for ML cases. ### Overall conclusions on Immediate Outcome 11 - Mexico has achieved a substantial level of effectiveness for IO.11. ### Preventive measures — key findings (overview) - Financial sector demonstrates a good understanding of primary ML threats from OCGs and associated criminal activities as well as tax crimes; recognition of corruption as a main threat is uneven. - DNFBPs’ appreciation of ML risks in their sectors appears limited; FIs did not demonstrate sufficient understanding of ML risks associated with misuse of legal persons; DNFBPs’ (including notaries and professionals) understanding is even more limited. - Both FIs and DNFBPs have a less developed understanding of TF risks. - FIs and DNFBPs, except lawyers and accountants, generally have a good understanding of AML/CFT obligations. - Quality of basic CDD measures and record keeping of FIs appears good in general but is negatively impacted by some technical deficiencies. - FIs and DNFBPs appear aware of and are complying with obligation to refrain from opening accounts or carrying out transactions when CDD cannot be fulfilled. - Lawyers and accountants generally have a lower level of awareness of AML/CFT obligations. - Beneficial owners are being identified only to a limited extent across all sectors, systematically weighing on effectiveness in assessing and managing ML/TF risks. - FIs seek to identify beneficial owners in only limited circumstances due largely to shortcomings in the legal framework; undue reliance on customers’ self-declaration is an issue. - For the majority of legal persons not categorized as high risk, entities obtain information only on corporate customers’ first layer legal ownership without seeking natural persons who ultimately own or control the entity. - DNFBPs generally believe it is not their role to identify beneficial owners. - Customer risk categorization methodologies applied by core FIs are not robust; FIs only rate a very small portion of domestic PEPs as high risk. - DNFBPs are not subject to requirements to identify (foreign or domestic) PEPs; risks posed by domestic PEPs are managed only to a limited extent. - FIs appear to implement measures for wire transfers, correspondent banking, high-risk countries, and TFSs, sometimes beyond legal requirements. - Quality of transaction reporting to the FIU, particularly from banks, has improved; brokerage firms and insurance firms are also improving, but progress is needed in MSBs. - The basis of reporting obligations of FIs is somewhat blurred between suspicious and unusual, which may have affected the quality and adequacy of analysis supporting reports. - UTR/STR reporting by large firms is not always as prompt as it should be. The 24-hour reports are used primarily to report matches with various sanctions lists. - Reporting by DNFBPs is very low; professionals (lawyers and accountants) have not filed a single STR in the past three years. - The framework governing internal controls of individual FIs is generally comprehensive and being implemented; financial groups have developed and implemented AML/CFT policies at the group level though not required. - DNFBPs have much less robust internal controls. ### Recommended actions (summarized) - Improve FIs’ and DNFBPs’ (in particular notaries’) understanding of ML risks from corruption and their ability to manage such risks by: - enhancing the NRA analysis of corruption as an ML threat; - requiring entities to determine whether the beneficial owner is a PEP and apply controls in line with the standard; - extending the requirements on PEPs to DNFBPs; - providing guidance on assessing and managing risks associated with domestic PEPs. - Deepen FIs’ and DNFBPs’ (in particular notaries’, lawyers’, and accountants’) understanding of ML risks associated with misuse of companies by: - enhancing the NRA analysis in this respect; - providing typologies and guidance to reporting entities. - Strengthen measures on beneficial owners by: - upgrading requirements for other entities not covered in the February/March 2017 amendments on identifying beneficial owners including those of legal persons in line with the standard; - engaging all FIs and DNFBPs (in particular notaries, lawyers, and accountants) to clarify supervisory expectations regarding requirements on beneficial owners, and providing guidance on best practices; - ensuring the issue of undue reliance on customers’ self-declarations is addressed. - Clarify the basis for reporting is suspicion or reasonable grounds to suspect as opposed to unusual indicators. - Improve promptness of reporting including by redefining the timeframe from the moment when the suspicion is formed and ensuring timely decisions of the Communication and Control Committee (CCC). - Engage DNFBPs (in particular lawyers and accountants) to raise their awareness of AML/CFT obligations and ML/TF risks faced by their sectors. - The relevant Immediate Outcome considered and assessed in this chapter is IO.4. The recommendations relevant for the assessment of effectiveness under this section are R.9–23. ### Immediate Outcome 4 (Preventive Measures) — further findings - Financial sector demonstrates good understanding of ML threats from OCGs and associated criminal activities, especially drug trafficking, consistent with NRA findings. - Entities focus more on risks associated with U.S.–Mexico cross-border activities than potential cross-border illicit flows from/to Central or South American countries. - Tax evasion is broadly recognized by banks and large FIs as a major threat, reflecting authorities’ emphasis on tax crimes and use by FIs of SAT’s list of companies possibly involved in tax fraud. - Banks have reduced services to MSBs, sometimes migrating ML/TF risks to non-core FIs (e.g., SOFIPOs), which may have weaker AML/CFT controls. - DNFBPs’ appreciation of ML risks is limited; gatekeepers (notaries, lawyers, accountants) are rated low risk in the NRA despite the NRA noting their fundamental role in misuse of legal persons. - Many DNFBP firms are unregistered with the FIU; for lawyers, bar membership is not mandatory and less than three percent of lawyers are part of one of the seven bar associations. - Notaries are key gatekeepers for company formation and real estate transactions; notaries generally consider real estate transactions most risky for ML and most STRs they file concern real estate transactions. - Lawyers and accountants provide services covered by the standard but overall awareness of AML/CFT obligations is low, especially among those not part of professional associations. - Real estate agents showed limited appreciation of ML risks despite awareness of obligations. - Casino sector representatives consider their ML risk low; currently casinos operated on cruise ships based in Mexican ports are not subject to AML/CFT obligations. *MEXICO INTERNATIONAL MONETARY FUND* ### 276. The appreciation of corruption as a main threat appears uneven and insufficient. Although ### 276. The appreciation of corruption as a main threat appears uneven and insufficient. Although ### Threat perception of corruption - A few large FIs interviewed recognize corruption as a major ML threat; most did not. - DNFBPs’ understanding of corruption as a threat is even more limited. - The NRA does not identify corruption as a major ML threat, which contributes to uneven understanding. - Consequence: inadequate attention to associated vulnerabilities, notably ineffective mitigation of risks posed by domestic PEPs. ### Cash use and transaction restrictions - FIs and DNFBPs generally consider use of cash a major risk; partially mitigated by restrictions on cash transactions. - Banco de México’s analysis: value of U.S. dollar cash transactions has decreased significantly in particular since 2010 when restrictions (i.e., ceilings) on receiving dollars were imposed on banks, brokerage firms, and exchange houses. - Some entities stopped dealing in U.S. dollars altogether. - Restrictions on payments in cash (pesos or foreign currencies) were imposed on certain transactions including real estate transactions, though generally use of pesos has increased in Mexico. ### Misuse of legal persons and UTRs - FIs and DNFBPs show insufficient awareness of risks associated with misuse of legal persons; legal deficiencies regarding beneficial owners seriously hamper risk management. - Many entities believe reduction/cessation in dealing in cash (especially U.S. dollars) has significantly reduced or eliminated ML risks — reasonable for MSBs, less so for core FIs, professionals acting as gatekeepers, and real estate sector. - FIU guidance increased number of UTRs filed by FIs directly related to misuse of legal persons over recent years (Table 30). - Majority of FIs did not consider ML risks from misuse of legal persons worthy of special attention; only two FI representatives noted the need to manage such risks, and then mainly in context of tax crimes (referring to SAT list). - NRA finds OCGs exploit licit businesses to launder illegal proceeds. - Table 30. Number of Unusual Transaction Reports Related to Misuse of Legal Persons 1/ - Shell companies, legal person presents false or inconsistent documents and misuse of legal persons by strawmen: - 2013: 1,005 - 2014: 3,087 - 2015: 7,858 - 2016: 12,470 - Movement of funds to tax heavens, other risk jurisdictions or not justified trade operations by legal persons: - 2013: 5,626 - 2014: 6,069 - 2015: 3,681 - 2016: 2,166 - Legal persons related to high-ML-risk activities (e.g., cash intensive business): - 2013: 1,592 - 2014: 3,399 - 2015: 3,679 - 2016: 5,857 - Source: FIU - Note: There are double countings across various indicators as one UTR can fall under multiple indicators. ### Terrorist financing (TF) risk perception - FIs and DNFBPs commonly view TF risk as low, consistent with the NRA conclusion. - Entities’ considerations seem primarily focused on risks of terrorism rather than TF; some requested more guidance from authorities. ### Application of Basic CDD and record keeping requirements - Supervisors view that FIs’ implementation of CDD requirements has improved, based on onsite inspections and offsite monitoring, but available information makes verification difficult. - CNBV offsite surveillance and onsite inspections (2013–2015) identified deficiencies in customer identity information, risk ratings, and ongoing monitoring across institutions; observations framed as regulatory breaches. - Number of banks found with shortcomings in CDD procedures in CNBV’s onsite inspections increased slightly between 2013 and 2016 — CNBV attributes this to strengthened oversight and higher supervisory expectations. - MSBs became subject to CNBV’s oversight for AML/CFT only in 2012 and need to catch up; percentage of MSBs found with shortcomings in CNBV’s offsite supervision is very high. - Example: 1,061 out of around 1,500 exchange centers and all 49 money remitters were found deficient in their CDD procedures in 2015. - CNSF observations indicate CDD deficiencies decreased in 2014–2016, but systemic extent unclear. - Supervisors’ findings on implementation of restrictions on receiving U.S. dollars point to remaining weaknesses in some FIs’ cash transaction controls. ### Quality of basic CDD and record keeping - General assessment: quality of basic CDD measures and record keeping of FIs appears good, but negatively impacted by some technical deficiencies. - FIs generally understand obligations on customer identification and record keeping. - FIs not required to update non-high-risk customer files unless behavior changes detected — extent to which profiles are up to date is uncertain. - Insurance agents’ CDD quality has improved but remains a concern. - No evidence supervisors review implementation of Code of Commerce requirement to keep records of transactions that are not subject to reporting. ### Beneficial ownership identification — systemic weakness - Beneficial owners are being identified only to a limited extent, systematically undermining effectiveness in assessing/managing ML/TF risks. - Legal framework shortcomings lead FIs to seek beneficial owners only in limited circumstances: - Required only when a natural person customer declares acting on behalf of a third party, or when a customer that is a legal person is categorized by the entity as high risk. - For natural person customers, FIs tend to over-rely on customers’ self-declarations to determine beneficial owners. - For legal persons categorized as high risk, entities seek natural person(s) who legally own 25 percent or more of the legal person. - When ownership chains are complex, entities generally rely on declaration by company’s legal representative; some FIs require notarization. - Notaries do not seem to go beyond legal ownership. - A very small percentage (one percent as indicated by a large bank) of legal persons are rated as high risk by FIs. - For majority of legal persons not classified as high risk, entities typically obtain only first-layer legal ownership information without seeking ultimate natural persons. - Some foreign banks attempt to identify/verify ultimate beneficial owners regardless of risk ratings; this is not common practice among domestic FIs. - Amendments to regulations introduced in February/March 2017 will help address framework shortcomings for banks, brokerage firms, and MSBs once they take effect. ### MSBs and detection of structured transactions - Large MSBs (exchange houses, money remitters, exchange centers) have some controls beyond basic CDD; detection of structured transactions is a challenge for smaller operators. - MSBs do not maintain account relationships and deal only with “users”; identify customers only when they transact above thresholds — CDD required only when amounts exceed sector thresholds. - Larger MSBs maintain basic information for recurrent customers and have monitoring measures (e.g., grouping transactions, monthly transaction caps). - Small MSBs have less sophisticated controls. ### Customer risk categorization and enhanced measures - Banks, brokerage firms, insurance companies, and other large FIs appear to implement customer risk categorization, but robustness of methodologies and resultant risk ratings is in question. - Methodologies use multiple parameters: type of customer, geographical region, products/services (involvement in international or cash transactions). - High-risk customers often include MSBs, certain DNFBPs, and entities categorized as VAs (real estate developers, casinos, pawn shops, etc.). - CNBV and an external auditor noted methodologies often not sufficiently robust to reflect customer risk profiles. - February 2017 amendments applicable to several CNBV sectors (including banks) will impose explicit obligation to carry out risk assessment of operations. - Non-core FIs such as MSBs claim to risk-rate customers, but approaches are less sophisticated and focused primarily on geographical factors. - Enhanced measures for high-risk customers: - Required enhanced measures include manager’s approval before establishing relationships, obtaining additional information on origin/destination of funds and nature of relationship, and reviewing risk profiles at least twice a year. - No specific legal requirement to subject activities of high-risk customers to enhanced ongoing monitoring, but banks and large firms indicate they adjust alert parameters (lower thresholds, special parameters). - External auditor noted some FIs’ alert systems are not properly calibrated to capture high-risk customers’ activities. - MSBs indicate implementation of such measures in practice, but approaches are less developed than core FIs. ### DNFBPs — customer identification and beneficial owners - DNFBPs appear to identify customers but rarely identify beneficial owners; legal obligation limited to asking and obtaining information to the extent customers provide it. - DNFBPs are not required to assess customer risks or perform enhanced CDD where risks are higher; measures beyond basic CDD are very limited. - Sector specifics: - Notaries obtain identity information and check authenticity; when doubtful they conduct further inquiries, but generally do not seek beneficial owners. - Lawyers and accountants generally show low AML/CFT awareness; practice varies and oversight by SAT is weak. - Real estate agents identify customers but do not seek beneficial owners beyond accepting self-declarations or first-layer legal ownership information. - Casinos identify customers when receiving/paying cash; some firms restrict cash transactions above thresholds and avoid foreign currencies, but prevalence across sector unclear. ### Refusal to transact when CDD cannot be fulfilled - FIs and DNFBPs appear aware of and fulfill obligation to refrain from opening accounts or carrying out transactions when required CDD cannot be completed. - Customer identification typically based on official identity documentation; fake IDs pose challenges, notably for MSBs and DNFBPs lacking tools/sources to verify authenticity. ### Specific CDD — PEPs, wire transfers, and correspondent banking - Identifying business relationships/transactions involving PEPs as beneficial owners is a particular concern for banks. - Many FIs rely on commercial databases to identify PEPs. - Domestic PEP coverage gaps: - Public portal publishes names of certain senior officials at federal and state levels, but senior military officers, executives of state-owned corporations, and officials at municipal level are not considered domestic PEPs. - Entities are not required to determine whether the beneficial owner of a customer is a PEP. - This gap, combined with deficiencies in beneficial owner identification, makes it difficult for FIs to identify domestic PEPs using proxies and to monitor their activities — CNBV acknowledges this challenge. - Treatment of PEPs: - Core FIs aware of obligations regarding foreign PEPs and subject them to enhanced monitoring. - Majority of FIs categorize most domestic PEPs as low risk (e.g., 99 percent as indicated by one large bank); a few FIs categorize domestic PEPs as medium- to high-risk. - As a result, FIs generally do not obtain additional information on origin/destination of funds, intended nature of relationships, or require manager’s approval for domestic PEPs. - Some FIs set special alert-system parameters for domestic PEPs despite low-risk rating. - A life insurance company seeks to determine whether beneficiaries are PEPs and, if so, subjects relationships to enhanced monitoring — such practice not common in insurance sector. - Overall controls for domestic PEPs are not commensurate with corruption risks. - DNFBPs are not subject to specific PEP requirements; few firms noted domestic PEPs use proxies but no evidence of measures addressing this. - Wire transfers: - Banks interviewed consider wire transfers a high-risk product and generally: - include beneficiary’s name and account number when acting as ordering institution (required for MT 103); - when acting as intermediary or beneficiary institution, screen transfers lacking beneficiary information; - take actions upon detection of transfers lacking information — reject or request missing information from sending institution. - Authorities indicate these measures, though not mandatory, are common practice of banks — not verifiable from available information. - Some brokerage firms offer money transfer services through banks (often within same group) to brokerage customers; operations limited in size, countries, and purposes; they review completeness of transfer information and reject transfers lacking information. - Correspondent banking: - Banks offering cross-border correspondent banking services appear to have controls to manage such relationship risks. - Mexican banks tend to be cautious offering correspondent services amid pressures from foreign correspondent banks. - Example practice: one bank provides correspondent services only to foreign banks within same group and only to banks that do not allow direct access to services by respondent banks’ customers. *Italic: IMF staff report excerpt.* ### 293. FIs generally demonstrate good awareness of the call from the FATF and pay special ### FIs generally demonstrate good awareness of the call from the FATF and pay special attention to business relationships and transactions with persons in high-risk jurisdictions ### High-risk jurisdictions and FATF guidance - FIs generally demonstrate good awareness of the call from the FATF and pay special attention to business relationships and transactions with persons in high-risk jurisdictions. - The FIU distributed such lists via respective supervisors through emails. - Core FIs and MSBs indicated that they do not deal with persons—whether natural or legal—from countries for which the FATF calls for counter measures. - Some FIs have developed their own list of additional high-risk countries with which they do not conduct business. - For transactions involving jurisdictions with strategic deficiencies identified by the FATF, FIs indicated they subject transactions involving these jurisdictions to enhanced monitoring by, for instance, developing special parameters or lowering the threshold for alerts to be generated. - In addition, FIs (primarily banks, brokerage firms, and money remitters) filed certain types of transactions with the FIU in response to a notice issued in August 2015 requiring systematic reporting of transactions concerning countries considered high-risk by the authorities. - DNFBPs are not required to apply enhanced measures to business relationships or transactions related to high-risk countries. ### Implementation of targeted financial sanctions (TFSs) - FIs appear to have mechanisms in place to implement TFSs, but they have not had any matches with the UN sanctions lists, while the situation is less clear with respect to DNFBPs. - Under the Mexican legal framework, entities are obliged to identify natural and legal persons on UN sanctions lists and upon any match, immediately block their accounts and transactions and report to the FIU within 24 hours. - UN sanctions lists and FIU’s BPL have been incorporated in entities’ alert systems; the compliance officer then takes the necessary steps to block the accounts and transactions and report to the FIU within 24 hours. - MSBs interviewed indicated that they do reviews on a daily basis against the UN list and not in real time, which has negative impacts on the effectiveness of their implementation of TFSs. - While most DNFBPs indicated they have procedures to screen customers against the UN sanction lists, in light of the weak oversight, it is unclear whether these measures are being implemented effectively by the sectors/professions as a whole. - Deficiencies in identifying beneficial owners and monitoring their activities negatively weigh on the effectiveness of implementation of TFSs for all sectors. ### Reporting obligations: definitions and practice - The basis of reporting obligations of FIs is somewhat blurred between suspicious and unusual. - Under the Mexican legal framework, reporting obligations that relate to suspicious transactions comprise two components: - “Unusual transactions” (referred to as “UTR/STRs” hereafter) are defined to mean transactions that may be related to ML/TF. For the purpose of identifying UTR/STRs, FIs are required to consider a set of criteria separately or jointly: one of them is suspicion of ML or TF, others are either specific scenarios that are deemed unusual (e.g., “the unusually high amounts, the complexity and unusual modalities” or involvement of high-risk countries) or factors that entities should consider when determining whether a transaction is unusual or not (e.g., transactional behavior of other clients who have similar background). - “24-hour reports” (“24h reports”)—when an FI has “information based on evidence or concrete facts” that the transaction may be related to ML or TF, it should file a report with the FIU within 24 hours from the moment it becomes aware of such information. - FIU’s guidance of 2013 indicates that only transactions that match with sanctions lists should be filed as 24-hour reports. - In practice, FIs use 24-hour reports primarily to file transactions that match with UNSCR lists, FIU, and other sanction lists or those related to information requested by the PGR on persons being investigated. - Any other 24-hour reports filed by FIs are typically based on unverified anecdotal evidence (e.g., media reports pointing to certain persons being involved in ML or crimes). - There are very few UTR/STRs related to TF, consistent with FIs’ view that TF risks are low. ### Quality, timeliness, and use of automated monitoring - The FIU has noted a general improvement in the quality of FIs’ reporting, in particular of banks. - According to the FIU, the quality of reports from banks has improved significantly in the past few years. - Brokerage firms and insurance firms are also improving. - Defensive reporting by insurance companies is being addressed effectively thanks to outreach and training provided by the FIU. - More progress is needed by MSBs; the high level of reporting from money remitters is attributed to errors made by two entities. - The level of reporting by exchange centers seems too low in light of the large number of entities and their risk profile. - Reports filed by the top five entities within each sector in 2016 constituted a large percentage of the total filed by the whole sector: banks (75 percent), brokerage firms (89 percent), and exchange centers (70 percent). - The authorities have concerns about quality and adequacy of analysis supporting the UTR/STRs across all sectors. - FIs must use automated systems to monitor transactions and generate alerts as a first step for identifying UTR/STRs. - Parameters are set by entities based on the indicators set out in the regulation and in their own policies. - UTR/STRs were triggered most often by the use of cash, inconsistency between customer profile and transactional behavior, and the high-risk locations of the customer or transaction. - Large banks’ systems seem more robust; greater concerns exist for smaller banks and non-banks including MSBs. - CNBV observed that parameters set by some FIs are not very reasonable, leading to either too few or too many alerts; both situations undermine effectiveness. - FIU has provided detailed feedback to individual FIs and at sectoral level; amendments to regulations in September 2015 allow banks and other FIs under CNBV oversight an additional 30 days to file UTR/STRs to improve quality. ### Timeliness of UTR/STR filing - FIs are allowed 60 days to file a UTR/STR after an alert is generated by the system or a staff member; there are no requirements as to how much time they have to file a report after the forming of a suspicion. - For all FIs with 25 or more employees, results of analysis conducted by compliance staff on alerts triggered must be submitted to the FI’s CCC for consideration and a decision on whether to file a report. - Frequency of CCC meetings can vary between every 10 days to every 30 days; in practice banks, brokerage firms, and other large firms only hold CCC meetings once a month. - Banks, brokerage firms, and other large firms generally take 30 days or longer (up to 60 days) to file a UTR/STR after an alert is generated. - The lapse of time between the formation of a suspicion by the compliance officer and the filing of a UTR/STR can be up to 30 days, undermining usefulness for provisional measures to seize POC. - The 2015 amendments allow an additional 30 days under certain criteria set out in FIU guidance; most banks have not availed themselves of this extension. - Only a small number of reports (three percent according to the FIU) have been filed more than 60 days after an alert was flagged. ### STRs filed by FIs (selected figures from Table 31) - Total UTR/STR and 24h Reports (selected totals across years): - 2014: UTR/STR 145,128; 24h Reports 4,076 - 2015: UTR/STR 150,429; 24h Reports 5,113 - 2016: UTR/STR 125,455; 24h Reports 8,043; Reports upon FIU Request 80,088 - Selected sectoral figures (2014 / 2015 / 2016 as presented): - Banks: 57,388 UTR/STR and 3,674 24h Reports (2014); 51,683 UTR/STR and 4,421 24h Reports (2015); 61,008 UTR/STR, 5,964 24h Reports, 46,386 Reports upon FIU Request (2016). - Money remitters: 59,875 UTR/STR and 15 24h Reports (2014); 70,040 UTR/STR and 50 24h Reports (2015); 29,856 UTR/STR, 966 24h Reports, 32,935 Reports upon FIU Request (2016). - Cooperative savings and loans companies: 12,956 UTR/STR and 28 24h Reports (2014); 16,052 UTR/STR and 26 24h Reports (2015); 18,200 UTR/STR and 41 24h Reports (2016). - Brokerage firms: 934 UTR/STR and 136 24h Reports (2014); 563 UTR/STR and 107 24h Reports (2015); 625 UTR/STR, 178 24h Reports, 11 Reports upon FIU Request (2016). - Exchange centers: 2,451 UTR/STR and 18 24h Reports (2014); 956 UTR/STR and 17 24h Reports (2015); 221 UTR/STR, 53 24h Reports, 1 Report upon FIU Request (2016). - Insurance institutions and mutual societies: 2,403 UTR/STR and 80 24h Reports (2014); 2,048 UTR/STR and 108 24h Reports (2015); 1,467 UTR/STR, 101 24h Reports (2016). ### Prohibition of tipping-off - Mechanisms exist to implement the prohibition of tipping-off. - FIs appear to be implementing the requirement to file “internal concerning reports” with the FIU; mechanism in place since 2004. - According to the FIU, six cases of tipping-off were reported during 2015–2016; as a result, the FIs fired their employees involved in tipping-off. - It is not possible to establish the extent to which these measures are sufficient to effectively prevent tipping-off. ### DNFBPs: reporting and internal controls - Reporting by DNFBPs is very low. - DNFBPs’ reporting obligations are based only on the 24-hour regime similar to that for FIs, but subject to a threshold. - Unlike FIs, DNFBPs filed 24-hour reports based not only on matches with sanctions lists but also on suspicion of ML despite the FIU guidance. - 24h STRs Filed by DNFBPs (Table 32): - Real estate agents: 2014 = 20; 2015 = 102; 2016 = 355 - Gambling and lottery: 2014 = 0; 2015 = 2; 2016 = 1 - Precious metals and stones dealers: 2014 = 0; 2015 = 0; 2016 = 0 - Notaries: 2014 = 10; 2015 = 6; 2016 = 73 - Lawyers: 2014 = 0; 2015 = 0; 2016 = 0 - Accountants: 2014 = 0; 2015 = 0; 2016 = 0 - Total: 2014 = 30; 2015 = 110; 2016 = 356 - Observations: - Reports from notaries and the real estate sector have increased in 2014–2016, but reporting by notaries does not seem commensurate with their ML risk profile. - Most reports filed by notaries are related to real estate transactions; very few reports arise from formation of companies. - Lawyers and accountants have not filed a single STR in the past three years. - Reports shown are attributable to operators registered with the FIU, which constitute only a portion of each sector/profession. ### Internal controls and governance - The framework governing internal controls of individual FIs is generally comprehensive and being implemented. - FIs are required to embed AML/CFT measures in policies and procedures. - Such measures are subject to annual internal or external auditing to check compliance with the requirements, but audits have not extended to cover soundness of ML/TF risk management. - CNBV noted shortcomings in internal control systems of all sectors under its purview; more shortcomings in smaller firms (popular sector and MSBs) than in core FIs. - In the insurance sector, CNSF noted shortcomings with regard to corporate governance including the CCC and the automated alerting system. - A key challenge is keeping up with and adapting to the constantly changing regulatory framework. - Financial groups: - Not required, but financial groups have developed and implemented AML/CFT policies at the group level to the extent possible under the legal framework. - Groups in Mexico are permitted to share information for AML/CFT purposes among members of the group. - Individual members are supervised as individual entities but adopt group-level policies tailored to activities. - Groups that comprise two or more FIs, as well as non-financial entities, are not recognized as financial groups and are not permitted to share information among its financial entity members for AML/CFT, hindering group-level risk management. - DNFBPs: - No evidence that DNFBPs generally have as robust internal controls. - A few larger firms have internal controls for AML/CFT (e.g., one large casino with policies on CDD and reporting and a compliance officer). - Weak oversight and general low awareness mean major improvements are needed across most firms. ### Overall assessment of Immediate Outcome 4 - Mexico has achieved a low level of effectiveness for IO.4. ### Supervision — Key findings - Financial sector supervisors have a good understanding of ML risks within their sectors and have developed sound models to differentiate risks between institutions; understanding of TF risks is less developed. - For DNFBPs, SAT’s appreciation of ML risk, especially between different entities in the same sector, is more limited. - The SAT has no authority to monitor DNFBPs for CFT compliance and no evidence of a substantive alternative mechanism. - Due diligence procedures for licensing and registration of financial activities are generally sound; however: - Serious weaknesses exist in procedures for licensing casinos. - There is no requirement for lawyers and accountants to be members of a professional body that might oversee professional and ethical standards. - Supervisors have developed a reasonable risk-based approach to framing their annual onsite inspection programs; inspection procedures are increasingly risk-based. - SAT has undertaken very few inspections relative to number of entities under its remit; little evidence these are genuinely risk-based. - CNBV undertakes consolidated AML/CFT supervision of financial groups but lacks authority to apply similar approach to “mixed groups.” - Sanctions are generally not applied in an effective, proportionate, and dissuasive manner; extended time to finalize sanctions and previously low financial penalties are concerns. - SAT has only been applying the minimum possible penalties and has not developed a methodology for differentiated fines. - Concerns exist about resources available to AML/CFT supervision, especially for DNFBP supervision. ### Supervision — Recommended actions Mexico should: - Review the resources applied to AML/CFT supervision in the light of the risk profiles emerging from the models developed by the supervisors. Immediate attention should be applied to the SAT, which is significantly under-resourced by any measure. - Consider requiring entities supervised by the SAT to submit AML/CFT audit reports undertaken by either external or internal auditors. - Develop a more focused approach to assessing TF risk within the supervisors’ risk models, and apply more specific attention to TF risk in inspection procedures. Ensure that the DNFBPs are subject to substantive CFT compliance inspections by either the SAT or another competent authority. - Undertake a review of the risk assessment of the DNFBP sectors to reconcile apparent differences between the results of the NRA and the conclusions emerging from the SAT’s risk model. - Undertake a review of the financial penalties available to supervisors to establish whether they can realistically be applied in a manner that is effective, proportionate, and dissuasive, especially in relation to larger FIs. Immediate action should be taken by the SAT to establish a sustainable methodology for applying sanctions other than at the minimum level. - Take measures to speed up the process of finalizing the application of financial penalties. - Provide for a mechanism under which the CNBV may exercise consolidated supervision over FIs within “mixed groups” to ensure group-wide AML/CFT compliance; at a minimum this should involve regular joint meetings by relevant supervisors with group compliance officers in each mixed group. - Publish the findings from the CNBV’s thematic reviews to disseminate supervisors’ views on good and bad practices. - Complete the delayed passage of legislation through Congress to require that lawyers and accountants be members of professional associations with responsibility for ensuring compliance with professional and ethical standards, including AML/CFT compliance. - Complete the delayed passage of legislation through Congress to update regulation of casinos, particularly in relation to SEGOB’s powers to undertake proper due diligence on all shareholders, directors, and operational managers. *Source: cr17405-mexicodar - 293. FIs generally demonstrate good awareness of the call from the FATF and pay special attention to business relationships and transactions with persons in high-risk jurisdictions* ### 306. AML/CFT supervision of the financial and DNFBP sectors falls to four main agencies: the ### AML/CFT supervision of the financial and DNFBP sectors (Mexico) ### Supervisory structure and scope - Four main agencies responsible: the CNBV, the CNSF, the CONSAR, and the SAT. - The CNBV: licensing, registration, and supervision of the vast majority of financial activities outside the insurance and pension fund sectors. - The 2013 AML law extended the AML/CFT framework to 15 VAs supervised by the SAT, covering: - All but one of the FATF-defined DNFBPs (TCSPs do not operate as a specific profession in Mexico). - Some elements considered financial by the FATF (e.g., credit and pre-paid card issuers). - A number of activities outside FATF scope: real estate developers, lotteries, sales of motor vehicles, marine vessels and aircraft, art dealers, and suppliers of armored vehicles. ### Licensing, registration, and market-entry controls - Financial institutions - Licensing and registration requirements laid down in various regulatory laws with common fitness and propriety checks for shareholders, directors, and senior management. - Regulators make enquiries of relevant federal agencies and, where relevant, foreign regulators to confirm applicants (including beneficial owners) are not subject to sanctions, under investigation, or barred from federal employment. - Regulators establish source of funds invested by shareholders; changes of shareholding or beneficial ownership crossing thresholds (typically 5 and 20 percent) must be reported and are subject to due diligence. - Monitoring for unreported changes of shareholding, BO or management occurs through onsite inspection. - Exchange centers and money remitters (registration rather than licensing): vetting applies to managers and persons holding a controlling interest of 50 percent or more; CNBV due diligence broadly similar to licensed sectors. - License applications processed (2010–2016) — Table 33 (Received / Approved / Rejected): - Banking: 15 / 16 / 0 - Securities: 14 / 13 / 0 - Popular banking: 189 / 111 / 23 - Insurance: 21 / 19 / 3 - Exchange centers, money remittance, and unregulated finance companies: 3,828 / 3,178 / 132 - Note: apparent inconsistencies caused by timing differences. - CNBV measures on unregistered money remitters: - Maintains a public mailbox for complaints. - Routinely receives information from other government agencies on suspicious activity. - Undertakes research into higher-risk geographic areas and conducts inspections and mystery-shopping. - Focus on entities that fail to re-register at year-end to confirm cessation of remittance services. - DNFBPs - Required to register with the SAT; prior registration with RFC and obtaining an advanced digital signature is required, involving submission of information on partners, shareholders, or associates. - SAT registration requires additional information on the principal (sole trader) or the person responsible for compliance (legal person). - Some DNFBP categories require separate operating licences or approvals from other governmental bodies. - Notaries: licensed by individual state governments and vetted for personal and professional integrity; some notaries have been barred for criminal involvement. - Lawyers and accountants: professional licence issued by the Federal Ministry of Education; no compulsory membership of professional colleges; of 450,000 independent lawyers, about 14,000 are members of one of the seven colleges. - Gambling and lottery businesses: licensed by the SEGOB but supervised for AML by the SAT; licensing process based on 1947 legislation with limited background investigation powers; a bill to modernize requirements has been before Parliament for approximately two years but has not passed the Senate. ### Supervisors’ understanding and identification of ML/TF risks - Financial institutions - General good understanding of sector-specific risks; more developed for ML than TF. - Supervisory authorities have started developing risk-based models; sophistication varies by supervisor. - Sector risk conclusions broadly similar to NRA: multiple banking groups, brokerage houses, and exchange houses classified highest-risk; insurance companies, pension funds, and multi-purpose finance companies perceived particularly low risk; exchange centers and money remitters mid-range. - CNBV - Since 2015 employs the CEFER model assessing all supervisory risk (solvency, liquidity, AML/CFT, etc.) in a single tool; AML/CFT risk accounts for seven percent of overall risk weighting and is treated as part of legal and reputational risk. - CNBV developed separate AML/CFT models: for credit institutions a matrix uses three inherent risk inputs (customer base, currency/monetary instruments employed, geographic profile) offset by six mitigating factors (corporate governance, risk management, policies and procedures, internal controls, compliance, training). - Key inputs derived from AML/CFT reporting forms (R24E) submitted quarterly, and qualitative information from onsite inspections and other sources. - Matrix takes limited account of TF risk factors; would benefit from broader TF-relevant factors and consideration of product/service vulnerabilities and relationships. - For other institutions, CNBV uses models relying on FIU-filed reports (cross-border wire transfers, cashiers’ checks, U.S. dollar cash) to develop a risk score; for exchange centers/money remitters/unregulated finance companies CNBV uses a semi-annual reporting-derived risk matrix. - CNBV classification of institutions according to ML/TF risk (2015–2016) — Table 34 (sector: 2015 / 2016 by Low / Medium / High / Very High): - Credit institutions: Low 27 / 22; Medium 19 / 24; High 5 / 8; Very High 0 / 0 - Exchange centers: Low 435 / 496; Medium 536 / 380; High 229 / 248; Very High 15 / 119 - Exchange houses: Low 1 / 1; Medium 3 / 0; High 4 / 7; Very High 0 / 1 - Money remitters: Low 14 / 25; Medium 13 / 14; High 12 / 12; Very High 12 / 0 - Brokerage firms: Low 19 / 22; Medium 14 / 2; High 3 / 10; Very High 0 / 2 - Regulated multi-purpose finance companies: Low 8 / 31; Medium 26 / 2; High 0 / 20; Very High 0 / 2 - Unregulated multi-purpose finance companies: Low 185 / 536; Medium 771 / 426; High 369 / 339; Very High 118 / 203 - Cooperative savings and loans: Low 13 / 24; Medium 131 / 1; High 1 / 126; Very High 0 / 2 - Credit unions: Low 50 / 54; Medium 42 / 0; High 0 / 37; Very High 0 / 2 - Financial cooperative associations: Low 34 / 25; Medium 11 / 0; High 0 / 15; Very High 0 / 4 - General deposit warehouses: Low 13 / 15; Medium 0 / 1; High 1 / 1; Very High 0 / 0 - Investment companies: Low 41 / 39; Medium 0 / 0; High 0 / 6; Very High 0 / 1 - Total: Low 840 / 1,290; Medium 1,566 / 850; High 624 / 829; Very High 145 / 336 - CNBV notes a steady migration towards higher-risk categorizations but attributes this to more sophisticated risk models and improved data quality rather than material shifts in underlying sector risks. - CNSF - Uses a five-scale risk matrix with inherent risk and mitigating factors similar to CNBV; material drawn from institution reports and input from FIU and other agencies; matrix reassessed each quarter. - Insurers’ inherent risk considers a broad range of products; supervisors recognize long-term life and investment products represent the bulk of AML/CFT risk. - CNSF AML/CFT risk assessment for insurance companies (2014–2016) — Table 35: - 2014: Level 1 7; Level 2 70; Level 3 23; Level 4 0; Level 5 0 - 2015: Level 1 6; Level 2 51; Level 3 44; Level 4 0; Level 5 0 - 2016: Level 1 8; Level 2 62; Level 3 28; Level 4 0; Level 5 0 - Fluctuations in Levels 2 and 3 reflect model development rather than material shifts in risks. - CONSAR - Uses a three-tier risk matrix (low, medium, high) based on three inherent risk inputs (customers, monetary instruments, geography) offset by risk mitigants. - Core risk in pension funds relates to voluntary contributions by individual workers (regular or lump-sum payments, possible subsequent withdrawals), and risk analysis focuses on this aspect. - DNFBPs - NRA (based on FIU sector risk analysis) groups 15 VAs into three risk categories: - Highest risk: purchase and sale of vehicles, granting of loans and credit, transmission of property rights. - Mid-tier: gambling and lottery businesses, dealers in precious metals and stones (DPMS). - Relatively low risk: notaries, lawyers, accountants. - Inherent risk factors in NRA based solely on FIU-supplied information from a relatively small sample (14 percent on average); absence of prior AML/CFT inspections limited application of mitigation factors. - SAT - No authority to supervise CFT compliance. - Uses FIU sector risk analysis as basis for its model, supplemented with tax data, entity-specific activity information, and geographic/background factors to rate entities high/medium/low. - SAT sectoral risk analysis diverges from NRA for some activities — Table 36 (NRA / SAT): - Purchase and sale of real estate: High / High - Gambling and lottery: Medium / Medium - DPMS: Medium / High - Notaries: Low / Low - Professional services (lawyers and accountants): Low / Medium - SAT’s upgrade of professional service providers (especially lawyers) to medium risk appears more appropriate than NRA categorization. - Concern: SAT classifies none of ~4,000 notaries or ~2,000 professional service providers as high-risk individually, which is difficult to reconcile with NRA narrative that professional services have been fundamental in ML. - SAT’s risk model under development with a revised version expected in late-2017; aspects require careful consideration to accurately reflect ML/TF risks. ### Risk-based supervision and resource constraints - All financial sector supervisors employ offsite surveillance and onsite inspections; offsite focuses on regular reports filed by institutions; analysts prioritize based on institution risk profiles and feed analyses into updated risk assessments. - Supervisors use an annual program of routine inspections and have sought greater standardization through inter-agency coordination. - CNBV - AML/CFT inspection scheduling and targeting based solely on AML/CFT factors, though AML/CFT inspectors coordinate with prudential supervisors to avoid duplication. - Risk scores are a leading determinant for inclusion in annual inspection programs; input from FIU, PGR, other agencies, and minimum inspection frequency are also considered. - Some institutions (notably money remitters and exchange centers) have not yet been inspected on a risk-based approach and rely on routine offsite semi-annual reporting; strict application of the risk matrix would require many more visits than resources allow. - CNBV has undertaken sampling-based inspections to mitigate omissions, but resource availability remains a challenge. - Staffing and coverage: - CNBV employs 82 full-time AML/CFT supervisors plus 17 temporary staff to cover approximately 3,300 institutions, of which about 2,000 are considered medium- to high-risk. - In the context of this risk profile, resourcing levels appear to be low and should be reviewed carefully. - All financial institutions are required to produce annual AML/CFT audits by internal or external auditors; scope defined by regulation and results feed into supervisors’ overall risk profiles. The annual AML/CFT audit requirement does not apply to entities supervised by the SAT. *International Monetary Fund — Mexico assessment (content unit).* ### 329. Routine inspections with an AML/CFT component (targeting institutions on the basis of the ### 329–336: Routine inspections, thematic reviews, and consolidated supervision ### Routine inspections and inspection types - Routine inspections with an AML/CFT component (targeting institutions on the basis of the risk matrices) fall into two categories: - (i) a specialized AML/CFT review conducted independently or in conjunction with the prudential inspection if the priorities and agendas match; and - (ii) a “specific criteria program” undertaken during inspections performed by the prudential supervisors in coordination with the AML/CFT team, in which the supervisors carry out a review of key AML/CFT risks that are specific to each institution. - CNBV also undertakes unscheduled special inspections when: - offsite monitoring or intelligence identifies urgent issues for consideration; - follow-up action on previous visits is required; or - when a new licensee starts business. - A further category of “investigations” can be triggered where there are suspicions that breaches of the law may have occurred or where authorities need to collect information in the course of a judicial or administrative investigation. - Inspection approach: - Primary objective: validate compliance with technical requirements of AML/CFT and regulatory legislation. - Increasingly informed by detailed results of risk matrices: exact nature of the institution, market niche, commercial strategy, type of transactions, compliance record. - Inspections routinely involve risk-based sampling of customers and files. - Testing for compliance with TFS: samples of names from the BPLs are inserted into institutions’ automated systems to see whether there is a “hit”; limited focus on TF beyond verifying existence of automated systems with documented procedures. ### Thematic reviews and dissemination - CNBV thematic reviews have covered: - the treatment of PEPs and other high-risk customers; - BPLs; and - nested accounts. - Use of thematic review results: - feedback to institutions via workshops, bilateral meetings, and other mechanisms. - General findings are not published; publication would disseminate CNBV’s views on good and bad practices. ### Consolidated supervision and mixed groups - Post-2014 financial sector reforms: CNBV conducts consolidated AML/CFT supervision of “financial groups.” - Where financial groups also have entities supervised by other domestic regulators: - CNBV works through supervisors’ coordination group to exchange information; - CNBV has no authority to conduct joint inspections with other supervisors. - Example: one bank with an overseas branch (in the U.S.) — CNBV works closely with the foreign supervisor to receive regular reports on the branch’s operations. - CNBV lacks legal authority to apply consolidated supervision to “mixed groups” (groups with key commercial — rather than financial — activities): - Individual FIs within mixed groups are independently supervised for AML/CFT; - No gateway for formal consolidated approach to supervision, particularly to encompass foreign entities of mixed groups; - No routine joint meetings with group compliance officers of mixed groups occur. ### Insurance and pension supervisors’ inspection frameworks - CNSF inspection program constructed on four key considerations: - (i) recent corporate changes within the institution; - (ii) the extent to which life policies and savings products are offered; - (iii) the previous cycle of visits; and - (iv) priority if AML/CFT risk rating is in the three highest categories of its five-category matrix. - CNSF objectives and resources: - sets an objective of achieving 18–22 inspections per year; - uses nine specialist AML/CFT inspectors. - CNSF inspection focus and framework: - developed standard “supervision strategy” considering risk factors (CDD, STR filing, identification of high-risk customers, history of compliance); - primary focus on long-term life and investment products as highest risk for the sector. - CONSAR: - conducts an inspection of each pension fund administrator at least every two years; - risk matrix is a component in targeting inspections; follow-up on previous inspection and immediate input from the FIU play equally prominent roles. ### 336–336: AML/CFT inspection activity (2014–2016) ### Table 37 — AML/CFT Inspections of Financial Institutions Undertaken in Period 2014–2016 (classified by ordinary, special, investigation) - Banks: - 2014: Ord. 5, Spec. 3, Inv. 0 - 2015: Ord. 5, Spec. 7, Inv. 0 - 2016: Ord. 5, Spec. 3, Inv. 1 - Brokerage firms: - 2014: Ord. 1, Spec. 2, Inv. 0 - 2015: Ord. 2, Spec. 2, Inv. 0 - 2016: Ord. 2, Spec. 1, Inv. 0 - Exchange centers: - 2014: Ord. 16, Spec. 2, Inv. 4 - 2015: Ord. 22, Spec. 6, Inv. 0 - 2016: Ord. 26, Spec. 6, Inv. 0 - Exchange houses: - 2014: Ord. 0, Spec. 2, Inv. 1 - 2015: Ord. 1, Spec. 0, Inv. 0 - 2016: Ord. 1, Spec. 0, Inv. 1 - Money remitters: - 2014: Ord. 3, Spec. 0, Inv. 0 - 2015: Ord. 4, Spec. 0, Inv. 0 - 2016: Ord. 6, Spec. 2, Inv. 0 - Regulated M-P finance companies: - 2014: Ord. 2, Spec. 0, Inv. 0 - 2015: Ord. 1, Spec. 0, Inv. 0 - 2016: Ord. 1, Spec. 0, Inv. 0 - Unregulated M-P finance companies: - 2014: Ord. 7, Spec. 3, Inv. 0 - 2015: Ord. 6, Spec. 2, Inv. 0 - 2016: Ord. 8, Spec. 2, Inv. 0 - Other CNBV entities: - 2014: Ord. 6, Spec. 2, Inv. 0 - 2015: Ord. 5, Spec. 4, Inv. 0 - 2016: Ord. 7, Spec. 1, Inv. 0 - Total by CNBV: - 2014: 40 ordinary, 14 special, 5 investigation - 2015: 46 ordinary, 21 special, 0 investigation - 2016: 56 ordinary, 15 special, 2 investigation - CNSF (insurance, bonding, other) totals: - Total by CNSF 2014: 19 - Total by CNSF 2015: 22 - Total by CNSF 2016: 22 - (Breakdown: Insurance companies 13 (2014), 17 (2015), 17 (2016); Bonding institutions 5 (2014), 2 (2015), 2 (2016); Other CNSF entities 1 (2014), 3 (2015), 3 (2016)) - CONSAR (pension fund managers) total by year: - 2014: 8 - 2015: 7 - 2016: 8 - Note: 1/ Classified according to three categories: ordinary, special, and investigation. ### Assessment of evolving risk-based supervision - Overall trend: application of a truly risk-based approach is evolving in the right direction. - CNSF and CONSAR procedures are less developed than CNBV’s, but consistent with the lower risk profiles of their supervised institutions and not considered a material vulnerability. - Reported inspection emphasis: - Primary focus on technical compliance with legal obligations — estimated at 60–70 percent of the inspection process by one interviewee. - Marked shift in recent years towards meaningful dialogue with inspectors on identifying key risks. - Improvement in inspectors’ qualitative analysis complementing quantitative “tick-box” approach. - Attributed partly to greater staffing stability within supervisors. - Concern remains: resources applied to AML/CFT supervision may be insufficient to match overall risk profile, possibly hindering maintenance of appropriate inspection frequency for higher-risk institutions. ### 338–342: DNFBPs, SAT supervision capacity, and inspection targeting ### SAT authority and inspection practice - SAT has no authority to undertake monitoring of compliance with CFT obligations; no structured alternative mechanism within DNFBP sectors. - For AML compliance monitoring SAT employs: - offsite analysis focused primarily on entities rated medium- or low-risk; - onsite inspections. - Offsite surveillance process: - monitoring statutory notices that entities must file relating to transactions to identify potential non-reporters and discrepancies; - issues are pursued through correspondence with the entity. - SAT reports it focuses inspections on high-risk entities (transfer of real estate, parts of casino sector) and has sampled some other sectors; however, inspection distribution indicates otherwise. ### Table 38 — AML Inspections of Vulnerable Activities Undertaken by SAT in Period May 2014–March 2017 - Sector — Inspections: - Gambling and lottery — 15 - Professional services (lawyers and accountants) — 0 - Notaries — 33 - DPMS — 3 - Purchase and sale of real estate — 27 - Other SAT entities — 40 - Total — 118 ### Concerns about targeting and methodology - Notaries (classified low-risk in both NRA and SAT models) received the largest number of inspections since 2014, while DPMS (high-risk) received only three inspections. - No inspections carried out with respect to lawyers and accountants (medium-risk under SAT model). - SAT inspection conduct is not risk-based: uses a standard inspection process focusing on eleven elements examiners must review. - Resourcing and capacity: - At time of assessment, SAT had sixteen officials responsible for offsite analysis and onsite inspection of approximately 64,000 business entities and professionals currently on the register. 69 - As a result, since 2014 SAT has inspected less than 0.2 percent of the entities for which it is responsible. - Plans to train two additional staff in each SAT regional office may not produce a concentrated pool of excellence. - Subsequent capacity-building (post-onsite): 677 officials were trained throughout the 67 regions of Mexico as well as three central administrations; objective for officials “to perform some type of surveillance activities according to the authorities granted to them by Law.” 70 - Material concerns: - SAT oversees two activities identified in the NRA as particularly high risk for ML: transfer of real estate and incorporation of legal persons; - SAT is the supervisor for notaries who are primary gatekeepers to transactions involving these high-risk issues. - Recommendation: essential increase in SAT resources might be complemented by a requirement for DNFBPs to submit annual AML/CFT audit reports undertaken by external or internal auditors. Notes: - 69: This excludes 18 officials in a separate department dedicated to foreign trade investigation and analysis. - 70: Subsequent to the onsite visit, the SAT undertook a capacity-building exercise under which 677 officials were trained throughout the 67 regions of Mexico as well as three central administrations. The authorities state that objective is for the officials “to perform some type of surveillance activities according to the authorities granted to them by Law.” ### 343–350: Remedial actions and sanctions for Financial Institutions ### Use of self-correction programs and enforcement options - Since 2014, institutions can submit “self-correction programs” when they identify deficiencies not previously apparent to supervisors. - Such programs must be agreed with the supervisor, which can refuse approval when the issue is significant enough to justify serious enforcement action. - Programs are subject to monitoring during implementation. - CNBV rejected a self-correction program in 3 of the 17 cases submitted for approval in 2014–2015. - CNSF approved 69 such programs in 2014–2015. - CONSAR approved 3 such programs in 2014–2015. - If not properly implemented, regulators can impose a reorganization plan; CNSF issued 24 such plans in 2014–2015. - Traditional supervisory powers: - impose corrective measures; - apply enforced compliance programs; - remove management; - curtail or prohibit specific business operations; - apply financial penalties; - revoke authorizations. - Supervisors have powers to apply direct sanctions to individual directors and managers for breaches of AML/CFT requirements, but no such actions have yet been taken. - No sanctions have ever been applied specifically for TF deficiencies. - Financial penalties: - Laws allocate different ranges of financial penalties for failure to comply with specific AML/CFT requirements; - Fines may be assessed as a percentage (up to 100 percent) of the value of certain transactions (e.g., failure to file an STR or to freeze funds held by someone on the BPL). - Supervisors may not exceed the top of the statutory range irrespective of deficiency seriousness. - Supervisors follow strict due-process procedures considering materiality, financial strength, and previous compliance record. - Supervisors post summary of financial penalties on their websites; this publicity helps improve compliance. ### Table 39 — Financial Penalties Applied by the CNBV (U.S. Dollar Equivalents at Year-End Exchange Rate) - Offsite Supervision: - 2014: Sanctions 1,537 — Total Amount $2,921,937 — Average Fine $1,849 - 2015: Sanctions 4,383 — Total Amount $4,867,382 — Average Fine $1,180 - 2016: Sanctions 1,189 — Total Amount $619,905 — Average Fine $521 - Onsite Supervision: - 2014: Sanctions 7 — Total Amount $5,370,658 — Average Fine $767,236 - 2015: Sanctions 53 — Total Amount $1,170,729 — Average Fine $22,089 - 2016: Sanctions 43 — Total Amount $795,349 — Average Fine $18,496 ### Table 40 — Financial Penalties Applied for AML/CFT Breaches (U.S. Dollar Equivalents at Year-End Exchange Rate) - Multiple banking: - 2014: Number of sanctions 33 — Total value of fines $6,235,893 — Average of fines $188,966 - 2015: Number of sanctions 64 — Total value of fines $1,099,659 — Average of fines $17,182 - 2016: Number of sanctions 40 — Total value of fines $356,514 — Average of fines $8,912 - Brokerage firms: - 2014: Number of sanctions 3 — Total value of fines $102,342 — Average of fines $34,114 - 2015: Number of sanctions 25 — Total value of fines $198,323 — Average of fines $7,932 - 2016: Number of sanctions 11 — Total value of fines $142,082 — Average of fines $12,916 ### Observations on penalty effectiveness and timeliness - Average size of fines over the three-year period across all institutions has been very low, particularly for banks and securities brokers. - Single institutions may receive cumulative sanctions for multiple failings; largest cumulative penalties seen by assessors provide only a slightly better picture relative to the nature and range of deficiencies identified. - Authorities note timelines to final resolution of financial penalties can be extended (in many cases two–three years); penalties applied up to end-2016 often related to deficiencies identified before available fines were increased in 2014. Consequently, no material evidence yet on whether new sanctions will produce more effective, proportionate, and dissuasive results for systems and controls failures. - Areas where fines appear proportionate/dissuasive: - failure to comply with reporting obligations and to freeze assets in line with the BPL — fines tied to transaction value. - All material penalty examples included failings in respect of STRs/CTRs. - Concern: maximum penalty levels may still not be proportionate for significant systems failures by the largest FIs. ### Timeliness and reputational impact - Financial sector view: - time lag in settling financial penalties is frustrating — institutions often have moved on by time publicity emerges; - this can create misconceptions among domestic and foreign counterparts about the current position of a sanctioned institution. - welcomed improvements in shortening the period between problem identification and finalization of sanction, 72 but further progress is needed. - underlying concern: fines are based almost entirely on quantification of technical deficiencies and are insufficiently defined by materiality and risk, complicating market counterpart discussions. Notes: - 71: For each of the more serious systems and controls deficiencies, the maximum penalty for banks and securities brokers now stands at approximately US$385,000. - 72: Since 2015, the objective has been to finalize sanctions within 95 working days for serious offenses and 165 working days for others. ### Table 41 — Sanctions Applied to Selected Types of Vulnerable Activities Following Inspection Visits (US Dollar Equivalent at Year-End Exchange Rates) - Gambling and lottery: - 2014: Visits 9 — Total fines $51,541 - 2015: Visits 4 — Total fines $2403 - 2016: Visits 2 — Total fines $0 - Professional services: - 2014: Visits 0 — Total fines - - 2015: Visits 0 — Total fines - - 2016: Visits 0 — Total fines - - Notaries: - 2014: Visits 2 — Total fines $0 - 2015: Visits 14 — Total fines $311,293 - 2016: Visits 14 — Total fines $547,002 - Dealers in precious metals and stones: - 2014: Visits 0 — Total fines - - 2015: Visits 0 — Total fines - - 2016: Visits 3 — Total fines $13,319 - Purchase and sale of real estate: - 2014: Visits 9 — Total fines $14,317 - 2015: Visits 8 — Total fines $4,793,049 - 2016: Visits 3 — Total fines $869,414 ### 351–350 (implicit): Summary observations and remaining concerns - Improvements noted: - shift toward risk-informed inspections; - improved qualitative analysis by inspectors; - use of self-correction programs as a regulatory tool. - Remaining vulnerabilities and recommendations implied by findings: - CNBV lacks authority for consolidated supervision of mixed groups — consider legal gateway or enhanced coordination (e.g., joint meetings with group compliance officers). - SAT is severely under-resourced relative to scope (16 officials for ~64,000 entities) and inspection targeting is inconsistent with risk ratings — essential increase in SAT resources and consideration of mandatory annual AML/CFT audit reports by DNFBPs. - Supervisory sanctions: - consider stronger application of powers against individual directors and managers where appropriate; - review adequacy of maximum statutory fines relative to potential systems failures by the largest FIs; - maintain and continue to reduce timelines for finalizing sanctions to enhance reputational clarity and deterrence. - Continued monitoring required to assess whether increases in available fines (post-2014) and procedural improvements translate into more effective, proportionate, and dissuasive outcomes across sectors. *Source: IMF assessment text (cr17405-mexicodar - 329. Routine inspections with an AML/CFT component).* ### 351. Remedial action taken by the SAT is almost exclusively centered on financial penalties, as it ### 351. Remedial action taken by the SAT is almost exclusively centered on financial penalties, as it ### Remedial authority and practice of the SAT - SAT has no legal authority to impose remedial action plans; remedial action is almost exclusively financial penalties. - SAT can recommend revocation of an authorization to conduct certain types of business (e.g., notaries and casino operations), but it has never used this power. - Absolute level of fines applied to entities is low, except where an assessment against the value of unreported transactions is possible (most easily achieved in relation to property developments). - SAT stated that, due to the absence of an agreed procedure to assess the appropriate level of fines within the bands laid down in the AML law, the practice so far has been to impose the minimum fine available in each case. - Courts have effectively determined that first-time offenders may only be sanctioned at the lowest level. - Example: minimum fines applied even where an entity was found to be in breach of legal requirements in 121 instances. - Observation: applying minimum fines in all such cases is clearly not sustainable, particularly since the same principles of administrative law for determining appropriate penalty levels apply to the SAT as to the financial supervisors. ### Impact of supervisory actions on compliance — Financial institutions - Trend indicators: supervisors’ risk assessments would normally indicate impact on compliance, but financial sector supervisors’ assessments (especially CNBV) are “work-in-progress” and year-to-year movements reflect methodological refinement rather than underlying changes in risk mitigation. - Inspection/offsite data: supervisors provided data on findings over the past three years, but trends in institution performance are difficult to identify. - Common findings: supervisors continue to find a cross-section of deficiencies; no particular aspects show marked improvements or lapses across institutions. - Institutions’ view of supervisory impact: - Supervisory actions (self-correction programs, improved inspections, outreach, publication of enforcement) lead institutions towards improved compliance. - Institutions did not view the level of fines as the primary incentive for compliance; reputational damage from published penalties is a stronger incentive. - Repeat offenders: data indicate a number of repeat offenders sanctioned more than once in recent years, including: - 20 banks - over 30 insurance companies - Extent to which these represent technical versus material deficiencies has not been assessed. - Regulatory change context: - Significant recent changes to regulatory requirements to improve technical compliance with FATF standards have required institutions to adapt frequently. - Recent changes include introduction of requirements for institutions to undertake formal risk assessments and measures to strengthen beneficial ownership (BO) obligations, including more extensive procedures to identify ultimate BO. - Remaining challenges for financial institutions (including many smaller institutions): - customer profiling; - identification and risk classification of domestic PEPs; - identification of true BO; - implementation of more refined transaction monitoring systems; - quality of STRs. - Professional certification: - CNBV introduced requirement that all compliance officers and internal and external auditors undertaking AML/CFT work be certified through a CNBV-administered examination. - Certification must be renewed every five years. - Requirement rolled out progressively since June 2015 across various sectors supervised by CNBV, with over 2,000 certifications issued. - Project is in process of being extended to the insurance and pension fund sectors. - Industry believes this has been an important factor in improving standards within institutions’ compliance functions. ### Impact of supervisory actions on compliance — DNFBPs (SAT) - SAT asserts supervisory procedures have been effective: only ever one identified repeat offender in enforcement actions and an increase in compliance via offsite monitoring submissions. - Assessment of SAT claims: - Very limited number of inspections across DNFBP sector undermines basis for reliable analysis. - Offsite surveillance procedures appear insufficient to determine whether the broad spectrum of AML obligations is being met. - SAT’s remit does not extend to assessing compliance with CFT obligations. - Typical inspection findings cover a broad range of deficiencies, including lack of proper information on customers and beneficial owners, suggesting issues may be widespread. ### Promoting understanding of AML/CFT obligations and ML/TF risks - CNBV outreach: - Extensive guidance to FIs: letters to institutions, sector and institution-specific guidance, video tutorials on website, training programs, regular meetings with professional associations. - FIs appreciate outreach; it has helped improve understanding of obligations. - FIs request more guidance on identification of TF threats and definition of PEP; they also seek more statistical information to assist their risk assessments. - Other supervisors: - CNSF engagement primarily via onsite examinations and monitoring mandatory training; briefing sessions with Mexican Association of Insurance Institutions; outreach with FIU to raise STR awareness. - CONSAR mostly limited to providing guidance on STRs. - SAT provides no direct outreach to DNFBPs; relies on FIU initiatives (a point noted by private sector). - FIU engagement: - Regular feedback to reporting institutions, including statistical data on reporting trends; has supplied sector risk analyses. - Issued a significant number of best practice guides to improve STR quality and ML/TF risk awareness. - Distribution channels: primarily via respective supervisory authorities; also posted on special website portal for DNFBP sectors. - FIU and supervisory authorities respond to interpretative guidance requests on AML/CFT legal provisions. - Approximately 90 such requests from the financial sector addressed since 2010. - Over 2,000 such requests from the DNFBPs since 2013. - Focus on DNFBPs given recent inclusion in AML/CFT regime. - FIU has provided feedback reports to DNFBPs, implemented over 50 training programs since 2013, and conducted over 45,000 telephone consultations with individual businesses. ### Overall conclusion on Immediate Outcome 3 - Mexico has achieved a moderate level of effectiveness for IO.3. *Source: IMF country report excerpt* ### LEGAL PERSONS AND ARRANGEMENTS (Immediate Outcome 5) ### A. Key findings - Understanding of the risks of misuse of legal persons and arrangements for criminal purposes is uneven among authorities; PGR, federal police, the FIU, and the SAT have a better appreciation of these risks than other authorities. - Safeguards exist (prohibition of bearer shares, involvement of notaries in company formation, exclusive role of FIs as fiduciaries) but are effective only to a limited extent. - Competent authorities do not have timely access to adequate, accurate, and current information on the beneficial ownership (BO) of legal persons. - Obstacles to obtaining legal ownership information from federal registers: - The transfer of ownership of shares in companies is not recorded. - Current register system has been in place since September 2016, and not all companies created before that time have been entered in it. - Competent authorities have timely access to a central registry of legal arrangements (fideicomisos). - There are no sanctions applied against legal persons who do not comply with basic information requirements; maintenance of BO information by legal persons is not required. - Any act not registered in the books of the legal entity will not have legal validity. ### B. Recommended actions - Raise awareness of the risks of misuse of legal persons and arrangements for criminal purposes among supervisory authorities (other than the SAT). - Make sure that the transfer of shares in companies is recorded and kept up to date (i.e., through the involvement of a notary). - Make sure that information on all companies is entered into the RFC, so that there is no backlog. - Make sure that competent authorities have timely access to BO information on legal persons and fideicomisos. - Introduce sanctions applicable to legal persons or their responsible officers for non-compliance with basic and BO information requirements. ### C. Immediate Outcome 5 — Public availability and risk understanding - Trust services: - Offered by 36 banks in Mexico: 30 universal banks and six development banks. - Amount of assets managed under fideicomisos is around Mex$7 trillion. - Top seven institutions control 70 percent of fideicomisos. - These banks are regulated and supervised for AML/CFT purposes. - Public information: - Different types, forms, and basic features of legal persons are defined in Mexican law and processes for creation are described on official government websites; this information is public. - The fideicomisos (only legal arrangement that exists in Mexico) are likewise described publicly. - NRA and risk differentiation: - NRA does not specifically differentiate risks associated with different types of legal persons, though it notes that use of front companies is one of the most widespread ML techniques. - NRA states all types of legal persons must register in the central registry through a trusted third party (notary public or public broker), who must verify information submitted. - Authorities’ risk analysis: - LEAs, the FIU, and the SAT have conducted analyses of companies with higher risk of ML/tax evasion considering indicators such as number of related persons, amount of capital at constitution, participation in constitution of other legal persons, age and nationality of shareholders, and geographical area of establishment. ### C. Immediate Outcome 5 — Misuse patterns and vulnerabilities - Most widespread phenomena: - Misuse of shell and front companies to perpetrate predicate offenses (self-dealing, embezzlement, tax evasion) and to invest illicit proceeds from organized criminality and corruption in real estate, restaurants, shops, and other businesses domestically and abroad. - Most used type of company is the limited liability company (Sociedad Anónima) due to ease of creation and minimal requirements (minimum two shareholders and low minimum capital requirement). - Ownership concealment: - Basic cases: company may be registered in the name of the criminal, but name may remain hidden from the general public due to deficiencies in the company ownership register. - Widespread practice: use of strawmen or informal “brokers” (professional intermediaries operating informally without registration or business license) to register companies in their own names or in names of unemployed people, students, etc., preventing beneficial owner’s name appearing on records. - More complex cases: inclusion of foreign shell companies in ownership chain to add anonymity. - Fideicomisos risk: - There seems to be a risk of misuse of fideicomisos since they are often used by foreigners to buy property and invest in Mexico. - Authorities consider risk mitigated because only regulated FIs can serve as trustees and they are obliged to identify different parties to trusts, including settlor, but not beneficiary (or class of beneficiaries). - FIs do not go beyond identifying legal ownership if a settlor is a legal person. - There have been a few cases where fideicomisos have been used to invest illicit funds. - Supervisors’ familiarity: - Supervisors (both for FIs and DNFBPs) do not seem familiar with risks posed by legal persons and arrangements, possibly due to deficient BO identification requirements and recent introduction of BO concept into legislation (particularly for DNFBPs). ### C. Immediate Outcome 5 — Mitigating measures in place - Measures present that provide safeguards against misuse (not risk-based but relevant): - Bearer shares, nominee shares, and nominee directors are not allowed in Mexico (see c.24.11–12 in the TCA); both private sector and authorities confirmed they have never encountered bearer shares in practice. - Formation of all types of legal persons (except simplified companies by shares) must be conducted through notaries public or public brokers (see c.24.5 in the TCA), who are subject to AML provisions including CDD and record-keeping. - Full scope of CDD measures, especially identifying and verifying BO, is rarely done in practice. - Notaries public and public brokers operate as an extension of the state and must ensure accuracy of information submitted by parties forming legal persons. - They verify identities of parties involved in formation (shareholders and legal representatives), powers of attorney, articles of incorporation, and tax references. - All information and copies of supporting documentation are forwarded by notaries to both RPC (for corporations, companies, cooperative companies, mutual societies and foreign legal persons of private nature) and the RFC (for all types of legal persons). - Registration throughput: - On average, 7,947 companies registered per month by 3,622 notaries and 412 public brokers nationwide. - This gives an estimate of two company registrations per intermediary per month. - In certain Mexican States (México and Chiapas), the figure is much higher but remains in reasonable range. - State of Mexico has the most important income in the country; State of Chiapas is perhaps the most touristic one. *Source: IMF country report excerpt* ### 374. As mentioned above, there is no requirement to register simplified companies by shares ### 374. As mentioned above, there is no requirement to register simplified companies by shares ### Simplified companies by shares — formation and limitations - This type of company was introduced to facilitate entrepreneurial activities, and it can be formed online. - There is no requirement to register simplified companies by shares through a notary. - Safeguards regarding collection of information on its owners, managers, and legal representatives: - All persons involved have to obtain an electronic signature at the SAT. - For that, they have to come in person and have their biometrical data taken. - Subsequently, all information on the newly created companies is stored in the RFC and the RPC, just like for all other types of companies. - These companies are only authorized to be used as long as their annual turnover does not exceed Mex$5 million. - If that threshold is reached, the company has to be transformed into an ordinary limited liability company. ### Fideicomisos — trustees, registration, and reporting - Fiduciaries can only be FIs, which are subject to full range of AML obligations. - Certain types of fideicomisos (i.e., those that generate business income) have to be registered at the RFC. - Other types of fideicomisos must be either: - registered in the Trust Control and Transparency System managed by the SHCP (for trusts under the administration of the Federal Public Administration), or - registered at the Information Department of the Financial System of the Bank of Mexico (all other types of trusts). ### Effectiveness of measures addressing misuse of legal persons and arrangements - All measures described above are effective only to a limited extent to address the risks of misuse of legal persons and arrangements. ### Basic information on legal persons — sources and access - Two main sources of basic information on legal persons: the RFC and the RPC. - The RFC contains information on all types of legal persons. - The RPC contains information only on those that engage in commercial activities (does not include unions and associations). - Access: - All competent authorities have direct, instant, and unlimited access to the RPC. - The FIU, the PGR, and the SAT have direct access to the RFC. - The CNBV and the CNSF must make a request to the SAT for RFC access. - Despite registers, serious problems with accuracy and completeness exist. ### Key problems affecting accuracy and timeliness of registers - No obligation to involve a notary when transferring shares if there is no change in constituting documents or minimum fixed capital: - A simple transfer of shares will not require certification before a notary and thus will not be reflected in any of the registers. - This undermines ability of competent authorities to obtain up-to-date legal ownership information. - Transition to single federal registers (SIGER 2.0): - SIGER 2.0 has been fully operational only since September 2016. - Before September 2016, notaries provided information to local government which forwarded it to federal authorities; quality and timeliness varied by state. - Backlog: six states (Michoacán, Nuevo Léon, San Luis Potosi, Sinaloa, Tamaulipas, and Ciudad de México) have companies created before September 2016 not yet entered into the single federal registers. - Authorities estimate approximately 90 percent of all companies have been entered into the federal registries, and the process should be complete by the end of 2017. - Where a legal person has not yet been entered in the RFC/RPC, it may take up to a week for authorities to retrieve information from local governments either by sending a request or visiting their premises. - Since September 2013, notaries and public brokers must report to the FIU all new registrations of legal persons, and other acts performed by notaries, along with data obtained through the CDD, immediately after the act. - Notarial compliance weaknesses: - Level of compliance with BO obligations among notaries remains weak. - Notaries cannot refuse incorporation if legal prerequisites are met, even if they suspect a strawman, potentially resulting in strawmen appearing as legal owners in the register. - Notaries can only make further inquiries and file an STR with the FIU when they suspect misuse. - Some notaries may collude with strawmen (e.g., registering dozens of companies in the name of the same person without reporting suspicion). - SAT supervisory results (2014–2016): 16 onsite inspections; in 10 of them, the SAT identified 88 violations of customer identification obligations and 73 violations in identifying BO. - Only one isolated case of a notary disqualified for collusion was noted (arrested, license revoked, under prosecution at the time of the onsite). ### Beneficial ownership (BO) information — availability and access - There is no register or database of the beneficial owners of the legal persons in Mexico. - FIs and DNFBPs (notaries in the first place) may hold BO information obtained through CDD, but: - BO is identified only to a limited extent due to a deficient legal framework (recently amended but amendments enter into effect after the onsite) and low compliance as evidenced by supervisors and interviews. - For legal person clients, FIs are only required to identify BO of those classified as high-risk and often unduly rely on customer's self-declaration of BO. - Notaries do not go beyond verifying the first level of ownership (legal ownership), especially for foreign shareholders. - Changes in ownership or control of foreign shareholders are not necessarily communicated to banks or notaries. - Access challenges: - To access BO information for a company, competent authorities need to identify with whom the company has a business relationship. - In absence of a central registry of bank accounts (or similar mechanism), timely access to BO information cannot be ensured. - Authorities often rely on investigative techniques (wiretapping, search of premises, interviewing witnesses) or international assistance (Egmont network or MLAs), which can take months or years. ### Legal arrangements (fideicomisos) — BO information and access - The only legal arrangement under Mexican law is the fideicomiso. - Only FIs under CNBV supervision can serve as trustees. - RFC contains information on trustee (FI), settlor, beneficiaries (if defined), assets involved, and underlying economic purpose; however: - Only fideicomisos that generate business income have to be registered in the RFC (a small part of the total registered). - Example from a bank: out of 9,400 fideicomisos managed by this bank, only around 50 were subject to registration in the RFC. - Other fideicomisos registered either in the Trust Control and Transparency System or at the Information Department of the Financial System of the Bank of Mexico. - FIs acting as trustees: - Generally have a good understanding of obligations to identify and verify parties to the arrangement. - Provide information to the RFC and other registries as soon as a fideicomiso is created, as required by tax law. - Report changes in composition or underlying assets to the relevant registry without delay. - Issues: - Most fideicomisos do not have to be registered in the RFC; some of those not registered may present ML/TF vulnerabilities (e.g., trusts where underlying assets are cash in current account or real estate that does not generate rental income held for benefit of a third party). - It is not clear what modalities of access to the Trust Control and Transparency System or Bank of Mexico's Information Department are for the FIU and LEAs, or whether competent authorities have made requests to them. - Even when the FI is known, a request for information through the CNBV may take up to a week. ### Sanctions — effectiveness, proportionality, and dissuasiveness - Legal persons and their representatives are liable for failure to comply with requirements to register in the RPC/RFC. - Sanctions foreseen: three months to three years of prison. - Relevant statistics have not been provided. - No specific sanctions foreseen for failure to maintain a register of shareholders or members and update it accordingly (specific responsibility of legal persons and their representatives). - FIs acting in fiduciary capacity in fideicomisos are liable for non-compliance with BO identification and record-keeping by virtue of being subject to the AML/CFT regime. - A range of sanctions are available to supervisors; doubts exist about how effectively these are being applied. - Legal framework defining BO requirements is deficient, although recent amendments will change this. ### Overall assessment for Immediate Outcome 5 - Mexico has achieved a moderate level of effectiveness for IO.5. --- ### International cooperation — key findings and recommended actions ### Key findings - Mexico has a solid legal and institutional framework to seek and provide MLA. - Authorities frequently rely on other forms of international cooperation to exchange information with other countries. - PGR staff have a high level of knowledge and specialization to enable effective cooperation with foreign counterparts. - Policy choice: Mexico favors other forms of cooperation while only pursuing MLA “when strictly necessary,” producing substantial results with the U.S. - Effectiveness of MLA hampered by: - Lack of specific guidelines for prioritizing foreign requests. - Lack of legal provisions governing controlled deliveries and joint investigation teams. - As regards seeking MLA from other countries: - The PGR is neither proactive nor accords a high priority to pursuing MLA when offenses have a transnational element and evidence or assets are located abroad. - Extradition: - Robust legal and institutional framework based on effective coordination (PGR, Ministry of Foreign Affairs, judicial authorities). - Shortcomings relate to delays from the appeals process (recurso de amparo) and low number of extradition requests sent to other countries in respect of ML. - Other forms of international cooperation (financial intelligence, supervisory, law enforcement information) appear to be effective, more fluid, and more frequently used than MLA, particularly with the U.S. - Such informal cooperation should primarily complement and not substitute MLA mechanisms. ### Recommended actions - Further align legislative framework with international standards to enable provision of the widest assistance possible (see R.37–40 for more information). - Establish an effective case management system to facilitate follow-up of incoming and outgoing requests for assistance, and develop proper guidelines on how to prioritize such requests. - The PGR should take a more proactive approach and raise the priority given to ML investigations that have a transnational dimension to locate and extradite criminals abroad, and identify, seize, and confiscate their assets. ### Immediate Outcome 2 — operational observations and statistics - Mexico’s main interlocutor for international cooperation is the U.S.; cooperation with other jurisdictions is also necessary for regional and other threats. - Responsibility for MLA lies with the Dirección General de Procedimientos Internacionales (DGPI) within the PGR. - The Directorate of International Legal Assistance (DAJI) (part of DGPI) is staffed by one director, 18 lawyers, and 15 administrative assistants. - PGR has liaison officers posted abroad (Washington, Los Angeles, Bogota, Guatemala, Vienna, and Madrid). - Between 2010 and 2016: - Mexico received 1,236 MLA requests in respect of various offenses. - 155 of those had an ML component. - As of January 2017, 214 MLA requests were in the course of being executed, of which 38 were associated with ML. - The remaining 1,022 requests had been implemented. - Mexico has received only one MLA request related to TF. - Table 42 summary (2010–2016): - Total MLA Requests Received: 1,236 - Total MLA Requests Implemented as of January 2017: 1,022 - Total MLA Requests Outstanding for Implementation as of January 2017: 214 - MLA requests with an ML component: 155 received; 117 implemented as of January 2017; 38 outstanding for implementation as of January 2017. - Note: Mexican authorities provided alternative statistics, according to which only 10, rather than 38, MLA requests with an ML component were pending as of January 2017, but no documentary evidence was provided in support of that revised figure. - Table 43 — Total Number of MLA Requests Related to ML Received by Mexico (2010–2016) per Country: - Albania 1 - Andorra 3 - Argentina 4 - Bolivia 3 - Brazil 1 - Colombia 21 - Costa Rica 3 - Canada 1 - Chile 1 - Germany 4 - U.S. 34 - Ecuador 5 - El Salvador 6 - Spain 12 - Finland 1 - Guatemala 11 - Netherlands 1 - Honduras 19 - Nicaragua 2 - Panama 10 - Peru 17 - Portugal 1 - Romania 1 - Switzerland 6 - Venezuela 3 - Total 171 *International Monetary Fund — content unit: cr17405-mexicodar - 374. As mentioned above, there is no requirement to register simplified companies by shares* ### 397. As explained under criteria 37.1 and 37.8 of the TCA, the statutory provisions comprising ### cr17405-mexicodar - 397. As explained under criteria 37.1 and 37.8 of the TCA, the statutory provisions comprising ### Legal framework for MLA - Statutory provisions for MLA set out in the National Criminal Procedural Code (CNPP) are described as very broad and underpinned by two main principles: - (i) foreign MLA requests must be implemented as quickly as possible and with the utmost diligence; and - (ii) the Mexican authorities must provide the highest level of cooperation possible in the investigation and prosecution of offenses. - Uncertainty noted as to whether Mexico could execute MLA requests seeking a controlled delivery or a joint investigation in the absence of statutory provision regulating these investigative techniques at national level. - Mexican law provides seven discretionary grounds for refusing to provide MLA and one discretionary ground for deferring such provision. - Grounds for deferral may be invoked where execution of the request might compromise or obstruct an ongoing investigation. - In practice, in some cases Mexican authorities refuse the MLA request rather than informing the requesting country of the existence of their own investigation and postponing assistance. ### Operational performance, case management, and timeliness - Reported execution times for requests from other countries: generally in between 5 and 12 months. - At the time of the onsite visit, Mexico did not have a case management system or mechanism for prioritization of MLA/extradition requests based on criteria such as nature of the crime, seriousness, date of receipt, or urgency. - Lack of an effective case-management system undermines the effectiveness of the system and may produce delays. - DGPI updated its MLA Manual on Procedures in 2015, but the manual is characterized as more of a compilation of international treaties than an operational guide. - After the onsite mission, Mexican authorities rolled out a new electronic case management system known as Justici@net, a computer application with specific modules which, as far as the DGPI is concerned, focuses on extraditions and MLA; it is expected to enable MLA requests to be registered and their status reviewed. ### MLA volumes, focus, and patterns (outgoing and incoming) - Incoming MLA (2014–2016): between 2014 and 2016, Mexico received only two MLA requests from Peru and Spain for the seizure of assets; neither concerned ML. No MLA requests were received for the confiscation of assets. Many incoming requests sought banking and financial information on persons under investigation or concerning assets seized in Mexico. - No MLA request received for the sharing and repatriation of assets; Mexican and U.S. authorities confirmed existence of a repatriation program, but according to the U.S., that program was put on hold in 2012. One repatriation agreement reached in 2012. - Quality feedback: several countries indicated the quality of assistance provided by Mexico has been good; standard procedure is for case officers to contact requesting authorities when requests lack information or clarity. - Mexico is not proactive in seeking MLA for domestic cases with transnational elements; policy acknowledged to use MLA only when strictly necessary, relying often on other forms of cooperation, particularly with the U.S. - Outgoing ML-related MLA requests decreased by almost 50 percent over the 2010–2015 period, reflecting the policy not to use MLA unless strictly necessary. Key statistics (exact values preserved) - Reported incoming execution times: "between five and twelve months". - DGPI update: "MLA Manual on Procedures in 2015". - Justici@net: rollout noted after onsite mission (no date specified). Table 44 — Mutual Legal Requests Sent by Mexico (excerpted rows, exact figures preserved) - Other offenses: 392 447 721 562 457 406 Not known 2,985 - Money laundering: 30 41 41 34 27 16 27 210 Table 45 — ML-Related MLA Requests Sent by Mexico, by Country (January 1, 2010–December 31, 2016) (selected totals and examples) - U.S.: 8 16 17 22 15 5 8 91 - Colombia: 6 6 7 1 2 2 8 32 - Spain: 1 2 0 2 0 2 4 11 - Panama: 5 1 1 1 1 1 1 11 - Total (all countries listed): 31 42 35 39 24 12 27 210 - Only one MLA request sent to Panama sought interim measures for seizing and freezing of shipments. - No record of any MLA request by Mexico to implement a controlled delivery. - Mexico sent 31 MLA requests to Central American countries between 2010 and 2016. - Mexico sent 91 MLA requests to the U.S. between 2010 and 2016; in ML-related requests to the U.S., ML tends to be ancillary in corruption and fraud cases. - U.S. assessment: MLA requests from Mexico are usually difficult to implement because they often lack a sufficient factual description linking criminal activity to requested assistance, though direct contact and informal mechanisms can overcome obstacles. ### Extradition: framework, activity, and concerns - Legal framework for extradition is described as well-structured with a clear statutory basis; Ministry of Foreign Affairs has adopted a manual and arranged specialized training. - Between 2010 and 2015 (exact figures): - Mexican government granted a total of 689 extradition requests for a range of offenses. - Of these, 64 were associated with ML. - A total of 29 extradition requests were refused, of which three related to ML. - 531 persons were actually extradited, of whom 22 were extradited for ML-related offenses. - Footnote: Mexican authorities explain discrepancy between number of requests granted and persons actually extradited is due to inability to enforce extradition when requested person has outstanding criminal proceedings in Mexico; figures remain inconsistent. - Extradition case example — "El Chapo" (chronology preserved): - July 29, 2015: PGR filed formal request for international extradition against Joaquín Guzmán Loera, alias "El Chapo". - September 18, 2015: second formal extradition request filed. - January 20, 2016: El Chapo detained for international extradition. - May 20, 2016: Mexican Ministry of Foreign Affairs issued orders granting extradition to U.S. (prosecutions listed). - January 19, 2017: Mexican Ministry of Foreign Affairs surrendered El Chapo to the PGR for transmission to the requesting authorities; El Chapo ultimately extradited to the U.S. - Concerns noted by one country: Mexico requires information on the predicate offense for ML-related extradition requests, which delays implementation; unclear whether Mexico grants extradition for ML as a standalone offense. Some countries express concerns regarding delays due to appeals process (recurso de amparo). - Extradition requests sent by Mexico (Table 46, exact figures preserved): - Other offenses: 44 45 47 34 170 - ML: 2 2 3 0 7 ### Asset recovery, controlled deliveries, and pursuit of assets abroad - Mexican authorities have never received an MLA request for sharing and repatriation of assets; mechanisms appear to exist, but no recent activity documented. - LEAs do not appear to pursue assets when moved abroad; no record of Mexican authorities having sent an MLA request to implement a controlled delivery. - This lack of pursuit adversely affects number of requests and assets potentially seized/confiscated abroad; investigative authorities focus more on domestic offenses and pay less attention to transnational ML. ### Other forms of international cooperation (outside MLA) - Mexican authorities regularly seek and provide other forms of international cooperation to exchange financial intelligence, and supervisory, law enforcement, and other information for AML/CFT purposes. - Mexican and U.S. LEAs systematically share ML/TF-related information at strategic and operational levels; resulted in tangible outcomes (e.g., Bala de plata and "Gallardo" cases). - Box 7 examples (summarized, exact items preserved): - 2014: U.S. FinCEN and the FIU jointly granted the Best Egmont Case Award for an investigation involving a multi-national and multi-million trade-based ML scheme. - August 2017: OFAC identified Raul Flores Hernandez and his organization under the Foreign Narcotics Kingpin Designation Act; OFAC designated 21 Mexican nationals and 42 entities; all assets of individuals and entities under U.S. jurisdiction or under control of U.S. persons were frozen. - End of December 2016: OFAC informally provided the Mexican FIU with names of two individuals suspected in drug trafficking; cooperation led to the OFAC including 65 individuals in list of SDN in 2017. - PGR has authority to exchange information with foreign authorities and international bodies on extradition, repatriation of property, asset recovery, enforcement of criminal judgments, and other matters, based on treaties, international instruments, and MOUs. - PGR is party to the GAFILAT Asset Recovery Network (RRAG). - At police level, exchange of financial information is channeled through Interpol I-24/7. - Mexico has signed bilateral agreements with the U.S. in areas of ML ("Grupo de Investigación 'Gold'") and drug trafficking ("Grupo Bilateral de Alto Nivel sobre Politica de Drogas"). - DGPI/PGR officials hold meetings with U.S. Department of Justice counterparts at least every two months to discuss and monitor international cooperation matters (extraditions, MLA, location of fugitives); informal cooperation covers strategic sharing on money flow trends and rapid exchange of detailed information. *Source: cr17405-mexicodar (selected excerpt).* ### 415. Other countries have reported fruitful exchanges of information with Mexico. For instance, ### cr17405-mexicodar - 415. Other countries have reported fruitful exchanges of information with Mexico. For instance, ### International information exchanges and outcomes - Spain reported useful exchanges with Mexican LEAs (Federal Police and the civil intelligence agency), particularly on terrorism, leading to the identification and arrest of members of Euskadi Ta Askatasuna. - Between 2010 and 2016, Spanish LEAs reported four instances of information exchange with one positive outcome at intelligence level with respect to asset recovery. - Lebanon received information from Mexican LEAs on three occasions; responses were considered to be of good quality. ### FIU-to-FIU and FIU-to-non-counterpart exchanges - The FIU is able to exchange information with a non-counterpart foreign authority through that country’s FIU, in accordance with the Egmont Group principles for the exchange of information. - The FIU participates in bilateral forums with other FIUs in the region to identify and exchange best practices. - Countries reporting productive exchanges with the Mexican FIU include New Zealand, Nicaragua, Paraguay, and France. - The average response time for these FIU exchanges was between 20 and 30 days. - The FIU is effective in seeking and providing information in a timely and constructive manner from/to other FIUs both spontaneously and upon request. - Mexico and the U.S. have good mechanisms for automatic exchange of STRs and other information. - Observed shortfall: the number of requests made by the FIU could be expected to be higher to address the ML/TF risks and the large number of STRs involving cross-border elements. ### Spontaneous exchanges, FATF/Egmont ISIL project, and STR-related flows - Mexican authorities stated spontaneous exchanges received between 2014 and 2016 increased from 2015 due to participation in the FATF and Egmont Group ISIL project. - Total requests for information received by Mexico (2014–2016): 571 requests, of which 506 included information on STRs related to possible terrorists. - Sixty-five reports received related to Mexican nationals or persons with financial or economic transactions in Mexico. - Reports sent by the Mexican FIU over the same period: 30 reports. - Table 47. Number of Information Requests Sent Through the Egmont Safe Web - Year / Applications Sent / Subjects Included - 2010 / 27 / 345 - 2011 / 38 / 251 - 2012 / 20 / 115 - 2013 / 31 / 268 - 2014 / 34 / 277 - 2015 / 29 / 382 - 2016 (May) / 27 / 128 ### SAT, U.S. cooperation, and Customs Mutual Assistance Agreements (CMAA) - Based on longstanding cooperation, the SAT, the U.S. Customs and Border Protection (CBP), and the U.S. Immigration and Customs Enforcement (ICE) exchange customs, trade, and air passenger data, including core data elements for all bilateral trade transactions in all modes of transportation. - Information is exchanged electronically under the bilateral Customs Mutual Assistance Agreement (CMAA), in effect since 1977 and renegotiated on June 20, 2000. - Between 2010 and 2017, the SAT replied to 228 tax information requests from a range of countries. - The SAT maintains CMAAs in effect with 21 countries: Argentina, Belize, Canada, Chile, China, Costa Rica, Cuba, European Union, France, Guatemala, Hong Kong, India, Israel, Italy, Nicaragua, Russia, South Korea, Turkey, Philippines, Spain, and the U.S. ### Strategic initiatives and supervisory MOUs - Mexico participates in specific initiatives with strategically important partners such as the U.S., including working groups and task forces (e.g., BIFWG and BPPBG). - CNBV: greatest need for constructive international engagement given supervisory scope; informal arrangement with U.S. Southwestern States’ Attorneys General to exchange information on money remitters was transformed into a formal agreement, leading to three–four meetings each year. - CNBV has over 80 MOUs with foreign supervisors, of which 22 have specific provisions relating to AML/CFT; future MOUs will mostly include AML/CFT provisions. - CNBV interacts with FinCEN, the OFAC, and the U.S. Office of the Comptroller of the Currency. ### Access to basic and beneficial ownership (BO) information and international assistance - Difficulties obtaining accurate and updated basic and BO information on legal persons negatively impact assistance to other countries. - Basic information available in the RPC can be accessed by foreign competent authorities (by virtue of its public nature). - Measures in criminal procedural law can be used to provide basic and BO information in the context of MLA requests. - Mexican competent authorities can facilitate access to the RFC and Public Registry of Property and Cadastre (RPPC) to foreign competent authorities only for tax purposes. - Mexico received and granted a total of 46 foreign requests for basic and BO information between 2010 and 2017 through the RRAG (GAFILAT platform). No information available on the quality of feedback provided. - From January 2015 to June 2017, the FIU received 229 BO information requests, involving 375 legal persons, 174 of which were Mexican legal persons. - Table 48. Number of Applications per Country (selected entries) - U.S.: 13 / 36 / 12 / 23 / 25 / 19 / 14 / Total 142 - Spain: 2 / 1 / — / 2 / 2 / — / 2 / Total 9 - Switzerland: 1 / — / 1 / 1 / 3 / 1 / 1 / Total 8 - Colombia: — / — / 1 / 2 / 3 / — / — / Total 6 - Panama: 3 / — / 1 / 1 / — / — / — / Total 5 - Canada: — / — / 2 / — / 3 / — / — / Total 5 - Cayman Islands: 1 / — / 1 / 1 / — / — / — / Total 3 - United Kingdom: — / 1 / 1 / — / 1 / — / — / Total 3 - Peru: — / — / 1 / — / 1 / — / — / Total 22 (as listed in table) - Total (by year): 27 / 38 / 20 / 31 / 34 / 29 / 27 / Total 206 ### Overall conclusion for Immediate Outcome 2 - Mexico has achieved a substantial level of effectiveness for IO.2. *International Monetary Fund — Mexico country report excerpt* ### Annex I. Technical Compliance ### Annex I. Technical Compliance ### Recommendation 1 — Assessing Risks and Applying a Risk-Based Approach - This is a new Recommendation. - Criterion 1.1 - Mexico concluded its first NRA report in June 2016, following a two-year government-wide ML/TF risk assessment exercise. - The first stage was carried out by the FIU with input from other competent authorities including lawmakers, supervisors, Banco de México, INEGI, intelligence services, LEAs, and PGR. - The assessment was based on a range of information and documents, notably reports on suspicious and threshold transactions which are given considerable weight. - During the second stage, the FIU received private sector input through surveys and questionnaires focused on inherent ML/TF risks of FIs and DNFBPs and their activities. - The NRA covers structural factors (including corruption) and issues related to the effectiveness of the AML/CFT framework, focusing on ML risks (mainly from domestic criminal activities), POC that need to be laundered, and sectors affected by ML; it also includes an assessment of the economic consequences of ML/TF. - Identified limitations: - The NRA concludes that all types of legal persons have the same level of ML/TF risks (based on similarity in registration requirements for domestic entities) but provides no specific analysis to support this assumption and does not cover risk from foreign legal entities. - Not all competent authorities share the NRA’s analysis on legal entities. - The NRA does not identify ML/TF trends and typologies related to the informal economy or attempt to quantify POC generated abroad and laundered in or through Mexico, particularly from Central America and the Caribbean. - Corruption-related ML risks could have been presented with more clarity and depth. - Criterion 1.2 - The FIU is the coordinating authority for the elaboration and updating of the NRA. - The 2015–2016 FIU work plan indicates responsibility for drafting and coordinating the NRA among concerned agencies, FIs, and DNFBPs. - Criterion 1.3 - Mexico has committed to updating the NRA every three years or whenever there are significant developments that could impact the ML/TF risk profile of the country. - Criterion 1.4 - Based on two MOUs, since September 2016 the FIU and regulatory and supervisory authorities have organized multiple workshops for reporting entities to communicate NRA results and higher ML/TF risks. - The FIU prepared a sanitized version of the NRA communicated to reporting entities through the FIU portal at the end of September and beginning of October 2016 and published on the federal government website (see https://www.gob.mx/cms/uploads/attachment/file/165030/ENR.pdf). ### Risk Mitigation (R.1 criteria 1.5–1.9) - Criterion 1.5 - Two collaboration agreements among SEGOB, SRE, SHCP, PGR, CJF, and Banco de México require public policies for preventing and combating ML/TF/PF to take risks into account when allocating resources. - CNBV, CNSF, and CONSAR have implemented an RBA to prioritize supervisory activities toward higher-risk reporting entities (see criterion 26.4). - SAT has not yet implemented the RBA but is moving in that direction. - The FIU has elaborated and updated a risk model that helps identify STRs and other reports most relevant for further analysis for potential ML/TF cases; this experience has been positive (see R.29). - LEAs and the PGR do not appear to allocate resources for ML/TF investigations and prosecutions on a risk basis. - Criterion 1.6 - Mexico does not exempt any activities covered in the standard from AML/CFT requirements. - Criterion 1.7 - DNFBPs and FIs categorized as VAs are required to consider notices and guidance from the FIU in their own risk assessments to determine lower risk situations. - The regulatory framework does not require FIs and DNFBPs to take enhanced measures to manage and mitigate higher risks identified by the authorities or to ensure that this information is incorporated in their risk assessments, despite communication of those risks to the private sector (see criterion 1.4). - Criterion 1.8 (Simplified due diligence to foster financial inclusion) - Mexico allows simplified due diligence for opening certain accounts at FIs subject to safeguards. Table 1 summary: - Level 1 - Cap: 750 UDI (approximately US$224) - Offered by: Banks - Restrictions: Deposits only (on debit cards); National currency only; Available only to natural persons; Use only in Mexico; Use only through ATM or point of sale terminal; No wire transfer allowed - Applicable measures: No identification of customers or beneficial owners. - Maximum transaction within a calendar month: 1,000 UDI (approximately US$300) - Maximum account balance: (blank in source) - Level 2 - Cap: 3,000 UDI (approximately US$900) - Offered by: Banks, brokerage firms - Restrictions: Deposits, management of securities, investments, microcredits; National currency only; Available to natural persons only - Applicable measures: Basic identification of customers (name, address, date of birth); no identification of beneficial owners. - Maximum transaction within a calendar month: 1,000 UDI (approximately US$300) — SOCAP, SOFIPO entry - Maximum account balance: (blank in source) - Level 3 - Cap: 10,000 UDI (approximately US$3,000) - Offered by: Banks, brokerage firms, SOCAP, SOFIPO - Restrictions: Deposits, management of securities, investments, microcredits - Applicable measures: Full identification of customers but no identification of beneficial owners of legal persons. - Maximum transaction within a calendar month: (not specified in source) - Maximum account balance: (blank in source) - Notes from table: - 1/ In the case of funds derived from government support programs targeted at certain sectors, entities may receive funds from such programs up to 6,000 UDI (approximately US$1,800) per client within one calendar month in addition to the general cap. - 2/ Ibid. - 3/ For microcredits, maximum limits will be those applied for the credit line or amount granted to clients and will only be applicable to natural persons. - 4/ Ibid. - Additional FI requirements for these accounts: (i) understand the purpose and intended nature of the business relationship; and (ii) monitor transactions and review account profiles (see criteria 10.6 and 10.7). - Authority analysis and statistics: - Average balance of Level 1 accounts: Mex$120 (around US$6.80). - Active Level 1 accounts: around 3.2 million. - Total amount held in Level 1 accounts: around US$22 million. - The FIU has not detected any cases in which Level 1 or Level 2 accounts have been misused for ML or TF. - There has been no analysis on Level 3 accounts. - Criterion 1.9 - FIs and DNFBPs are supervised for compliance with R.1 requirements and are subject to sanctions for non-compliance (see R.26 and R.28 write-ups). ### For FIs and DNFBPs: Risk Assessment (criteria 1.10–1.12) - Criterion 1.10 - Most FIs are required to risk-categorize customers and review/adjust customer risk profiles at least twice a year, as needed (see criteria 10.7 and 10.17), and to make information/documents available to supervisors. - Deficiencies: - No requirement to take all relevant factors (type of customers, products/services, geographical regions, delivery channels) into account in risk profiling. - No requirement to document their analysis (see criterion 11.2). - DNFBPs and FIs categorized as VA are not required to assess ML/TF risks but may establish criteria and elements to identify low risks (see criterion 22.1). - Criterion 1.11 - Most FIs are required to have policies and procedures for implementing obligations, including risk categorization and risk-based due diligence. - No requirement for policies/procedures to be approved by senior management or for management to monitor implementation and enhance controls as needed. - Most FIs required to conduct enhanced due diligence for high-risk customers (see criterion 10.17). - DNFBPs and FIs categorized as VA are required to have AML/CFT policies and procedures but are not subject to requirements for criterion 1.11 (a), (b), or (c). - Criterion 1.12 - Certain FIs and DNFBPs may apply simplified measures in circumstances beyond criterion 1.8 based on entities’ internal criteria (including transaction maximums); supervisors may review and order modifications. - For DNFBPs and FIs categorized as VA, such criteria must follow guidance from the FIU (see criteria 10.18 and 22.1). - There is no prohibition on the use of simplified measures when there is a suspicion of ML/TF. ### Weighting and Conclusion (R.1) - Identified gaps: - No comprehensive assessment of laundering of proceeds of corruption and TF. - NRA does not present a grounded view of risks associated with misuse of legal persons and arrangements. - Requirements for FIs and DNFBPs to assess ML/TF risks and apply enhanced measures, including where higher risks are identified by authorities, are deficient. - No prohibition of simplified AML/CFT measures where there is a suspicion of ML/TF. - Conclusion: Mexico is largely compliant (LC) with R.1. --- ### Recommendation 2 — National Cooperation and Coordination - Background - Mexico was rated LC on national coordination (former R.31) in the previous report. Main prior deficiencies related to reorganization of federal investigation forces and absence of effective joint cooperation/coordination mechanisms between the PGR and the Judiciary. - These issues have been addressed over the past years. - Criterion 2.1 - On August 26, 2010, the federal executive branch published the National Strategy for Preventing and Combating ML/TF. - The 1st Guiding Principle “Information and Organization” established three lines of action: (i) generation, management, and use of information; (ii) creation of specialized cells for combating ML/TF; and (iii) organizational strengthening. - The 2010 National Strategy aimed to increase capacity of competent authorities and ensure sufficient cooperation and adequate resources. - The 2010 strategy did not take into consideration any NRA. - Mexico is in the process of updating the national strategy to address ML/TF risks identified in the NRA. - Under Mexican Planning Law (LP), each administration must elaborate its National Plan of Development and Programs every six years; the next AML/CFT strategy will be the responsibility of the administration starting in 2018. - Criterion 2.2 - The FIU of the SHCP is the national authority appointed to coordinate AML/CFT policies. - Two MOUs were signed to elaborate, establish, review, and evaluate public policies for preventing and combating ML/TF/WMD, with participation of SEGOB, SRE, SHCP, PGR, and Banco de México. - High-Level Group on AML and High-Level Group on CFT and PWMD work based on these agreements. - Criterion 2.3 - Additional coordination mechanisms and agreements exist (e.g., SAT agreements with SSP, CNS, SEMAR, PGR, Federal Police). - The FIU has diverse agreements and collaboration instruments with authorities and companies (PGR, CNBV, INAMI, CONSAR, IFE, INE, SE, SAT, SEMAR, Banco de México, Federal Judiciary Council, CNTS, SEGOB, IMSS, among others) to facilitate coordination and information exchange for preventing/detecting ML/TF acts or transactions. - MOUs facilitate information exchange between the FIU and international bodies, and between the PGR and other countries. - Criterion 2.4 - Collaboration and coordination mechanisms are used to prevent and combat financing of WMD as well as ML/TF crimes. - SHCP, SEGOB, SRE, PGR, Banco de México, and CJF signed agreements creating High-Level Groups for combating ML/TF/PMD. - Agreement with the CSN signed on May 28, 2007, established a specialized high-level committee to coordinate federal executive branch actions to fulfil international obligations on disarmament, terrorism, and/or international security. - Weighting and Conclusion - Mexico finalized its NRA in June 2016 and has taken some high-level actions to mitigate identified risks. - Authorities are further developing a national strategy to incorporate additional measures addressing NRA findings and to establish clearer priorities. - Conclusion: Mexico is largely compliant (LC) with R.2. --- ### Recommendation 3 — Money Laundering Offense (beginning) - Background - In the Third Round MER of 2008, Mexico was rated partially compliant for R.3. - Main prior shortcomings: ML did not cover concealment or disguisement of true nature/source/location/disposition/movement/ownership of property or possession/use of property without a specific purpose; criminal liability did not extend to legal persons as required by the Palermo Convention (Article 10). - The 7th Follow-up Report adopted in 2014 concluded the first shortcoming had been corrected by a bill of decree that came into force in 2014. - Further changes since 2014 include amendments to the CPF in March 2014 (Articles 400 bis and 400 bis 1) and in June 2016 (Article 11 bis) to align Mexican law with the Palermo and Merida Conventions and to establish criminal liability for legal persons with respect to certain offenses (including ML). - Criterion 3.1 - ML is criminalized under Articles 400 bis and 400 bis 1 of the CPF, as amended in (source text continues beyond provided excerpt). *Source: Annex I. Technical Compliance (cr17405-mexicodar - Annex I. Technical Compliance).* ### 2014. It covers all premises and guiding verbs in line with the Vienna and Palermo Conventions, in ### cr17405-mexicodar - 2014. It covers all premises and guiding verbs in line with the Vienna and Palermo Conventions, in ### Recommendation 3 — Money Laundering (R.3): legal framework and scope - Criterion 3.2: ML has been an offense in Mexico since 1989; originally under Article 115 bis of the Federal Fiscal Code. After repeal in 1996, ML is enshrined in Article 400 bis of the CPF as the crime of “operations with resources from illegal origins” (“ORPI”), an all-crimes ML offense criminalizing laundering of proceeds of any conduct criminalized under Mexican law. Predicate offenses extend to all offenses under Mexican legislation capable of generating property of illegal origin. The 21 categories of predicate offenses are criminalized under the Mexican Criminal Code and other legal instruments. - Criterion 3.3: Not applicable. - Criterion 3.4: ML offenses extend to “property,” defined under Article 400 bis of the CPF as “resources, rights or assets of any nature.” For Article 400 bis, “it is understood that resources, rights or assets of any nature are the product of an illegal activity when there are solid grounds or certainty that they derive, directly or indirectly from, or that they represent the earnings of a crime, and their legitimate origin cannot be established.” CPF imposes no value threshold for property. - Criterion 3.5: Article 400 bis does not require conviction for a predicate offense; prosecution needs to demonstrate well-founded indicia or the certainty that property is derived directly or indirectly from a crime or represents earnings from a crime. - Criterion 3.6: Article 2 of the CPF applies to offenses initiated, prepared, or committed abroad where they produce or seek to produce effects in Mexico; criminal proceeds generated abroad laundered in Mexico can be prosecuted under Article 400 bis. - Criterion 3.7: Articles 400 bis and 400 bis 1 criminalize ML as a fully autonomous offense and do not exclude perpetrators of predicate offenses; ML may be committed by any person, including the offender who commits the predicate offense. - Criterion 3.8: Mexican authorities cite Articles 400 bis, 400 bis 1 of the CPF, and Articles 259, 265, and 286 of the CNPP to support inferring intent/knowledge from objective and factual circumstances. The provisions alone do not make this immediately clear, but case law demonstrates courts may infer intent or knowledge. - Criterion 3.9: Article 400 bis — natural persons liable to imprisonment of between five and fifteen years and a fine of between 1,000 and 5,000 days at the stipulated daily rate (día multa). Penalties are proportionate relative to offenses like drug trafficking, smuggling, or tax evasion. Article 51 and Article 52 of the CPF permit courts to consider individual circumstances and mitigating/aggravating factors. Article 4 of the Federal Law Against Organized Crime (LFCDO) read with Article 2 provides additional convictions and harsher penalties where three or more persons in a de facto organization commit offenses including ML. - Criterion 3.10: Criminal liability and sanctions apply to legal persons. Article 11 bis of the CPF contains a closed list of offenses for which legal persons may be held criminally liable, including ML (Article 11 bis A XIV). Article 421 of the CNPP sets procedures; Article 422 of the CNPP provides penalties including fines, confiscation, and dissolution. Courts may consider factors such as financial extent of the offense, turnover, and public interest. - Criterion 3.11: Offenses or attempts, accessory after the fact, assisting, aiding and abetting, instigating, and preparing are covered by the CPF (Articles 12 and 13) and apply to ML. Conspiracy covered by Article 13.1 of the CDF as “agreement or preparation to commit an offense.” - Weighting and Conclusion: Mexico is compliant (C) with R.3. ### Recommendation 4 — Confiscation and Provisional Measures (R.4) - Context: Third Round MER rated largely compliant for former R.3; identified shortcomings: (i) lack of legislative provision to forfeit assets of equal or corresponding value; (ii) lack of criminal laws/tools for preventing or voiding contracts and actions that diminish ability to recover assets subject to forfeiture. - Criterion 4.1: Mexican laws provide ability to (i) confiscate (decomiso); (ii) forfeit (extinción de dominio); or (iii) abandon (abandono) property or assets laundered; proceeds of, or instrumentalities used (including income) or intended for use in ML, TF, or predicate offenses (Article 40 of the CPF, Article 4 of the LFDO, Articles 181–187 of the CFPP, Articles 2–8 of the LED, and Article 250 of the CNPP); and property of corresponding value (Article 40 of the CPF and Article 249 of the CNPP). Provisions applied regardless of whether property is held by a convicted person or a third party. Forfeiture action has property and financial character and proceeds on any property, regardless of possession (Article 5 of the LED). - Criterion 4.2: LEAs, the FIU, or other competent authorities have adequate powers to: - a) Identify, trace, and evaluate property subject to confiscation under Article 180 of the FCPP, Articles 127 and 131 of the CNPP, and Article 9 of the LFCDO. Article 46 of the LIC, Article 55 of the LFI, and Article 212 of the LMV require institutions to provide information on transactions and services to identify movement of funds when requested by competent authorities. - b) Carry out provisional measures (freezing or seizing) to prevent dealing, transfer, or disposal of property subject to confiscation (Articles 11, 29, and 30 of the LFCDO; Articles 12 and 13 of the LED; and Articles 131, 138, 155, and 229–249 of the CNPP). - c) Take appropriate investigative measures (Articles 9–12 and 16–18 of the LFCDO; and Articles 131, 251–252, and 291–299 of the CNPP), including special investigative techniques under R.31. - Gap: No specific provisions to prevent or void certain legal actions that prejudice ability to freeze, seize, or recover property subject to confiscation (criterion 4.2.c.). - Criterion 4.3: Rights of bona fide third parties are protected under FCPC (Article 182 L), LFCDO (Article 29), LED (Article 11), and LFAEBSP (Article 17). - Criterion 4.4: SAE, under the Federal Law for the Administration and Sale of Assets of the Public, administers, manages, and sells assets subject to attachment, seizure, abandonment, confiscation, and forfeiture (Articles 1–5 of the LFAEBSP and Article 13 of the LED). - Weighting and Conclusion: Mexico’s framework generally meets Recommendation 4 but lacks specific legal provisions to prevent or void legal actions prejudicing recovery of confiscable property. Mexico is largely compliant (LC) with R.4. ### Recommendation 5 — Terrorist Financing Offense (R.5) - Background: Third Round MER 2008 rated Mexico partially compliant for R.5. Shortcomings: (i) Article 148 bis of the CPF not fully consistent with Article 2 of the TF Convention (focused on what was used, not intention or purpose); (ii) TF offense did not extend to financing of acts within scope of treaties listed in TF Convention annex. 7th Follow-up Report (2014) concluded shortcomings addressed by a bill of decree which came into force in 2014, rendering criminalization fully consistent with Article 2 of the TF Convention. - Criterion 5.1: TF offenses set out in Articles 139 to 139 quinquies of the CPF. Article 139 quáter as read with Articles 139 and 148 bis criminalizes direct or indirect provision or collection of economic funds or resources of any nature in the knowledge they will be used to finance or support activities of terrorist individuals or organizations or to be used directly or indirectly, in whole or in part, in commission of terrorist activities in Mexico or abroad. Fully in line with Articles 2(1) and (3) of the TF Convention. - Criterion 5.2: Article 139 quáter covers provision or collection, by any means, of funds to finance or support activities of terrorist individuals or organizations in order to be used, directly or indirectly, in whole or in part, in commission of terrorist activities in Mexico or abroad. - Criterion 5.2 bis: Mexican law does not specifically criminalize financing travel for terrorist acts or providing/receiving terrorist training, but Article 139 quáter is sufficiently extensive to punish such conduct and meet this criterion. - Criterion 5.3: Article 139 quáter extends to provision or collection of economic funds or resources of any nature, without restriction on origin; term aligns with Article 1(1) of the TF Convention definition of “funds.” - Criterion 5.4: Under Article 139 quáter, TF is a standalone offense; does not require subsequent commission or attempted commission of a terrorist act nor link to a specific act. - Criterion 5.5: Authorities refer to general evidence-assessment provisions to infer intent/knowledge; not immediately clear from provisions alone but case-law on ML suggests such inference is possible and applicable to TF. - Criterion 5.6: Article 139 quáter as read with Article 139 — natural persons liable for imprisonment of between 15 and 40 years and a fine of between 400 and 1,200 days at the stipulated daily rate upon conviction for TF. Penalties proportionate; Articles 51 and 52 of the CPF enable courts to consider circumstances. Article 4 of the LFCDO read with Article 2 allows additional convictions and higher penalties where committed by a de facto organization. - Criterion 5.7: Criminal liability and sanctions apply to legal persons subject to Article 11 bis closed list. Domestic and international terrorism included (Article 11 bis A I), but TF is not included. This is not in line with Article 5 of the TF Convention (see criterion 36.2). - Criterion 5.8: Articles 12 and 13 of the CPF cover ancillary offenses (attempting, participating, aiding, abetting). Article 12 covers attempt as required under Article 2(4) of TF Convention; Article 13 covers participation, organization, contribution per Article 2(5). TF-specific ancillary provisions: accessory after the fact (Article 139 quinquies), conspiracy (Article 141), instigation (Article 142). - Criterion 5.9: Article 400 bis being an all-crimes ML offense means predicate offenses for ML extend to all offenses that can generate property of illegal origin, including TF. - Criterion 5.10: Combined reading of Articles 2, 4, and 139 quáter suggests only a remote theoretical circumstance where TF would not apply: foreign financer operating outside Mexico finances a terrorist act against non-Mexicans outside Mexico. In all other scenarios TF offense would apply. - Weighting and Conclusion: CPF does not include TF among offenses for which legal persons may be held criminally liable. Mexico is largely compliant (LC) with R.5. ### Recommendation 6 — Targeted Financial Sanctions Related to Terrorism and Terrorist Financing (R.6 / SR.III) - Context: Third Round MER rated Mexico non-compliant on SR.III. Amendments (January 10, 2014) and a TFS resolution (January 22, 2014) established a comprehensive freezing system pursuant to UNSCRs 1373 and 1267. CANDESTI created by resolution published May 28, 2007; became national agency coordinating disarmament, anti-terrorism, and international security compliance. CANDESTI members include SEGOB, SHCP, SRE, SEDENA, SEMAR, Secretaría de Comunicaciones y Transportes, and PGR. CANDESTI has subgroups including Task Force on Terrorism responsible for identifying and proposing persons/entities for UNSC designation and issuing guidelines for designation and de-listing criteria. CANDESTI’s Task Force on Terrorism also designates persons/entities pursuant to UNSCR 1373 and must immediately inform the FIU so FIU can include parties in its BPL and LPV (TFS lists). - Criterion 6.1: - C.6.1a: CANDESTI Task Force on Terrorism responsible for issuing proposals for designations pursuant to UNSC Resolutions 1267/1989 and 1988. - C.6.1b: Guidelines establish clear procedures for identifying persons/entities meeting designation criteria required by UNSC Resolutions 1267/1989/2253, 1988 and successors; Task Force makes proposals via SRE to corresponding UNSC Committee. - C.6.1c: Task Force applies evidentiary standard of “reasonable grounds” or “reasonable basis”; proposal not conditional on existence of criminal procedure or sanction. - C.6.1d: SRE proceeds according to procedures/forms adopted by Sanctions Committees; if approved, SRE requests inclusion/exclusion to Sanctions Committee. - C.6.1e: Proposal for inclusion must include (i) detailed statement of facts showing Assumptions for Inclusion met; (ii) links to those previously included; (iii) relevant information regarding acts, activities, address, nationality, residence, identification data, and location; (iv) evidence, if any; and (v) other UNSCR 1267 and UNSCR 1988 requirements. - Criterion 6.2: - C.6.2a: CANDESTI Task Force responsible for designations pursuant to UNSCR 1373, including third-party requests; must immediately inform FIU for inclusion in TFS Lists. - C.6.2b: Mechanism for identifying targets: (i) any Task Force member can submit proposal with available information; (ii) members provide supporting information based on authorities; (iii) if criteria met, Task Force designates and notifies FIU to include designated parties in TFS Lists and disseminate to reporting entities; (iv) for third-party requests, FIU examines requests for “reasonable grounds” and determines inclusion. - C.6.2c: FIU, upon receipt and verification of “reasonable grounds,” must immediately include persons/entities meeting criteria in TFS Lists in line with UNSCR 1373; FIU is point of contact for UN CTED Asset-Freezing Contacts Request Database; FIU can request information from national/international authorities regarding third-party requests. - C.6.2d: Task Force applies evidentiary standard of “reasonable grounds” or “reasonable basis”; proposals not conditional on criminal procedure or sanction. - C.6.2e: FIU responsible for requesting foreign governments to apply TFS pursuant to UNSCR 1373 and must provide identifying information; only in exceptional cases via diplomatic channels. - Criterion 6.3: - C.6.3a: CANDESTI Task Force is authority responsible for collecting/soliciting information but delegates responsibility to the FIU. - C.6.3b: Guidelines set procedures/requirements/minimum information for designation proposals; do not require notification to proposed or designated person/entity. Identification and designation proceed ex parte; CANDESTI members are bound by classified information protection provisions (Articles 4, 50, 51, 53, 61, 64 of National Security Act; Article 11, VI and 110, I of Federal Transparency and Access to Public Information Act). Article 53 of National Security Act requires confidentiality commitments by public officers with access to national security information. - Criterion 6.4: FIU’s Internal Procedures Manual details activities for matching UNSC lists, obtaining additions, de-listings, and modifications to the Consolidated List. Permanent Mission of Mexico informs SRE and agencies of list updates. FIU communicates additions/amendments/de-listings to reporting entities; suspension, blocking, immobilization carried out within 24 hours of FIU identification. CNBV and CONSAR perform notification within a few hours. CNSF previously took 24 to 72 hours; since October 2016 reduced to a few hours. - Criterion 6.5: - C.6.5a: Reporting entities notified within 24 hours when an individual/entity added to TFS Lists; obligated to immediately freeze all funds and assets. SHCP uses BPL for financial sector and LPV for DNFBPs (Article 17 of LFPIORPI). SHCP makes lists available via CNBV, CONSAR, CNSF, and SAT. Reporting entities must identify customers/occasional customers on lists and immediately suspend any transaction/service and submit an STR to FIU within 24 hours from knowledge. FIU agreement (Acuerdo FIU/CSNU in Annex 101) informs general population via national Gazette and public website about designated persons/entities. - C.6.5b: Freezing obligation extends to all funds or other assets owned or controlled by designated persons/entities, including third parties acting on their behalf and assets derived from assets owned/controlled directly or indirectly by designated persons/entities, and those acting on behalf of or under instructions of designated persons/entities. - C.6.5c: Designated persons and associates are banned from using financial system or DNFBPs. FIU notifies supervisors; FIU publicizes names via Federal Official Gazette and SHCP website. - C.6.5d: FIU communicates designations and obligations to financial sector and DNFBPs via supervisors; entities legally obligated to freeze funds/assets “without delay”—within 24 hours of notification. - C.6.5e: Reporting entities (DNFBPs and FIs) obligated to report to FIU any assets frozen or actions taken and to send an STR to FIU within 24 hours of suspending acts/transactions/services with designated parties. Reporting made directly to FIU by DNFBPs and via supervisors by financial entities (72nd of the DCGIC and correlatives). Article 5 of RES-Bloqueo/UIF/14 requires DNFBPs to inform FIU of preventive measures within 24 hours electronically using official format. - C.6.5f: SHCP can grant designated persons access to certain frozen funds, rights, or property to protect rights of bona fide third parties per UNSCR 1452 (2002). For DNFBPs, SHCP can act per Article 8, Sections I and IV, of RES-Bloqueo/UIF/14. - Criterion 6.6: - C.6.6a: CANDESTI Guidelines identify authorities responsible for proposing designations and de-listing and define procedures in accordance with UNSC committees; de-listing procedures made public via FIU mechanisms and federal government website. - C.6.6b: Guidelines define mechanism for Task Force members and others to propose delisting to FIU when criteria no longer met; mechanism publicly known and listed on federal website. - C.6.6c: Decisions to designate under UNSCR 1373 can be reviewed by judicial or administrative authority; competent authority can reverse freezing action where individual/entity does not meet designation criteria. Competent courts include District Courts on Administrative Matters (Juzgados de Distrito en Materia Administrativa) (DCGIC 74, Section IV; RES-Bloqueo/FIU/14 Article 8, Section V) and the Court of the Federation (appellate court for criminal and administrative matters) for disputes concerning laws or acts of authority that infringe constitutional rights (CPEUM Article 103, ...). - Weighting and Conclusion: (conclusion text truncated in source) *Italic: International Monetary Fund — cr17405-mexicodar - 2014.* ### section I, and Article 107 of the Amparo Law. An “amparo” is the constitutional mechanism by which ### cr17405-mexicodar - section I, and Article 107 of the Amparo Law. An “amparo” is the constitutional mechanism by which ### Amparo mechanism and judicial review for delisting - An “amparo” is the constitutional mechanism by which individuals in Mexico are able to defend themselves against resolutions, laws, or acts of an authority that affect their human rights and constitutional guarantees. - The Mexican amparo is filed before the Courts of the Federation (District Courts, Circuit Courts, and the Supreme Court of Justice of the Nation). - The Amparo Law is based on Articles 103 and 107 of the Mexican Constitution and foresees the procedures through which individuals should request the amparo. - For delisting purposes, the amparo should be filed before a District Court on Administrative Matters (Juzgados de Distrito en Materia Administrativa). - Article 74, Section IV of the DCGIC establishes that a designated person can be removed from the BPL when such a decision is made by the relevant judicial or administrative authority. - Article 8, Section V, of the RES-Bloqueo/FIU/14 provides that DNFBPs may remove preventive measures (e.g., freezing) when a competent court determines that an individual or entity listed by the FIU as a result of a designation in terms of the UNSCR 1373 does not meet or no longer meets the criteria to be listed. ### FIU and administrative delisting/unfreezing procedures - CANDESTI Task Force Guidelines establish procedures, requirements and minimum information for de-listing proposals and referral to the appropriate Committee. - Procedures to facilitate review of a designation under the 1988 Committee, through the Focal Point, are public on the SHCP website (FIU procedural publication referenced). - Public SHCP/FIU website also provides procedures for removal from UNSC Committee lists pursuant to Resolutions 1267/1988/2253 (ISIL/Al-Qaida) and information on submitting delisting petitions to the Office of the UN Ombudsman. - Persons/entities included on the FIU list may appeal before the head of the FIU within ten working days from the day they became aware of the suspension. - A hearing is convened for the interested party to state their case in writing and to present supporting evidence. - The head of the FIU, upon request, may extend on one occasion only the term granted herein, for an equivalent term. - The FIU must issue a resolution within ten working days of the hearing stating the reasons and causes for inclusion on the BPL and whether removal is applicable. - The interested party is notified in writing of the decision within fifteen working days following resolution. - The mechanism to communicate delisting and unfreezing decisions to DNFBPs and FIs is the same as that used to announce designations and obligations, including freezing, and is implemented by the FIU. ### Targeted Financial Sanctions related to UNSC designations (R.6 and R.7) - Mexico is compliant (C) with Recommendation 6 (R.6). - Criterion 6.7 / UNSCR 1452 access and unfreezing: The SHCP (through the FIU) has authority to grant access to certain frozen funds, rights or property in accordance with UNSCR 1452 and successor resolutions, subject to third-country designation caveats (Article 75, DCGIC; Article 8, Section IV, RES-Bloqueo/FIU/14). - Under UNSC Resolution 1452 (2002) and Article 75 of the DCGIC, SHCP may allow unfreezing for: - (i) humanitarian reasons and resources necessary for basic expenses (payment of foodstuffs, rent or mortgage, medicine, medical treatment, and public utility charges); - (ii) other reasons (tax purposes, payments of insurance premiums, payments of reasonable professional fees, reimbursement of incurred expenses associated with legal services, fees or service charges for routine holding or maintenance of frozen funds or other financial assets or economic resources, other funds considered necessary for extraordinary expenses as a result of a determination by the Mexican Government and with the approval of the Committee). - Mexico is compliant (C) with Recommendation 7 (R.7). Key R.7 operational points: - FIs and DNFBPs must freeze, without delay, assets or funds belonging to persons/entities designated pursuant to UNSCR 1718 and its successors and UNSCR 2231. - FIU’s Internal Procedures Manual details activities for matching UNSC Consolidated List updates (additions, de-listings, modifications). - Permanent Mission updates are communicated simultaneously to the Ministry of Foreign Affairs and relevant agencies; in TFS cases, reporting entities are instructed to block/immobilize immediately. - Suspension of acts/transactions/services and blocking/immobilization of resources/rights/property is carried out within 24 hours of FIU identifying designations, amendments, or de-listings. - Freezing obligation extends to all types of funds, third parties acting on behalf of designated parties, and funds/assets derived or generated from designated persons/entities. - Designated persons and their associates are banned from using the financial system or DNFBPs; FIU notifies supervisors and FIU publicizes UNSC-designated names via the Federal Official Gazette (FIU Agreement). - Reporting entities must report to the FIU within 24 hours any assets frozen or other compliance actions. - R.7 procedural specifics for access authorization (Resolutions 1718 and 2231): - FIs send requests for access; FIU verifies identity and contractual relationship; FIs submit supporting documents (powers of attorney, contracts). - Analysis Area reviews contracts to ensure they are not related to prohibited items/services per the UN Security Council and analyzes origin of funds; Regulatory Affairs Area prepares draft agreements for the head of the FIU if appropriate. - Banks must immediately prevent any act, transaction, or service with customers/occasional customers listed on the BPL when required to block accounts (section I of the 72nd DCGIC); interest or earnings derived from blocked accounts are considered acts/transactions/services and are prohibited. ### Supervisory and sanctioning framework for freezing obligations - AML/CFT supervisory authorities monitor compliance with freezing obligations and impose administrative sanctions: CNBV, CNSF, and CONSAR for financial entities; SAT for DNFBPs. - Authorities monitor reporting information and conduct periodic inspection visits; detected irregularities trigger sanction processes. ### Non-Profit Organizations (Recommendation 8 / R.8) - Mexico is partially compliant (PC) with R.8. Key findings: - NPOs are defined as “legal or social entities created for the purpose of producing goods or services but whose status does not allow them to be a source of income, profit or other financial gains for the units that establish, control or finance them.” - All NPOs (as legal persons) must register through the SAT for taxation purposes. NPOs that receive donations must register as a “Vulnerable Activity” or DNFBP and are subject to AML/CFT reporting and supervision (Article 17 fraction XIII of LFPIORPI). - A revised NPO TF risk assessment was completed in February 2017 (based on modifications to FATF R.8) identifying a subset of organizations within the FATF definition of “NPO” and those more likely to be at risk; this assessment was based on SAR reporting and did not include inputs from regulatory, intelligence, or law enforcement authorities. - The FIU is creating an individual risk profile for each NPO; the process has not yet been completed. - Authorities have not yet reviewed current laws/regulations pertaining to the subset of NPOs identified as high risk. - NRA completed in 2015 with periodic review every three years; revised NPO assessment will prompt follow-up actions. - Transparency measures: accounting and tax reporting obligations, registration in the Federal Registry of Taxpayers (Articles 27 and 28 of the Código Fiscal de la Federación—CFF). Accounting records must be entered on SAT’s website monthly. - FIU outreach: questionnaires to registered NPOs (Annex 3) were used in the 2015 NRA; FIU issued guidelines and conducted workshops with DNFBP sector (none specific to unique NPO TF vulnerabilities); no outreach to donor community. - Authorities have not yet begun working with NPOs to develop/refine practices to address TF risks or to encourage transactions via regulated financial channels. - No special risk-based requirements currently exist for NPOs beyond DNFBP classification; authorities are considering new requirements for higher risk NPOs based on the 2017 assessment. Correspondent sanctions for new requirements have not been defined. - Information sharing and investigative capacity: FIU and SAT inter-institutional agreement permits information sharing on NPOs; civil intelligence agency, PGR, and FIU have investigative expertise on terrorism/TF; government has full access to administration/management information of NPOs, including financial/programmatic information. - Specific reporting obligations for NPOs receiving federal support/incentives (LFFAROSC Article 7 Section V): annual reporting to the Commission on activities and financial statements; reporting of purpose, statutes, programs, beneficiaries, funding sources, properties, administrative/financial operations, and use of public funding; notify Registry of amendments to constitutive acts and governance changes within forty-five days. - Financial reporting obligations for donations in cash, gold, or silver exceeding Mex$100,000 (LISR Article 82). Accounting records must be kept for five years from date of related tax returns (CFF Article 30). - FIU shares information internationally via Egmont Group membership (since 1998) and MOUs with 41 jurisdictions plus a regional memorandum with GAFILAT; PGR has authority to respond to MLA requests. ### Preventive measures and Customer Due Diligence (Recommendation 9 and 10) - Mexico is compliant (C) with R.9. For sectors subject to financial secrecy obligations, implementation of AML/CFT requirements does not imply violation of financial secrecy obligations. - R.10 context and main deficiencies (prior MER): previously rated partially compliant on R.5; deficiencies included: no general requirement to obtain information on purpose/nature of business relationships; insufficient guidance for risk-based CDD and simplified CDD; no explicit provision to refuse to open an account or terminate relationships and file an STR when CDD cannot be completed; absence of CDD requirements for unregulated multiple purpose finance companies; weak implementation in certain sectors. Corrective actions: enactment of new/amended AML/CFT regulations. - Criterion 10.1—Prohibitions and exception for anonymous accounts: - Banks/other sectors, insurance and bonding companies generally prohibited from opening/maintaining anonymous accounts (DCGIC, Article 10; DCGISMS, Article 10). - Exception: banks may open accounts for natural persons with transactions limited to deposits in Mexican pesos up to a value of 750 investment units (UDI) within a calendar month, if the balance does not exceed the equivalent in national currency of 1,000 UDI (DCGIC, Article 14 bis. I). The text notes the approximate equivalents: 750 UDI (approximately equivalent to US$218) and 1,000 UDI (approximately equivalent to US$290). - RFAs are not subject to these requirements. OFSPs are prohibited from keeping records under false or confidential names (RCGLFPIORPI, Article 23). - Criterion 10.2—CDD timing, thresholds, and gaps: - Banks and other sectors, insurance companies, and bonding companies required to perform CDD prior to business relations or executing transactions (DCGISMS, Article 4; DCGSARSI, Article 4). Insurance intermediaries must apply the insurance company’s customer identification policy (DCGISMS, Article 3). - Identification of occasional customers is required for banks, brokerage firms, cooperative S&Ls, and popular S&Ls when: (i) foreign currency cash or traveler’s check transactions are equal to or greater than US$500 or equivalent; or (ii) cashier’s check sign-off or payment in Mexican pesos or foreign currency equal to or greater than US$10,000 or equivalent (DCGIC, Article 17). No CDD requirements for occasional customers in Mexican pesos other than (ii). - Money remitters, exchange centers, and exchange houses (users/occasional customers): basic user information required when amount transacted is between US$1,000 and US$5,000 (or equivalent); detailed information required when amount is US$5,000 (or equivalent) or more. These requirements do not apply to transactions in Mexican pesos by money remitters/exchange houses except as described under c.16.1. - OFSPs subject to thresholds in LFPIORPI; entities are required to identify all customers and occasional customers subject to thresholds. Table 3 threshold examples (with noted approximations): - Traveler’s check companies: Monthly expense accumulated equivalent to or more than 645 times the federal minimum wage (approximately equivalent to US$2,550). - Value storage cards companies: Accrued amount equivalent to or more than 645 times the federal minimum wage (approximately equivalent to US$2,550). - Loans, money lending, and credit companies: Transaction equivalent to or more than 1,605 times the federal minimum wage (approximately equivalent to US$6,350). - Credit and service card companies: Monthly expense accrued equivalent to or more than 1,285 times the federal minimum wage (approximately equivalent to US$5,050). - Transportation and custody of cash and valuables companies: Transaction equivalent to or more than 3,210 times the federal minimum wage (approximately equivalent to US$12,650). - Note: As of October 2016, the federal minimum wage is Mex$73.04. - Criterion 10.2c—Wire transfers: only banks, exchange houses, brokerage firms, SOCAPs, SOFIPOs, and money remitters may provide wire transfer services. CDD is required for occasional customers only when wire transfers are in foreign currency. Basic information is required for transfers in foreign currency above US$1,000; full CDD required when amounts exceed US$5,000. - Criterion 10.2d—Shortcoming: No explicit requirement for entities to conduct CDD when there is a suspicion of ML/TF if the amount transacted is below the threshold. This affects sectors described under 10.2(a) (Level 1 accounts), (b), and (c). - Criterion 10.2e—All entities except OFSPs required to obtain and verify updated information when they have doubts about the veracity/accuracy of previously obtained CDD information (DCGIC, Article 21; DCGISMS, Article 19; DCGSARSI, Article 9). - Criterion 10.3—All entities must identify customers and verify identities using official or other reliable documents, depending on customer type (DCGIC Article 4; DCGISMS Article 4; DCGSARSI Article 4; RCGLFPIORPI Article 23). - Criterion 10.4—All entities are required to identify legal representatives of customers and verify their identity and authorization documents (DCGIC, Article 4.II; DCGISMS, Article 4). *International Monetary Fund — cr17405-mexicodar (section I and selected legal provisions).* ### Annex 6; DCGSARSI, Article 4; RCGLFPIORPI Article 12, Annexes 3–6 bis, item b).v)). ### cr17405-mexicodar - Annex 6; DCGSARSI, Article 4; RCGLFPIORPI Article 12, Annexes 3–6 bis, item b).v)) ### Customer Due Diligence (Recommendation 10 — R.10) - Definition of “beneficial owner”: - Term covers “persons” who “ultimately exercise the rights of use and benefits, usage or disposal of funds” and who exercise controls over legal persons; “person” can mean a legal person or a natural person. - “Control” may be exercised by a natural person, a legal person, or a trust that: makes decisions in the board meeting; has essentially more than 50 percent voting rights; owns 25 percent or more of the shares; or controls the legal person acting as a manager (DCGIC, Article 2.V, XVIII; DCGISMS, Article 2). - Conclusion: definition falls short of the standard that defines beneficial owners as natural persons. - Identification and verification requirements: - For natural person customers and occasional customers: entities must collect a signed statement whether acting on behalf of a third party; if declared or if the entity “has information based on evidence or proven facts” that the customer acts on behalf of another, entities must identify and verify beneficial owner(s) (DCGIC Articles 4.I(iv), III.a), VI, 31; DCGISMS, Articles 4, 24). - No general requirements to identify beneficial owners and verify identity for all customers beyond scenarios above. - For RFAs: only required to identify beneficial owners when there are indications or certainty (DARSARSI, Article 15). - OFSPs: required to identify the beneficial owner inquiring the customer and verifying identity against official documents where customer possesses them; if not, collect additional information such as bank or commercial and personal references (LFPIORPI, Article 18.III; RCGLFPIORPI, Article 3.IV and VII and Article 12.VII; RCGLFPIORPI Article 12.VII). - Ongoing monitoring and updating CDD: - Banks and other sectors required to obtain transactional profile information (amount, number, type, frequency, origin/destination of funds) (DCGIC, Articles 23.II and 24); similar for insurance and bonding (DCGISMS, Articles 15.II and 16). - Monitoring obligations: banks (except MSBs) must monitor transactional behavior and review/update identification when significant changes detected; only high-risk customers must have identification verified at least once a year (DCGIC, Articles 23.I, 25, 21). - RFAs required to keep CDD up to date and develop systems to detect changes (DCGSARSI, Article 9). - OFSPs: (i) mechanism to accumulate and follow up on transactions (RCGLFPIORPI, Article 19); (ii) review customer files at least once a year (RCGLFPIORPI, Article 21); (iii) monitor low-risk customers to detect divergence from low-risk characteristics. - Deficiencies: no general requirement to keep CDD up to date for all customers; requirement to scrutinize transactions is too vague in some sectors. - Corporate and trust CDD: - Legal persons: information on business lines required; understanding corporate structure required only for legal persons classified as high risk (DCGIC, Article 32). - Trusts: required to obtain purpose and where appropriate activities vulnerable to ML/TF (DCGIC, Article 4.IX); no requirement to identify and verify beneficiaries. - OFSPs: required to understand nature of customer’s business except when customer is a legal arrangement; no requirements to understand ownership and control structure of legal persons; required to acquire documents that “contain the constitution of the trust.” - Risk-based measures: - Enhanced due diligence required for high-risk customers (manager approval, annual review, visits if warranted, obtain more information on origin/destination and intended nature of transactions) (DCGIC, Articles 21, 25, 27, 28); RFAs generally required to apply CDD based on level of risk (DCGSARSI, Article 11). - OFSPs: no requirements to perform enhanced CDD in higher risk situations. - Simplified due diligence: - Permitted for low-risk customers across various sectors (specific Articles cited), including banks, SOFOMEs, investment funds, credit unions, SOCAPs, SOFIPOs, insurance and bonding companies, RFAs, OFSPs (DCGIC Article 14; DCGISMS Articles 4 and 8; DCGSARSI Article 4; LFPIORPI Article 19; RCGLFPIORPI Article 17). - No prohibition on simplified measures when there is a suspicion of ML/TF. - Key conclusion on R.10: - Significant deficiencies: identifying beneficial owners (legal persons and trusts), identification of occasional customers who transact in Mexican pesos, keeping CDD up to date, requirements on existing customers, and lack of prohibition of simplified measures when suspicion exists. - Mexico is rated Partially Compliant (PC) with R.10. ### Record-Keeping (Recommendation 11 — R.11) - Transaction record retention: - Banks and other sectors: records of transactions filed with FIU related to ML and terrorism: minimum period of ten years. Specific transactions and reports requiring ten-year retention include: - (i) transactions in cash and traveler’s checks in local or foreign currency with an amount equal to or greater than the equivalent of US$10,000 (“relevant transactions”); - (ii) transactions in cash in U.S. dollars when the amount for a customer is US$500 or more, or for an occasional customer when the amount is US$250 or more; - (iii) transactions with cashier’s checks for an amount equal to or greater than the equivalent in national currency to US$10,000; - (iv) suspicious transactions; - (v) “concerning internal transactions” (transactions, activities, or behavior of the entity’s officials or employees that may “contravene, violate, or evade” AML/CFT measures); - (vi) cross-border wire transfers. - No requirements to maintain records on transactions other than those mentioned above. - RFAs: keep identification and transaction records for at least ten years (LSAR, Article 108 bis; expanded in DCGSARSI, Article 36). - Insurance and bonding: keep reports of unusual transactions and relevant transactions for at least ten years from date when policy or contract concluded and date when transactions were carried out (DCGISMS, Article 49). - OFSPs: preserve “information and documentation that is used to support their activities” for at least five years from transaction date (LFPIORPI, Article 18.IV); keep reported transactions for at least five years from report filing (RLFPIORPI, Article 20). - Customer identification records: - Banks and other sectors required to keep identification information for minimum ten years from date business relationship ended or date transaction was carried out (LIC, Article 115; DCGIC, Article 59). - RFAs: keep CDD files during relationship and for at least ten years after termination (DCGSARSI, Article 36). - OFSPs: required to keep CDD information for five years after transaction date (LFPIORPI, Article 18.IV). - Reconstruction of transactions: - Banks and other sectors required to maintain accounting or financial records related to reports in c.11.1; but main deficiency: lack of requirement to ensure reconstruction of transactions other than those covered in AML regulations. OFSPs lack explicit requirement for reconstruction. - Access to records by authorities: - Banks and other sectors must make information available to SHCP through CNBV (DCGIC, Article 54); insurance through CNSF (DCGISMS, Article 44). - All accounting records kept by FIs must be available to tax authorities electronically (CFF, Article 30). - Key conclusion on R.11: - Main deficiency: lack of requirements to ensure reconstruction of transactions other than those covered in AML regulations. - Mexico is rated Largely Compliant (LC) with R.11. ### Politically Exposed Persons (Recommendation 12 — R.12) - Definition and coverage: - PEPs defined generally in line with the standard (natural persons who perform or have performed prominent public functions in a foreign country or in Mexico and their family members) (DCGIC, Article 2.XVII; DCGISMS, Article 2.XX; DCGSARSI, Article 2.XIV). - No requirements applicable to OFSPs. - Measures and treatment: - Banks and other sectors must have mechanisms to determine whether a customer is a PEP (DCGIC, Article 25); all foreign PEPs must be treated as high risk (DCGIC, Article 26). - Insurance and bonding companies: foreign PEPs treated as high risk only when dealing in insurance products with an investment component in foreign currency (DCGISMS, Article 21) — falls short of the standard. - High-risk PEP scenarios require: (i) senior manager approval to start or continue relationship; (ii) obtain more information on origin/destination of funds and nature of business; (iii) take reasonable measures to identify spouse, economic dependents, and patrimonial links (DCGIC Articles 25, 26, 28; DCGISMS Article 21). - RFAs: foreign PEPs must be treated as high-risk (DCGSARSI, Article 11); executive-level approval required for high-risk transactions (DCGSARSI, Article 12). - Gaps: - No requirements to determine whether beneficial owner of a customer is a PEP. - Authorities’ published list of positions considered PEPs excludes senior military officers, executives of state-owned corporations, and officials at municipal level. - No requirements for insurance or bonding companies to determine whether beneficiaries of life insurance policies or their beneficial owners are PEPs. - Key conclusion on R.12: - Significant deficiencies: lack of requirements to determine beneficial owner PEP status; insurance sector gaps regarding life insurance beneficiaries; exclusions in PEP lists. - Mexico is Partially Compliant (PC) with R.12. ### Correspondent Banking (Recommendation 13 — R.13) - Requirements when establishing correspondent relationship (banks, general deposit warehouses, investment funds, cooperative S&Ls, popular S&Ls): - Senior management approval; obtain information on respondent’s business lines; evaluate AML/CFT controls against international standard; understand supervision of respondent; determine reputation (DCGIC, Article 29). - No requirement to understand respective responsibilities of the two parties. - Gaps: - No requirements governing customers of respondents who have direct access to correspondent institution’s accounts. - Shell bank prohibition: - Prohibited to provide correspondent services to shell banks (DCGIC, Article 30). - Key conclusion on R.13: - Single deficiency: absence of requirement governing customers of respondents with direct access to correspondent’s accounts. - Mexico is Largely Compliant (LC) with R.13. ### Money or Value Transfer Services (Recommendation 14 — R.14) - Entities permitted to provide MVTS include: banks, brokerage firms, SOCAPs, exchange houses, money remitters, SOFIPOs, SOFINCOs (citations listed). - Supervision and enforcement: - CNBV authorized to identify and inspect MVTS providers without registration and order suspension (LGOAAC, Article 64); sanctions include imprisonment up to 15 years and fine up to 100,000 times federal minimum wage (approximately equivalent to US$390,000 as of January 2017) (LGOAAC, Article 101; Penal Code, Article 150.I). - Money remitters, exchange houses, and currency exchange centers supervised by CNBV (LGOAAC, Article 95 bis). - Agents and registration: - No explicit requirement for MVTS agents to be licensed or registered; money remitters must submit annual list of agents to SHCP; exchange houses not required. - Money remitters required to ensure agent compliance with CDD/reporting using risk-based approach and ensure fit and proper directors/employees and provide staff training (DCGTD, Articles 49 and 50). - Key conclusion on R.14: - Minor deficiency: lack of explicit requirements for MVTS agents to be licensed/registered and to make current agent lists accessible. - Mexico is Largely Compliant (LC) with R.14. ### New Technologies (Recommendation 15 — R.15) - Risk assessment and new products: - Mexico assessed Bitcoin risks in NRA (considered low) and authorities considering measures; no mechanisms ensuring FIs conduct such risk assessments. - Banks, exchange houses, SOFOMES, money remitters, investment funds, credit unions, SOFIPOs, SOFINCOs required to have mechanisms to manage technology-based delivery channel risks (DCGIC, Article 15). - No such requirements for insurance and bonding companies or RFAs. - OFSPs using electronic/optical/other tech must develop procedures to prevent misuse as part of CDD/internal control rules (RCGLFPIORPI, Article 18; Article 37). - No express requirements to assess ML/TF risks prior to launching new products or technologies for all sectors. - Key conclusion on R.15: - Main shortcoming: lack of requirement for FIs to assess ML/TF risks prior to launch/use of new products, business practices, or delivery mechanisms; Mexico is Partially Compliant (PC) with R.15. ### Wire Transfers (Recommendation 16 — R.16) - Ordering institutions: - Required to identify and verify name and address of originator who is an existing customer and assign reference number; incorporate into payment message (DCGIC, Article 16.I). - Occasional customers: basic info required when amount between US$1,000 and US$5,000; more detailed info when amount is US$5,000 or more. No requirement to identify occasional customers who transfer Mexican pesos. - No requirement for ordering institutions to obtain information on the beneficiary. - Batch transfers: - Requirement applies to batch transfers. - Lower-value transfers: - No requirements governing transfers below US$1,000 by occasional customer except money remitters (required to collect minimum info: name, address, reference number) (DCGTD, Article 4). - Verification and intermediary/beneficiary procedures: - No requirement to verify information when suspicion arises for amounts below thresholds. - No requirements for intermediary institutions to ensure originator and beneficiary information maintained in payment message beyond limited provisions for money remitters. - No requirement for intermediary institutions to have policies/procedures to determine when to execute, reject, or suspend wire transfers lacking required information. - Beneficiary institutions required to identify and verify beneficiary for transfers above US$1,000 (DCGIC, Article 16.II); such requirements do not apply to transfers in Mexican pesos. - Record keeping: - Entities required to keep records of cross-border wire transfers for at least ten years (DCGIC, Article 59). - Key conclusion on R.16: - Main deficiencies: lack of requirement to include beneficiary information in transfers; lack of requirements for intermediary and beneficiary institutions to have procedures for transfers lacking required information. - Mexico is Partially Compliant (PC) with R.16. ### Reliance on Third Parties (Recommendation 17 — R.17) - Reliance permissions: - Banks and other sectors (except exchange houses, exchange centers, money remitters) may conduct CDD through third party if relying entity verifies info, in specific cases: (i) granting loans/credits; (ii) customers limited to deposits up to 10,000 UDI (approx. US$3,900 as of September 2016) within a calendar month (DCGIC, Article 7). - Employers may be relied on for payroll savings accounts, but bank must ensure CDD info accessible (DCGIC, Article 13). - Insurance and bonding companies may rely on third-party FIs; relied-upon FIs in Mexico are regulated/supervised but no requirement for non-financial or foreign FIs being relied upon to be subject to AML/CFT regulation and supervision. - OFSPs permitted to rely on: (i) members of same business group; (ii) customers of OFSP who have business relationship and OFSP performs transactions in name of employees/contractors — requires written agreement stipulating customer keeps identification files accessible to OFSP (RCGLFPIORPI, Articles 14 and 16). - Gaps: - No requirement for relying FI to ensure third party has measures and is regulated/supervised for compliance with R.10 and R.11. - No conditions on countries where third party may be based. - No requirement for financial groups to apply group-wide AML/CFT program (see R.18). - Key conclusion on R.17: - Main deficiencies: lack of comprehensive requirements to ensure third party regulation/supervision for R.10/R.11, and no country restrictions. - Mexico is Partially Compliant (PC) with R.17. ### Internal Controls and Foreign Branches/Subsidiaries (Recommendation 18 — R.18) - Internal controls and governance: - Banks and other sectors required to have AML/CFT policies and procedures (DCGIC, Article 64); appoint compliance officer (DCGIC, Article 47); procedures for hiring staff with good reputations (DCGIC, Article 57); ongoing training (DCGIC, Article 49). - With exception of investment advisors, internal auditing department or annual independent external audit required to review AML/CFT compliance (DCGIC, Article 60). - Similar requirements for insurance and bonding companies and RFAs; OFSPs required to develop CDD guidelines and appoint representative, but no requirement that representative be at management level; no screening/hiring procedures, ongoing training, or independent audit requirement for OFSPs. - Group-wide programs: - No requirements for financial groups to implement group-wide AML/CFT programs. Members of a group may exchange identification information only with customer authorization (DCGIC, Article 9; DCGISMS, Article 9; DCGSARSI, Article 8; RCGLFPIORPI, Article 35). Banks require confidentiality agreements to share with foreign FIs (DCGIC, Articles 62, 62 bis, 62 ter). - Foreign branches and subsidiaries: - Banks and other sectors (except SOCAPs and SOFIPOs) required to implement Mexican requirements in all branches/subsidiaries including those in weaker jurisdictions; if unable, must report to Mexican supervisor but no additional mitigating measures required (DCGIC, Article 58). Similar for insurance and bonding, and RFAs. OFSPs not subject to such requirements. - Key conclusion on R.18: - Main deficiency: absence of requirement for financial groups to implement group-wide AML/CFT program. - Mexico is Partially Compliant (PC) with R.18. ### Higher-Risk Countries (Recommendation 19 — R.19) - Lists and measures: - FIU distributes FATF-identified lists but no explicit legal requirement to subject customers from these jurisdictions to enhanced measures. - Banks and other sectors required to detect and assess background/purpose of transactions involving jurisdictions with weak AML/CFT (DCGIC, Article 38.x); certain entities must “strictly apply” CDD to respondent banks in such jurisdictions (DCGIC, Article 30). - Countermeasures: - No legal provisions explicitly empowering authorities to apply countermeasures proportionate to risks beyond countries identified by international organizations. - FIU issued notice August 2015 requiring reporting entities to report certain transactions involving certain jurisdictions (not FATF blacklist); entities not required to take special measures at their end. - Maintenance and dissemination: - SHCP maintains online list of FATF-identified countries; FIU distributes updates by e-mail. - Key conclusion on R.19: - Only deficiency: inability to establish Mexican authorities’ ability to apply countermeasures beyond systematic reporting proportionate to risks. - Mexico is Largely Compliant (LC) with R.19. ### Reporting of Suspicious Transactions (Recommendation 20 — R.20) - Reporting obligations: - Banks and other sectors required to report “acts, transactions, and services” related to ML or terrorism (LIC, Article 115); decree March 2014 extended measures to TF financing. - “Unusual transaction” defined as transactions/behavior not matching customer profile or that may involve ML or terrorism; entities should consider 14 indicators; entities have up to 60 calendar days to file UTR starting from alert, with possible 30-day extension for banks (DCGIC, Article 37). - “24-hour report”: when entity has “information based on evidence or concrete facts” (beyond suspicion) funds may come from illicit proceeds or be destined to favor/commit ML or terrorism — file STR within 24 hours (DCGIC, Article 41). - For RFAs: up to 30 calendar days to report (DCGSARSI Articles 13, 19, 21). - Insurance and bonding: cannot extend reporting timeframe (DCGISMS, Articles 28 and 31). - OFSP reporting: - Must report transactions where monthly amount > 3,210 times minimum wage (approx. US$12,519 as of January 2017) (LFPIORPI, Article 17). - For those transactions, if “fact or evidence” exists funds could be from or intended to facilitate ML or related crimes, file to FIU within 24 hours; requirement does not apply to TF- or terrorism-related transactions and is not set out in law; customers classified low risk and customers acting on behalf of employees/contractors excluded (RCGLFPIORPI, Article 27). - Coverage of attempted transactions: - For banks and other sectors and insurance and bonding companies: reporting coverage includes intended transactions. For RFAs and OFSPs, attempted transactions not explicitly covered (DCGIC; DCGISMS; DCGSARSI). - Key conclusion on R.20: - Significant deficiencies: timeframe for “unusual transactions” does not satisfy prompt reporting; “24-hour” threshold is higher than suspicion; OFSPs’ reporting obligations not in law, do not cover TF or attempted transactions, and apply only above threshold. - Mexico is Partially Compliant (PC) with R.20. ### Tipping-off and Confidentiality (Recommendation 21 — R.21) - Legal protections: - All FIs except RFAs protected by law from liability arising from breach of confidentiality when complying with AML/CFT requirements; extension to directors/officers/employees clarified in regulations (DCGIC, Article 53; DCGISMS, Article 43; DCGSARSI, Article 31); OFSPs protection set out in law (LFPIORPI, Article 38). - Staff/directors/representatives (except RFAs) prohibited from disclosing STRs or reports to unauthorized parties and from disclosing to customers any reference made to them in an STR. - Key conclusion on R.21: - Minor deficiency: protections for FI directors/officers/employees are not set out in law for most FIs. - Mexico is Largely Compliant (C) with R.21. ### DNFBPs: Customer Due Diligence (Recommendation 22 — R.22) - Scope and thresholds: - DNFBPs defined as “Vulnerable Activities” and include casinos (transactions ≥ 325 times minimum wage ≈ US$1,380), real estate agents, dealers in precious metals/stones (transactions ≥ 805 times minimum wage ≈ US$3,420), “freelance” professionals performing specified services, companies providing business/registered office/correspondence services for monthly value ≥ 1,605 times minimum wage (≈ US$6,820) (LFPIORPI, Article 17). - Monetary thresholds limit scope and are not consistent with Standard. - DNFBP CDD requirements (RCGLFPIORPI; LFPIORPI): - Prohibited from keeping records under false/confidential names (RCGLFPIORPI, Article 23). - Required to identify customers (including occasional customers) and verify identities based on official credentials (LFPIORPI, Article 18.I). - No general requirement to perform CDD where suspicion of ML/TF or doubts about veracity of data, except when doubt about whether customer acts on behalf of another (RCGLFPIORPI, Article 22). - Must verify persons acting on behalf of customer (RCGLFPIORPI, Article 12, Annexes 3–6 bis, item b).v)). - Required to identify beneficial owner and verify identity if customer in possession of documents; otherwise collect additional information (LFPIORPI Article 18.III; RCGLFPIORPI Article 12.VII). Definition consistent with FATF. - No requirement to understand purpose/intended nature of relationship when establishing business relationships. - Ongoing due diligence: establish mechanism to follow up on transactions (RCGLFPIORPI, Article 19) and verify identification files are up to date at least once a year (RLFPIORPI, Article 21); mechanism to follow up considered too vague. - Required to obtain specified information for legal persons and legal arrangements (Annexes cited); gaps in obtaining senior management info and trustee address. - Must verify identity of customer and beneficial owner prior to or during execution of transaction; no exceptions (RCGLFPIORPI, Article 12). - No requirement for enhanced CDD in higher-risk situations. - Permitted simplified CDD for low-risk customers (LFPIORPI Article 19; RCGLFPIORPI Art .17); no requirement to conduct customer risk assessments though FIU provides guidance. - Required to refrain from transaction if customer refuses CDD (LFPIORPI, Article 21) but no requirement to consider STR. - No provisions permitting DNFBPs to avoid CDD process on tipping-off grounds. - Record-keeping (R.22): - Subject to Tax Code accounting records retention: five years (CFF, Articles 28.I and 30). - DNFBPs required to keep CDD information for five years after transaction (LFPIORPI, Article 18.IV); no requirement to keep business correspondence or analysis results. - No explicit requirement to permit reconstruction of individual transactions except for casinos; real estate dealers and dealers of precious metals/stones must keep original receipts for at least ten years (CC, Article 38). - PEPs and technologies: - No DNFBP-specific PEP requirements; FIU guidance suggests considering PEP status in risk determination. - DNFBPs using electronic/optical technologies must develop misuse prevention procedures (RCGLFPIORPI Article 18). - Reliance: - DNFBPs not permitted to rely on third parties except: (i) same business group (agreement required to transfer CDD info and keep available) (RCGLFPIORPI Article 14); (ii) customer of DNFBP where DNFBP conducts transactions in name of employees/contractors and written agreement required (RCGLFPIORPI Article 16). No requirement to immediately obtain necessary info; no country risk consideration. - Key conclusion on R.22: - All criteria partly met except c.22.3 not met. - Important deficiencies: lack of requirement to perform CDD on suspicion/doubts, incomplete record-keeping, absence of CDD measures for PEPs, and reliance on non-regulated/non-supervised third parties. - Mexico is Partially Compliant (PC) with R.22. ### DNFBPs: Other Measures (Recommendation 23 — R.23) - Reporting and obligations: - DNFBPs must report transactions above thresholds and where additional information based on “fact or evidence” exists that resources could be from or intended to facilitate ML or related crimes (RCGLFPIORPI, Article 27); RCGLFPIORPI is not a law. - Deficiencies: monetary thresholds for reporting; no obligation to report TF-related transactions; reporting based on “fact or evidence” (higher than suspicion); reporting not set out in law; no explicit extension to attempted transactions. - Internal controls and supervision: - DNFBPs required to develop CDD guidelines, criteria, measures, internal procedures (RCGLFPIORPI, Article 37) and appoint representative (LFPIORPI, Article 20); no screening procedures for hiring, ongoing training, or independent audit requirement. - No group-wide ML/TF programs required; members of same group may exchange information (RCGLFPIORPI, Article 35). - No requirements for foreign branches to ensure home country AML/CFT compliance. - High-risk countries: - No legal requirements for DNFBPs regarding high-risk countries; FIU guidance suggests considering them in risk determination. - Protections and confidentiality: - DNFBPs protected from liability when submitting STRs and employee identity protected (LFPIORPI, Article 22; Article 38). - DNFBPs prohibited from disclosing fact that an STR was filed (RCGLFPIORPI, Article 31). - Key conclusion on R.23: - Two criteria not met; one partly met; one met. - Most important deficiencies: monetary threshold to report suspicions, lack of obligation to report TF-related transactions, absence of requirements regarding high-risk countries. - Mexico is Not Compliant (NC) with R.23. ### Transparency and Beneficial Ownership of Legal Persons (Recommendation 24 — R.24) - Legal persons and registration: - Types and forms of legal persons defined in Mexican law (Civil Code and sector laws). - All legal persons must register in RFC (CFF, Article 27); associations and commercial companies register in Public Registry of Property and RPC (CCF, Articles 2673 and 2694). - Articles of incorporation for corporations must include company name, registered office address, basic regulation powers, and list of directors (LGSM, Article 6o); cooperative companies similar (LGSC, Articles 12 and 16). - Information in RPC and Public Registry of Property publicly available for a fee; RFC not publicly available; basic information on certain non-commercial legal persons not publicly available. - Corporate records and shareholder registers: - Commerce Code requires commercial legal persons to maintain books/documents for 10 years (CC, Article 46). - Corporations required to keep register of shareholders containing amount of contribution and any transfers (LGSM, Article 73); law does not specify location. - No obligations for cooperative companies, unions, associations, and foreign legal persons to maintain shareholder/member registers. - Beneficial ownership information: - No general obligation for companies or registries to obtain or keep beneficial ownership information; FIs and DNFBPs may hold BO info but timely access not ensured without central bank/registry of accounts. - No obligation for companies to cooperate with competent authorities in determining BO. - Bearer shares and nominee arrangements: - Corporations and companies cannot issue bearer shares (LGSM, Article 124). - Nominee shares and nominee directors not allowed (LGSM, Articles 111 and 147). - Access by competent authorities: - FIU, PGR, and SAT have direct access to RFC; CNBV via SAT upon request. - FIU/SHCP can require information, documentation, data, and images needed for its functions (LFPIORPI, Article 6.II). - In absence of central registry of bank accounts, timely access to BO information cannot be ensured. - Sanctions and international cooperation: - Failure to register in RPC/RFC punished with prison (three months to three years) (Tax Criminal Code, Article 110–I). No specific sanctions for failure to maintain/update shareholder registers. - Public commercial register information can be accessed by foreign competent authorities; other BO information exchange relies on MLA. - Key conclusion on R.24: - Most essential criteria, especially those related to BO obligations, only partly met. - Mexico is Partially Compliant (PC) with R.24. ### Transparency and Beneficial Ownership of Legal Arrangements (Recommendation 25 — R.25) - Trusts (fideicomiso): - Only legal arrangement is fideicomiso; trustees can only be persons explicitly authorized by law and are limited to certain FIs (LIC, LACP, LMV, LFI, LUC, LISF, LOFNDARFP). - Trusts should register in RFC if they generate revenue or in RPPC if related to real estate (LGTOC, Article 388). - Implications: - Since only FIs can be trustees, R.10 and R.11 measures apply to parties to trust arrangements; trustees are subject to prudential and AML/CFT supervision and record-keeping measures. - Deficiencies in CDD and record-keeping for FIs prevent full compliance. - Access and disclosure: - No legal provisions preventing trustees from disclosing information relating to the trust. - Competent authorities have powers to access information held by FIs acting as trustees; timely access ensured via RFC, RPPC, Trust Control and Transparency System, or Bank of Mexico information. - Foreign access to RFC/RPPC limited to tax purposes; other BO info via MLA measures. - Liability and sanctions: - FIs including trustees legally liable for failure to fulfill AML/CFT requirements. - Sanctions for failure to grant timely access to trust information exist but may not be proportionate and dissuasive. - Key conclusion on R.25: - Mexico fully or mostly meets most essential criteria. - Mexico is Largely Compliant (LC) with R.25. ### Regulation and Supervision of Financial Institutions (Recommendation 26 — R.26) - Supervisory framework: - SHCP responsible for overall regulation; operational responsibility delegated to CNBV, CNSF, and CONSAR. CNBV has consolidated supervision role for many institution types; CNSF for insurance; CONSAR for pension fund administrators. - Licensing and registration: - Core FIs required to be licensed; other FIs also required to be licensed or registered with exceptions noted (exchange centers, money remitters, investment advisors registered with CNBV; issuers of traveler’s checks/credit cards/stored-value cards and safe-custody services registered with SAT; unregulated multi-purpose finance companies registered with CONDUSEF but supervised by CNBV). - No specific provisions prohibiting shell banks, but LIC licensing criteria effectively preclude them. - Fit and proper requirements: - Share ownership thresholds and prior approval requirements, disqualifications for convicted persons and CNBV powers to remove “untrustworthy” management; similar provisions in insurance legislation. - Registration for exchange centers and money remitters requires sworn statements re criminal records for directors/managers. - Supervisory approach and risk-based programs: - Supervisors required to establish annual AML/CFT inspection programs, have risk models; inputs based on regular reporting by institutions and FIU; CNBV cannot apply consolidated supervision to mixed groups. - Key conclusion on R.26: - CNBV lacks authority for consolidated supervision of mixed groups; SAT’s role less developed. - Mexico is Largely Compliant (LC) with R.26. ### Powers of Supervisors (Recommendation 27 — R.27) - Legal powers: - Regulators (CNBV, CNSF, CONSAR) and SAT have broad powers to supervise, inspect, request information, and apply sanctions (various articles cited). - Powers include inspections, offsite/on-site, requesting information without court orders. - Sanctions and remedies: - CNBV: admonish, suspend, remove, bar individuals, intervene administratively, apply administrative sanctions; may revoke licenses though not explicitly for AML/CFT failings. - CNSF: remedial measures, remove management, impose financial sanctions, revoke authorization. - CONSAR: financial sanctions and measures to protect pension funds. - SAT/Ministry of Finance: administrative fines for issuers of traveler’s checks/credit cards/stored-value cards; limited remedial powers beyond financial penalties. - Key conclusion on R.27: - Supervisors have similar statutory powers, CNBV cannot revoke banking license explicitly for AML/CFT breaches; SAT limited to financial penalties. - Mexico is Largely Compliant (LC) with R.27. ### Regulation and Supervision of DNFBPs (Recommendation 28 — R.28) - Licensing and supervision: - Gambling establishments require permit from SEGOB; applicants must declare under oath no prosecutions/convictions for specified offenses; Ministry of Interior verifies applications. - SAT responsible for monitoring and ensuring compliance of all DNFBPs (RLFPIORPI; RISAT). - SAT has powers to request information/documents, perform onsite visits, request appearances, ask police assistance; supervisors limited to reviewing transactions within five years prior to onsite visit (LFPIORPI, Article 36). - Preventive measures: - No comprehensive measures to prevent criminals or associates from being professionally accredited or controlling interest in DNFBPs (except certain broker requirements). - Sanctions: - Administrative fines and revocation of authorization available; fines range examples: - 200 to 2,000 “days of the general minimum wage” for failure to comply with CDD/record-keeping (equivalent to US$634 to US$6,340). - 10,000 to 65,000 “days of the general minimum wage” for failure to submit STRs (equivalent to US$31,700 to US$206,050). - Fines may not be proportionate and dissuasive. - Risk-based supervision: - Generic provisions for SAT programs but no specific statutory reference to risk-based supervision; authorities state monitoring is risk-based using FIU-produced sector risk profiles. - Key conclusion on R.28: - Deficiencies: lack of measures to prevent criminals/associates from accreditation or control, lack of explicit risk-based supervision provisions, lack of proportionate and dissuasive sanctions. - Mexico is Partially Compliant (PC) with R.28. ### Financial Intelligence Unit (Recommendation 29 — R.29) - FIU status and functions: - FIU established as central administrative unit within SHCP; national center for receipt/analysis/dissemination of STRs and relevant info; attributions set in Article 15 of Internal Regulations. - FIU receives STRs indirectly through supervisors for FIs and electronically from DNFBPs; can request additional information from reporting entities (Article 15). - Information access: - FIU has broad access to financial, administrative, and law enforcement information: Public Registry of Commerce, Integrated System for Immigration Operation, National Registry of Penitentiary Information, main tax and customs databases (including Format 35), customs declarations of trans-border cash > US$10,000, private databases, and databases from PGR in certain cooperation contexts. - FIU lacks direct access to some LEA criminal records except in cases under investigation by PGR or police collaborators. - Analysis and dissemination: - FIU conducts operational and strategic analyses using available information and public sources (INEGI, Central Bank, PGR, CNBV). - Authorized to provide information/documentation to competent national authorities including PGR and SAT; dissemination authorized proactively and on request. - Security, confidentiality, and independence: - FIU develops rules for security/confidentiality; subject to National Security Law and General Law of Transparency for classification; staff go through rigorous vetting; physical and IT security measures in place. - FIU reports to Minister of Finance, director appointed by minister; FIU has autonomous decision-making on analysis and dissemination; independent arrangements with domestic and foreign counterparts. - Member of Egmont Group since 1998. - Key conclusion on R.29: - Mexico is Compliant (C) with R.29. ### Responsibilities and Powers of Law Enforcement (Recommendations 30–31 — R.30 & R.31) - Institutional responsibilities: - PGR (Federal Prosecutor) responsible for investigation/prosecution of federal offenses including ML, predicate offenses, and TF (LOPGR). - SEIDO/SEIDO units (UEIORPIFAM, UEITA, UEAF) and UEAF (Special Financial Analysis Unit) have roles in financial analysis and ML investigations; relationships and delimitation of competencies among UEAF and UEIORPIFAM unclear. - Federal Police and Criminal Investigation Agency support investigations; coordination challenges among police units exist. - Investigative powers: - UEAF and UEIORPIFAM competent to conduct ML investigations; UEAF empowered to identify and trace property and financial assets from criminal activity (LFPIORPI). - PGR requests for financial/banking information routed through CNBV, CONSAR, or CNSF; fiscal requests through SHCP; commercial requests through Ministry of Economy and registries. - Asset seizure and confiscation: LFED allows courts to impose precautionary seizure/attachment on request of Federal Prosecutor; courts order seizure; Federal Prosecutor can bring forfeiture proceedings. - Special investigative techniques: - Procedural distinction between techniques not requiring judicial authorization (controlled deliveries, undercover) and those requiring authorization (interception of communications); LFCDO governs use of special techniques but their application limited primarily to organized crime offenses; controlled deliveries not explicitly mentioned in LFCDO. - Access to financial information and cooperation with FIU: - UEAF can consult SHCP databases on VA and request info; FIU provides information to PGR via UEAF for ML investigations. - Key conclusions: - R.30: main shortcoming is unclear delimitation of competences and limited coordination among investigative authorities; Mexico Largely Compliant (LC) with R.30. - R.31: shortcomings from Third Round MER persist (special investigative techniques access/application); Mexico Largely Compliant (LC) with R.31. ### Cash Couriers (Recommendation 32 — R.32 / SR.IX) - Declaration system: - Customs Law declaration system applies to entry/exit of cash, national or foreign checks, payment orders, or any other document or combination exceeding equivalent of US$10,000; applies to mail/cargo and courier services; declarations in official forms or electronically via www.sat.gob.mx. - Sanctions and procedures: - Failure to declare or false declaration processed in record; sanctions: fines for undeclared amounts less than US$30,000; amounts > US$30,000 referred to PGR for smuggling charges; PGR can investigate origin/use. - Article 105 Federal Tax Code: failure to declare cash/monetary instruments > US$30,000 is penalized with imprisonment from three months to six years; excess may become property of federal tax authorities unless lawful origin evidenced. - Customs powers and limitations: - Customs officials do not have authority to request further origin/use information from carrier upon discovery of false declaration unless investigation initiated and PGR called. - Customs cannot investigate suspected ML/TF; PGR responsible for such investigations. - Customs can prepare detailed record and require declaration/origin; return of money only after fine paid and declaration made. - FIU access and cooperation: - All customs declaration forms sent to FIU for intelligence analysis; FIU has remote access to Customs’ database for declarations > US$10,000 for 2006–2016. - Customs coordinates with immigration, security, FIU, and other authorities for prevention and control. - Preventive seizure powers: - Customs may order preventive attachment/seizure of cash and instruments in excess of legal amounts when not declared (Internal Regulations of the SAT, Article 19, Section LX). - Key conclusion on R.32: - Declaration system in place with threshold US$10,000; Customs lacks authority to obtain further origin/use information without PGR involvement; PGR investigates ML/TF matters; FIU receives customs declarations for analysis. *Source: Annex 6; DCGSARSI, Article 4; RCGLFPIORPI Article 12, Annexes 3–6 bis, item b).v)).* ### Section III of the Internal Regulations of the SAT allows Customs to maintain communication and ### Section III of the Internal Regulations of the SAT allows Customs to maintain communication and collaboration with customs, tax, and foreign trade authorities of other countries, as well as to assist other public officials of the SAT in their tasks with said authorities regarding matters of entry and exit of merchandise within the national territory. ### Customs international cooperation, currency declarations, and TF-related capability - Customs may maintain communication and collaboration with customs, tax, and foreign trade authorities of other countries and assist other SAT officials on entry/exit of merchandise. - Mexico has adopted several multilateral agreements of the World Trade Organization and the World Customs Organization and has signed several international treaties and assistance agreements with foreign Customs services. - Other countries’ Customs authorities that have treaties/agreements with Mexico can request information on cases where transportation of foreign currency has been declared and on failures to declare amounts in excess of the equivalent of US$10,000 under the terms provided in the agreements. - No statistics on the number of information requests made and received by Customs were provided, making it difficult to verify the effectiveness of international cooperation measures. - A Bilateral Strategic Plan dated August 13, 2007 (unsigned copy provided) for bilateral cooperation with U.S. Customs and immigration counterparts includes cooperation on cash smuggling and organized crime. - Customs’ stated international cooperation priorities include: - strengthening integrity of Customs personnel; - automation of all Customs dispatch processes; - coordination of daily operations and infrastructure projects on the common border to promote expansion of exclusive FAST/Express lanes programs; - strengthening law enforcement actions to combat smuggling, Customs fraud, and related felonies jointly and more efficiently; - increasing cooperation on security matters, especially for merchandise cargoes requiring special controls; - establishing programs to resume commercial/Customs activities in cases of emergencies or disasters. - There is no specific strategy to address TF issues. ### Currency declaration processing, information sharing, and sanctions for non-declaration (R.32) - Customs preserves and safeguards information of declarations for amounts exceeding the US$10,000 threshold and can share such information with the FIU and other competent authorities. - Declarations exceeding US$10,000 are processed in the Currency Declaration Processing System (SICADED). - SICADED access: only authorized persons (authorization by IT department after registration and provision of justification). - IT department implements control measures to avoid unauthorized information disclosure. - SICADED has been integrated to the FIU’s database; PGR personnel can access under a Memorandum of Understanding between agencies. - Measures do not restrict trade payments between countries for goods and services or freedom of capital movements. - Sanctions for failure to declare: - If a person enters without declaring amounts exceeding the US$10,000 threshold but less than US$30,000 (including cash, national or foreign checks, payment orders, any other receivable instrument, or any combination thereof), Customs will prepare a detailed record pursuant to Articles 46 and 152 of the Customs Law and ascertain the fine. - Fine range: 20 percent to 40 percent of the amount that exceeds the US$10,000 threshold. - Application of sanctions (General Rule on Foreign Commerce number 3.7.17, pursuant to Articles 46 and 152 of the Customs Law) does not exempt offender from obligation to complete declaration form, including obligation to declare origin of the funds. - Provision applies to individuals and entities failing to declare such amounts and to securities custody or transportation companies and courier companies (Articles 184 and 185 of the Customs Law). - If offender pays the fine, money will be returned to violator and no further enforcement action taken. - Failure to pay fine results in preventive seizure (embargo precautorio) of undeclared excess on basis of Articles 144, Section XXX of the Customs Law, and 41, Section II of the Federal Tax Code. - If undeclared amount exceeds US$30,000, treated as smuggling offense under Article 105 of the Federal Tax Code: - Customs hands matter to the PGR for investigation of lawful origin. - Penal sanction: imprisonment from three months to six years. - If offender found guilty, seized money handed over to Federal Tax Authorities unless offender shows evidence of lawful origin. - Weighting and Conclusion: It is not an offense to make a false declaration; no clear Customs procedure to deal with cross-border transportation of funds related to TF; Customs cannot request information on origin and intended use of cash and BNIs. Mexico is partially compliant (PC) with R.32. *Italic: Source — Section III of the Internal Regulations of the SAT (excerpt) as provided in the content unit.* ### Recommendation 33 — Statistics (R.33) - AML/CFT system supported by statistics gathered and maintained in case management systems of key sectors (FIU, CJF, and the PGR). Supervisory authorities maintain statistics on inspections, deficiencies, remedial measures, and sanctions. - FIU statistics: - Comprehensive statistics on STRs received and disseminated (including data on type of offenses and agencies receiving STRs). - Statistics on outcomes of disseminated STRs (including ML/TF investigations, prosecutions, convictions, and ML/TF seizures deriving from STRs). - Criminal justice statistics: - Mexico collects statistics on ML/TF investigations, prosecutions, and convictions. - National statistics on ML investigations, prosecutions, convicted persons, and sanctions are available annually and can be disaggregated to show relevant underlying predicate crimes. - Not available at a state level. - PGR provided information on number of preliminary investigations and prosecutions for main predicate offenses between 2012 and 2016; information incomplete, particularly for drug trafficking and organized crime. - CFJ provided number of convictions for these offenses, including detailed information on sentences in ML cases. - PGR has an Institutional Statistical Information System including initiated preliminary investigations by type of predicate offense and prosecutions by ORPI offense. - SISE (Sistema Integral de Seguimiento de Expedientes), operated only by the CJF, allows consultation of records on number of convictions. - Lack of consistency between PGR and CFJ statistics complicates assessment of effectiveness, especially given new criminal procedural system. - Seizures and confiscations: - Mexico has statistics on amounts and property seized and confiscated; statistics inconsistent between institutions (e.g., PGR and judiciary). - Material provided incomplete (no information on amounts/property confiscated or forfeited at subnational level). - Difficulty providing total amounts of seizures and confiscations with breakdown by predicate offenses in a timely manner. - MLA and extradition statistics: - Mexico maintains statistics on MLA, both active and passive, by countries. - Lack of a case management system for incoming/outgoing requests hinders regular processing and accurate statistics. - On extradition, Mexico maintains comprehensive statistics, active and passive, with information on requesting and receiving countries, focusing on bilateral relationship with the U.S. - Weighting and Conclusion: Mexico does not ensure consistency of statistics between institutions. ML investigations, prosecutions, convicted persons, and sanctions available at federal but not state level. Does not collect information on amounts/property confiscated or forfeited at subnational level and in relation to main predicate offenses. No case management system to process and monitor requests regularly. Mexico is partially compliant (PC) with R.33. ### Recommendation 34 — Guidance and Feedback (R.34) - Background: In Third Round MER, Mexico rated partially compliant for former R.25 due to absence of guidance for financial sector and DNFBP sectors and insufficient FIU feedback. - Supervisory guidance: - All supervisory authorities have legal authority to issue guidance to supervised entities. - CNBV measures: - Two CNBV website sections specific to AML/CFT: one on compliance obligations; another with FAQs, notifications, video tutorials, general AML/CFT “culture,” and a mailbox for specific questions. - Since 2012, bi-monthly awareness-raising meetings with money remitters, exchange centers, and unregulated multi-purpose finance companies. - “Get to Know Your Entity” program to allow supervisors to understand FI business models and provide recommendations; rolling out progressively, starting with banks. - CNSF and CONSAR: - Coordinated with FIU to produce guidance on filing STRs and CTRs by insurance industry. - CNSF participated in workshops to assist insurance industry. - Neither CNSF nor CONSAR published general guidance on AML/CFT preventive measures. - SAT: - Power to issue guidance (RISAT, Article 47) but has not developed relevant material apart from FIU material disseminated through Centralized Web Channel. - FIU guidance and feedback: - FIU published best practice documents and guides on STR obligations and formats; guides on country risk, virtual currencies, and correspondent banking; and typologies on abuse of financial and corporate structures for ML/TF. - FIU distributed an edited version of the NRA to all reporting entities in September/October 2016. - Weighting and Conclusion: CNBV has undertaken extensive outreach, but CNSF, CONSAR, and SAT provide very little direct guidance and largely depend on FIU outreach. Mexico is largely compliant (LC) with R.34. ### Recommendation 35 — Sanctions (R.35) - Legal basis: - Article 52 of the LFPIORPI: financial sector supervisory authorities apply sanctions for non-compliance with preventive measures based on powers in regulatory laws. - Supervisors can impose remedial measures and sanctions; administrative fines apply to all supervised institutions. - CNBV powers (LCNBV, Article 12): admonish, suspend, remove, bar people in key positions; intervene managerially; apply administrative sanctions. - Credit institutions (LIC, Article 108): CNBV may require removal of management and impose administrative fines on institution and management. - Securities legislation (LMV, Article 392): similar provisions for administrative fines. - CNBV may revoke banking license for reasons in LIC, Article 28 (none relate to AML/CFT failures). - Brokerage firms: CNBV may revoke license for repeated/serious breaches (LMV, Article 153). - Insurance sector (LISF, Articles 320, 325, 332, 333, and 369): CNSF can require remedial measures, remove management, impose financial sanctions, revoke authorization. - Money remitters and exchange centers (LGOAAC, Articles 64, 74, 81–D, and 95 bis): CNBV can impose administrative fines (institution and individuals), remove management, suspend/close operations, revoke registration. - DNFBP sectors and issuers of traveler’s checks, credit cards, stored-value cards, and providers of safe-custody services: LFPIORPI (Articles 53 and 54) provides administrative fines administered by Ministry of Finance rather than SAT; ministry can request revocation of gaming/lottery license and cancel rights to carry on certain professions. - Nature of penalties: - Primary focus on financial penalties; broader measures available in many cases. - Penalties expressed as minimum and maximum administrative fines characterized as proportion of act value or multiple of daily minimum wage in force in the Federal District. - CNBV and CNSF have internal guidelines for calculating fines within legislative ranges considering nature/scale, economic situation, compliance history, and mitigating factors. - Maximum financial penalties available do not appear proportionate and dissuasive for all institutions and types of breaches when applied individually. - Example: For credit institutions, securities businesses, and insurance companies, maximum fine possible for major CDD failures is approximately US$383,000. A similar maximum penalty exists for institutions that deliberately supply false or misleading information to regulators. - Sanctions on individuals: - Laws provide sanctions applicable to institution/business and advisors, directors, employees, agents, and representatives. - Weighting and Conclusion: Primary supervisors have broad sanction powers, but maximum financial penalties are not proportionate and dissuasive, particularly for larger institutions. Mexico is largely compliant (LC) with R.35. ### Recommendation 36 — International Instruments (R.36) - Ratifications: - Vienna Convention: ratified on April 11, 1990. - TF Convention: ratified on January 20, 2003. - Palermo Convention: ratified on March 4, 2003. - Merida Convention: ratified on July 20, 2004. - Legal gaps: - Articles 400 bis and 400 bis 1 CPF criminalize ML in line with Vienna, Palermo, and Merida Conventions; criminal liability for legal persons established in Article 11 bis CPF. - TF appears not to be included among offenses for which a legal person may be held liable (Article 5 of the TF Convention; see criterion 5.7). - No statutory provision for controlled delivery in line with Article 20 of the Palermo Convention and Article 7 of the Vienna Convention (see criterion 31.2). - Weighting and Conclusion: Deficiencies in R.5 and R.31 (criminal liability for legal persons not enshrined in CPF and no provision for controlled deliveries) negatively impact rating. Mexico is largely compliant (LC) with R.36. ### Recommendation 37 — Mutual Legal Assistance (R.37) - Legal framework: - MLA framework based on Articles 433 to 444 of the CNPP; principle to implement foreign MLA requests as quickly as possible and with utmost diligence. - Article 434 CNPP: Mexican authorities must provide maximum cooperation possible in investigation and prosecution. - Article 439 CNPP lists types of MLA (gathering evidence, exchange of information, preventative measures); Article 439(XI) is a catch-all allowing other MLA not prohibited under Mexican law. - Unclear whether assistance is refused (rather than postponed) if implementation might harm or hamper an ongoing Mexican investigation. - Central authority and DGPI: - PGR is central authority for MLA (Article 437 CNPP). - DGPI powers in MLA matters established in Article 52, sections VI and VII of RLOPGR. - Directorate of International Legal Assistance (part of DGPI) responsible for implementation and follow-up; staffed by one director, 18 lawyers, and 15 administrative assistants. - DGPI applies informal criteria for prioritization and execution of requests and monitoring, but not formalized in an organization-wide manual. - Grounds for refusal/postponement: - Seven discretional grounds for refusal and one for postponement (Article 440 CNPP). Grounds include requests of a political or military nature, offenses punishable by death, events already ruled on by a court. Postponement may be invoked where execution may compromise or obstruct ongoing investigation. Grounds not unduly restrictive. - Confidentiality: - Article 444 CNPP binds central authority and authorities involved to maintain confidentiality of request content and supporting documents. - Dual criminality: - Applies only where MLA request seeks execution of coercive measures (property, attachments, search warrants, confiscation, seizure) (Article 436(III) CNPP). Dual criminality not required for other MLA types. - CNPP does not define “dual criminality” (identidad de normas); explanations suggest it requires elements of conduct to be the same; category or terminology irrelevant. - Scope of MLA: - Mexican authorities can execute wide range of MLA requests including searches of persons/premises, taking witness statements, gathering evidence. - Unclear whether Mexico can execute MLA requests seeking controlled delivery due to lack of statutory provision regulating this investigative technique nationally. - Weighting and Conclusion: No case management system for timely implementation and follow-up of MLA requests; no clear prioritization criteria. Mexico is partially compliant (PC) with R.37. ### Recommendation 38 — Mutual Legal Assistance: Freezing and Confiscation (R.38) - Freezing requests: - Procedures under Mexican law for replying to requests seeking freezing (inmovilización y aseguramiento de bienes) of property (Article 449 CNPP). - For confiscation requests: requesting country must submit certified copy of confiscation order, evidence underpinning confiscation, and statement that judgment is final (Article 452 CNPP). - Article 449 CNPP does not define “property,” but CNPP and LFED interpreted indicate concept extends to laundered property, proceeds, instrumentalities used in or intended for ML, predicate offenses, TF, and property of corresponding value. - Article 449 requires MLA requests to specify location of property; does not necessarily prevent execution when location unknown but would require two requests (identify location, then freeze/seize/confiscate), causing delays. - No time limit imposed by Article 449 for responding to requests to identify, freeze, seize, and confiscate. - Non-conviction-based confiscation: - Mexican authorities can implement MLA requests based on non-conviction-based confiscation via LFED procedures. - Articles 66 to 69 LFED: PGR or competent authority handles recovery requests; PGR raises extinction of ownership proceedings before a court and requests provisional measures under LFED. - Coordination, management, and disposal: - Mexico has bilateral MLA treaties (e.g., Canada and U.S.) for coordinated seizure and confiscation. - SAE functions governed by LFAEBSP: power to manage, sell, or destroy transferred property; appoint custodians, liquidators, auditors, administrators; entrust third parties for sale/destruction. Property includes property seized and confiscated in federal criminal proceedings (Article 1 LFAEBSP). - Article 69 LFED: where MLA request results in judgment ordering extinction of ownership, property/proceeds of sale must be delivered through PGR and Ministry of Foreign Affairs to competent foreign authority unless agreement on sharing assets exists. Mexico has agreements with Costa Rica and Colombia for coordinating sharing of confiscated property. - Weighting and Conclusion: Deficiencies in R.37 negatively impact this recommendation. Mexico is partially compliant (PC) with R.38. ### Recommendation 39 — Extradition (R.39) - Legal framework: - International Extradition Act (LEI), bilateral treaties, and multilateral agreements govern extradition. - Article 6 LEI: all intentional offenses extraditable provided punishable under Mexican and requesting State law by imprisonment of at least one year (covers ML/TF). - Participating authorities: Ministry of Foreign Affairs, PGR (Extradition Directorate within DGPI), and district judges. - RLOPGR Article 52(I), (IV), (VI), (VII) specifies Extradition Directorate functions; directorate staffed by one director, 22 lawyers, and 14 administrative assistants. - Deadlines for surrender reasonable (Articles 25 and 27–29 LEI). - Case management: Judicial Power of the Federation holds record and index of extradition cases; Extradition Directorate maintains database of incoming and pending requests; requests prioritized case-by-case but no established case management system beyond list of requests or clear protocol for prioritization. - LEI contains widely accepted mandatory grounds for refusal (e.g., person already tried or served sentence for the crime) (Article 7 LEI). - Nationals and dual criminality: - Mexican citizens cannot be extradited, save in exceptional cases determined by government (Article 14 LEI). If not extradited on nationality grounds, Ministry of Foreign Affairs notifies PGR so Mexican courts can bring proceedings (Article 32 LEI). - Dual criminality required for extradition; only elements of conduct need be the same; category or terminology irrelevant. - Simplified/speedy procedures: - LEI provides simplified extradition where requested party consents or does not object (Article 28 LEI). - Various treaties provide for summary extradition proceedings. - Weighting and Conclusion: Main shortcomings are lack of established case management system and absence of clear protocol for prioritization. Mexico is largely compliant with R.39. ### Recommendation 40 — Other Forms of International Cooperation (R.40) - Legal and institutional bases for cooperation: - Ministry of Finance and Public Credit empowered to coordinate with domestic and foreign supervisory and public security authorities to prevent and detect ML-related acts (Article 6(III) LFPIORPI). - Ministry has power to exchange information with foreign authorities in accordance with treaties or, absent treaties, principles of cooperation and reciprocity (Article 49 LFPIORPI). - PGR can exchange information with foreign authorities and international bodies for extradition, repatriation of property, asset recovery, enforcement of judgments via Directorate General of International Procedures (Article 52 RLOPGR). - FIU responsibilities include providing, requesting, and exchanging information necessary to exercise its powers with national and foreign authorities (Article 15(XII) RISHCP). - FIU information exchange powers: - FIU can exchange information with foreign authorities spontaneously or upon request, even absent agreement on reciprocity. - FIU can enter into international legal instruments for exchange when required (Article 15 RISHCP; Articles 6, section III and 49 LFPIORPI). - FIU is Egmont Group member since 1998 and uses Egmont Secure Web. - FIU has signed 41 MOUs with counterparts: Andorra, Antilles, Argentina, Aruba, Australia, Bolivia, Brazil, Canada, Chile, China, Colombia, Republic of Korea, Ecuador, El Salvador, Spain, United States, Philippines, GAFILAT, Guatemala, Holland, Honduras, Indonesia, Bermuda Islands, Israel, Japan, Macedonia, Moldova, Mongolia, Nicaragua, Paraguay, Peru, Poland, Portugal, United Kingdom, Dominican Republic, Russia, San Marino, Serbia, Singapore, Sweden, Ukraine, and Venezuela (Article 15, section XIX RISHCP). - PGR international cooperation and limitations: - PGR lawful basis for cooperation (Article 5(VII) LOPGR) and authority to negotiate/participate in international treaties via Dirección General de Cooperación Internacional (Article 53 RLOPGR). - PGR has mechanisms and secure channels to facilitate transmission and execution of requests under treaties and bilateral/multilateral agreements or, absent such instruments, according to principles of cooperation and reciprocity. - However, PGR has not set up formal processes for timely prioritization and execution of requests (see criterion 37.2). - Safeguarding and confidentiality: - Mexican authorities refer to international cooperation instruments and MOUs with confidentiality clauses; Article 444 CNPP applies to MLA exchanges. - FIU must comply with LSN provisions on reservation/confidentiality (Articles 10, 50, 51, 53, 54, 61, 63, 64 of LSN). - General Law of Transparency and Access to Public Information (LGTAIP) allows classification of information that could undermine national/public security (Article 113). - FIU uses information for intelligence only and requests authorization from counterpart before disclosing to other national authorities. - Article 113 LGTAIP: information delivered to Mexico expressly stated to be classified/confidential by other subjects of international law will be treated as confidential, except in cases of serious human rights violations or crimes against humanity under international law. - Scope of authorities to share and use information: - SHCP (including CNBV, CNSF, CONSAR) has overarching power to share information with foreign authorities responsible for ML detection/supervision/prosecution (Article 49 LFPIORPI); no mention of TF. - CNBV authority to enter into agreements with foreign regulatory/supervisory bodies and provide assistance under MOU on principle of reciprocity (Article 4 XXIV/XXV and Article 9 LCNBV). - CNSF has similar powers (Article 366 XXXV LISF). CONSAR powers on international collaboration are less specific. - SAT empowered to “collaborate” with fiscal, customs, and trade authorities of other countries and designated competent authority for implementation of related agreements (Article 19 III and LXXXIX RISAT); unclear whether provisions cover SAT’s AML/CFT supervision responsibilities. - CNBV and CNSF have broad powers (subject to MOU) to exchange information including prudential and AML/CFT-specific information; CONSAR and SAT legal authority for cooperation in prudential/AML/CFT matters unclear. - CNBV power to conduct enquiries on behalf of foreign counterparts and permit foreign counterparts to conduct inspections in Mexico where shared supervisory responsibility exists (Article 9 LCNBV; Article 66 RSCNBV; Article 34 VI RICNBV). - CNSF authority to obtain information for foreign counterparts through enquiries (Article 366 XXXVII LISF); no provisions permitting foreign counterparts to conduct enquiries directly. - Use and safeguards of exchanged information: - No legal provisions govern how Mexico may use information obtained from foreign counterparts. - CNBV and CNSF operate under MOUs with reciprocal provisions limiting use of information to purposes requested unless prior approval obtained. - No relevant legal provisions or administrative procedures for CONSAR and SAT regarding use/safeguarding. - Law enforcement cooperation: - Authorities refer to 38 different legal instruments (agreements, conventions, MOUs) between PGR and various foreign countries; instruments not available for consultation. - No information provided on whether LEAs can exchange domestically available information with foreign counterparts for intelligence or investigative purposes as required by criterion. - Mexican Interpol National Central Bureau exchanged information regularly with foreign counterparts during 2015–2016. - Mexican authorities can execute wide range of requests including search of persons/premises, taking witness statements, gathering evidence (Article 439(XI) CNPP catch-all). - Unclear whether controlled deliveries can be executed due to absence of statutory provision regulating the technique nationally. - Joint investigation teams: referenced via Vienna, Palermo, and Merida Conventions but no domestic statutory legal basis for such teams. - Exchange with non-counterparts: - Possible under international instruments negotiated via PGR to exchange information indirectly with third parties provided provider gives prior written consent and exchange complies with provider’s national law. - FIU shares information with non-counterparts (e.g., LEAs) outside Mexico. - Weighting and Conclusion: Main shortcomings include lack of statutory provisions for controlled deliveries and joint investigation teams; lack of international instruments provided for consultation; no exchange of information where it forms part of ongoing proceedings or an ongoing investigation regardless of whether it might impede such proceedings. Mexico is largely compliant (LC) with R.40. *Italic: Source — Excerpts from the provided content unit (cr17405-mexicodar) as supplied.* ### Annex II. Summary of Technical Compliance—Key Deficiencies ### Annex II. Summary of Technical Compliance—Key Deficiencies ### Summary by FATF Recommendation (Recommendation — Rating — Factor(s) Underlying the Rating) - 1. Assessing risks and applying a risk-based approach — LC - Mexico does not provide a comprehensive assessment of laundering of proceeds of corruption. - The NRA does not present a grounded view of risks associated with the misuse of the legal persons and arrangements. - The requirements for FIs and DNFBPs to assess ML/TF risks and apply enhanced measures, including where higher risks are identified by the authorities are deficient. - There is no prohibition of simplified AML/CFT measures where there is a suspicion of ML/TF. - 2. National cooperation and coordination — LC - Mexico finalized its NRA in June 2016 and has carried out some high-level actions to mitigate the risks identified. However, authorities have explained they are further developing a national strategy that will incorporate additional measures to address all findings of the NRA and establish clearer priorities. - 3. Money laundering offense — C - The Recommendation is fully observed. - 4. Confiscation and provisional measures — LC - No specific provisions in the law to prevent or to void certain legal actions that prejudice the country’s ability to freeze, seize, or recover property that is subject to confiscation. - 5. Terrorist financing offense — LC - The CPF does not include TF among the offenses for which legal persons may be held criminally liable. - 6. Targeted financial sanctions related to terrorism & TF — C - The Recommendation is fully observed. - 7. Targeted financial sanctions related to proliferation — C - The Recommendation is fully observed. - 8. Non-profit organizations — PC - Authorities have not yet conducted a review of the current laws and regulations pertaining to the subset of NPOs identified in the revised NRA as high risk. - There has been limited outreach to the NPO sector on its unique vulnerabilities for TF and no outreach to the donor community. - Authorities are not yet working with NPOs to develop and refine practices to address TF risks and vulnerabilities. - Authorities have not yet engaged in any outreach with the NPOs to encourage them to conduct transactions via regulated financial channels. - Authorities have not yet established a plan to improve effective supervision or monitor the NPO sector since the revised NRA. - All NPOs have certain requirements based on their classification as DNFBPs, but no special requirements currently exist for NPOs. - Since the risk-based requirements have not yet been defined, the correspondent sanctions have not been defined either. - 9. Financial institution secrecy laws — C - The Recommendation is fully observed. - 10. Customer due diligence — PC - Lack of comprehensive requirements to identify beneficial owners and verify their identities, including those of legal persons and trusts. - For banks and other sectors under CNBV’s purview, the requirement to understand the corporate structure of legal persons only applies to customers who are legal persons classified as high risk. - Lack of comprehensive requirements to apply CDD measures to existing customers. - Lack of comprehensive requirements to keep the CDD information up to date. - The requirements to identify and verify occasional customers transacting in national currency only apply in limited scenarios. - No prohibition of simplified measures when there is suspicion of ML/TF. - 11. Record keeping — LC - The requirements are not sufficient to ensure reconstruction of transactions other than those covered in the AML regulations. - 12. Politically exposed persons — PC - Lack of requirements to determine whether the beneficial owner is a PEP (foreign or domestic). - For the insurance sector, lack of requirement to determine whether the beneficiary of life insurance is a PEP and to apply required due diligence. - Senior military officers, executives of state-owned corporations, or officials at the municipal level are not considered to be domestic PEPs. - 13. Correspondent banking — LC - Lack of requirements governing customers of respondents having direct access to the correspondent institution’s accounts. - 14. Money or value transfer services — LC - Lack of comprehensive requirements for MVTS agents to be licensed or registered or for MVTS operators to maintain a current list of agents accessible to the competent authorities. - 15. New technologies — PC - Lack of requirements for all FIs to assess ML/TF risks prior to the launch or use of new products, business practices, or delivery mechanisms or to manage such risks. - 16. Wire transfers — PC - Lack of requirements for ordering institutions to include beneficiary information in the transfer or to maintain such information. - Lack of requirements for intermediary or beneficiary institutions to have procedures to determine when to exert, reject, or suspend a wire transfer lacking the required originator or beneficiary information. - Lack of requirement to identity occasional customers who transfer Mexican pesos. - 17. Reliance on third parties — PC - Lack of requirements for all FIs to report on the countries a third party may be based. - Lack of comprehensive requirements for relying FI to ensure the third party has measures for, is regulated, and supervised for compliance with R.10 and 11. - 18. Internal controls and foreign branches and subsidiaries — PC - Lack of requirements for financial groups to implement group-wide AML/CFT program. - 19. Higher-risk countries — LC - The Mexican authorities’ ability to apply countermeasures proportionate to the risks beyond systematic reporting cannot be established. - 20. Reporting of suspicious transaction — PC - For most FIs, the timeframe for “unusual transactions” does not satisfy the requirement to report promptly while the 24-hour reporting obligation requires a higher certainty than suspicion. - For OFSPs, the reporting obligations are not set out in the law, do not cover TF or attempted transactions, and are subject to a threshold. - 21. Tipping-off and confidentiality — LC - For most FIs, the protection of their directors, officers, and employees from any liability that may arise from violation of confidentiality for complying with AML/CFT requirements is not set out in law. - 22. DNFBPs: Customer due diligence — PC - There are no requirements to perform CDD in cases when there is a suspicion of ML/TF or when there are doubts about the veracity or adequacy of previously obtained data, except when there are doubts whether the customer acts on behalf of another person. - In case of establishing a business relationship, there is no requirement to understand its purpose and intended nature. - There is no requirement to scrutinize transactions in order to ensure that they are in line with the customer’s profile. - There is no requirement to understand the ownership and control structure of a customer which is a legal person or a legal arrangement. - There is no requirement to obtain information on the persons having a senior management position. - There is no requirement to obtain information on the address of the trustee of a legal arrangement. - There are no specific requirements to identify the settlor, the protector, the beneficiaries, or class of beneficiaries in case of legal arrangements. - There are no requirements to perform enhanced CDD in higher-risk situations. - There is no requirement to consider making an STR if a customer refuses to provide CDD information. - There are no provisions that would permit DNFBPs not to pursue CDD process in case they reasonably believe this will tip off the customer. - There is no explicit requirement to keep records of transactions. - There are no requirements to keep business correspondence or results of any analysis undertaken. - There is no explicit requirement for transaction records to be sufficient to permit reconstruction of individual transactions, except for casinos. - There are no requirements for DNFBPs in relation to PEPs. - There are no requirements for DNFBPs to identify and assess the ML/TF risks posed by new products or technologies. - Requirements with regard to third-party reliance fall short of the standard. - 23. DNFBPs: Other measures — NC - The obligation for reporting falls short of the standard, since (i) the obligation is not set out in law; (ii) there is a monetary threshold (not a deficiency with regard to dealers in precious metals and stones); (iii) there is no obligation to report transactions that are related to TF; and (iv) the reporting obligation is based on “a fact or evidence” which goes beyond suspicion. - There are no requirements to have screening procedures for hiring employees, to have ongoing employee training program, or to establish an independent audit function system. - There is no requirement to implement group-wide programs against ML/TF for those DNFBPs that are part of a business group. - There are no requirements for foreign branches of DNFBPs to ensure compliance with AML/CFT requirements of the home country. - There are no requirements concerning high-risk countries. - 24. Transparency and BO of legal persons — PC - The NRA does not give a coherent view with regard to the risks of misuse of legal persons and arrangements and does not represent the risk perception by all competent authorities. - There are no requirements to record the name, proof of incorporation, address, basic regulating powers, and list of directors for associations, unions, and professional associations. - Basic information on certain non-commercial legal persons (namely, unions, professional associations, and others similar organizations) is not publicly available. - There is no requirement to maintain the basic information for unions, professional associations, and other associations. - There are no obligations for cooperative companies, unions, associations, and foreign legal persons to maintain a register of their members/shareholders. - There is no explicit requirement to ensure that the basic information is accurate and updated on a timely basis. - There is no general obligation for all companies to obtain and hold BO information and keep it up to date. - There are no specific provisions requiring companies to cooperate with competent authorities in determining the beneficial owner. - There are no requirements to maintain the information and records for at least five years after the date on which the company is dissolved or otherwise ceases to exist, except for corporations and companies. - In cases when the BO information is available, timely access to it cannot be ensured. - There are no specific sanctions foreseen for failure to comply with the requirements to maintain and update a register of shareholders or members. - There are no specific provisions concerning the exchange of information on shareholders for the purposes of international cooperation. - Mexico does not monitor the quality of assistance it receives from other countries in response to requests for basic and BO information or requests for assistance in locating beneficial owners residing abroad. - 25. Transparency and BO of legal arrangements — LC - The deficiencies in the CDD and record-keeping requirements for FIs (see R.10 and 11) have a negative impact on compliance also when FIs act as trustees in legal arrangements. - Mexican competent authorities can facilitate access to the registries of legal arrangements (RFC and RPPC) to foreign competent authorities only for tax purposes. - Sanctions for failure to grant to competent authorities timely access to information regarding trusts do not appear to be proportionate and dissuasive. - 26. Regulation and supervision of financial institutions — LC - No powers to vet owners and managers of issuers of traveler’s checks, credit cards and stored-value cards, and providers of safe custody services. - Operational independence of supervisory authorities constrained. - The CNBV has no legal authority to supervise FIs within “mixed groups” on consolidated basis. - Uncertainty about supervisory framework for limited number of FIs supervised by the SAT. - 27. Powers of supervisors — LC - The CNBV does not have power to revoke banking license for AML/CFT failures. - The SAT can only apply financial penalties to issuers of traveler’s checks, credit cards and stored-value cards, and providers of safe custody services. - 28. Regulation and supervision of DNFBPs — PC - There are no requirements for competent authorities to prevent associates of criminals from holding (or being the beneficial owner of) a significant or controlling interest, or holding a management function, or being an operator of a casino. - The powers of the supervisors are limited to the review of those transactions that have been conducted within five-year period prior to the onsite visit. - There are no specific measures to prevent criminals or their associates from being professionally accredited or holding a significant or controlling interest in DNFBPs (except for casinos and public brokers). - Sanctions available for supervisors to deal with failure to comply with AML/CFT requirements do not appear to be proportionate and dissuasive. - There are no provisions that supervision should be performed on a risk-sensitive basis. - 29. Financial intelligence units — C - The Recommendation is fully observed. - 30. Responsibilities of law enforcement and investigative authorities — LC - The coordination mechanisms between the authorities with power to investigate and prosecute ML should be improved. - 31. Powers of law enforcement and investigative authorities — LC - The main shortcomings relate to special investigation techniques, particularly controlled deliveries. The actual use and application of these techniques seems to be limited to offenses committed by organized crime groups, and there is no legal basis governing the implementation of controlled deliveries. - 32. Cash couriers — PC - It is not an offense to make a false declaration. - There is no clear procedure by the customs to deal with cross-border transportation of money related to TF. - The customs do not have the power to request information about the origin and the intended use of cash and BNIs. - 33. Statistics — PC - Mexico does not ensure consistency of statistics between institutions. ML investigations, prosecutions, convicted persons, and sanctions are available at a federal level, but not at a state level. - The country does not collect information on amounts or property confiscated or forfeited at subnational level and in relation to main predicate offenses. - The country does not have a case management system that enables to process requests and monitor them regularly. - 34. Guidance and feedback — LC - The CNSF, the CONSAR, and the SAT provide little direct guidance on general AML/CFT issues. - 35. Sanctions — LC - Maximum financial penalties are not proportionate and dissuasive for larger institutions. - 36. International instruments — LC - The deficiencies identified in R.5 and 31 have a negative impact (criminal liability for legal persons is not enshrined in the CPF and no provision is made for controlled deliveries). - 37. Mutual legal assistance — PC - There is no case management system for the implementation and follow-up of MLA requests or clear criteria for the prioritization of MLA requests. - 38. Mutual legal assistance: Freezing and confiscation — PC - The deficiencies identified in R.37 have a negative impact on this recommendation. - National provisions do not establish any deadline by which requests to identify, freeze, seize, and confiscate assets must be implemented. - 39. Extradition — LC - There is no established case management system or clear protocols for the prioritization of extradition cases. - 40. Other forms of international cooperation — LC - There are no statutory provisions governing the implementation of controlled deliveries and joint investigation teams at the national level. - No information is exchanged where it forms part of ongoing proceedings or an ongoing investigation, independently of whether or not it might impede such proceedings or investigation. *Annex II. Summary of Technical Compliance—Key Deficiencies (cr17405-mexicodar - Annex II. Summary of Technical Compliance—Key Deficiencies)* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17405-mexicodar.pdf_