## 1. Based on the information provided in the NRA and other open source documents,

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---

### Overview of ML/TF risk
- The amount of proceeds generated by predicate crimes committed in and outside of Mexico is high.
- Main domestic proceeds-generating crimes divided into three tiers of magnitude:
  - (i) domestic organized crimes, including drugs and human trafficking,
  - (ii) corruption,
  - (iii) tax evasion.
- Additional risks from laundering of proceeds derived from foreign predicate crimes mostly 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 beneficial ownership (BO),
  - purchase and sale of real estate and high-value goods,
  - cash smuggling across the U.S.–Mexico border.
- High cash usage and a relatively large informal economy increase rechanneling risk into the regulated formal economy.
- Bank of Mexico analysis: restrictions on FIs receiving cash in U.S. dollars resulted in a significant decrease in volume of U.S. dollars cash-in and cash-out; 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,” though some cases have been detected.

### Findings on compliance and effectiveness (summary)
- Mexico’s AML/CFT regime has significantly improved since the 2008 assessment.
- Principal ML risk remains high from organized crime activities (drug trafficking, extortion), corruption, and tax evasion.
- Legal and institutional framework is strong for criminalization of ML and TF, and for financial intelligence; weaknesses persist in:
  - identification of beneficial owners,
  - suspicious transaction reporting,
  - regulation and supervision of DNFBPs,
  - entity transparency.
- Effectiveness: substantial results in understanding and combating risks, TFS, and international cooperation; deficiencies remain in investigation and prosecution of ML, and in confiscation.

### A. Assessment of Risk, Coordination, and Policy Setting
- NRA concluded in June 2016 with involvement of all competent authorities and private sector; developed with Inter-American Development Bank assistance and FATF guidance.
- NRA uses qualitative and quantitative data from LEAs, civil/military/navy intelligence, and supervisory information; analysis relies more on FIU information than on law enforcement information.
- NRA acknowledged widespread use of front companies but did not adequately reflect vulnerability from absence of readily available and accurate BO information nor assess risks by legal person type.
- FIU, LEAs, and SAT have independently analyzed higher-risk companies for misuse in ML/tax evasion transactions.
- Mexico developing a national strategy based on NRA findings; two high-level groups of officials created in November 2016 for coordinated AML/CFT policy and actions.
- Government actions taken: new AML/CFT regulations, improved inter-agency coordination, feedback to FIs and DNFBPs; actions have not been sufficiently comprehensive or prioritized to ensure appropriate resource allocation at federal, state, and community levels.
- Implementation concerns due to lack of capacity (e.g., SAT) and high turnover of senior officials.
- Coordination: generally good between FIU, PGR, and supervisors; less so between LEAs and PGR; TF coordination less developed.
- No sectors exempted from AML/CFT requirements; authorities added some vulnerable activities beyond the standard (e.g., car dealers).
- Financial sector closely involved in NRA development and results dissemination; DNFBP involvement was more limited.

### B. Financial Intelligence, and ML Investigations, Prosecutions and Confiscation
- Competent authorities at federal, state, and local levels regularly receive a wide range of FIU-provided or maintained financial intelligence.
- FIU produces good operational and high quality strategic analyses, has resources and skills to collect and use varied intelligence, and several competent authorities have direct access to the FIU database.
- Financial intelligence is not regularly used to support ML/TF investigations and trace assets; FIU spontaneous disseminations to PGR related to ML and underlying offenses are generally low.
- Factors impeding ML investigations and asset identification/tracing:
  - lack of reporting by DNFBPs,
  - delays in FIU disseminations,
  - deficiencies in cash couriers' regime,
  - lack of BO information at federal and state levels,
  - lack of skills in PGR and LEAs.
- Institutional/legal framework exists to investigate ML and predicate offenses; greater priority is given to predicate offenses than to ML.
- Two specialized units established within PGR to undertake ML investigations at the federal level; no equivalent at the state level. Multiplicity of units creates coordination difficulties.
- Financial and human resources (including specialized training) for ML units appear insufficient given low numbers of investigations, prosecutions, and convictions.
- Corruption affecting LEAs, particularly at state level, undermines capacity to investigate and prosecute serious offenses.
- Low conviction rate reflects deficiencies in initiation and conduct of investigations (e.g., investigations opened without sufficient reasonable grounds; deficiencies in investigation methodology and financial investigation; overly long procedures; lack of internal coordination).
- Parallel ML investigations rarely conducted when investigating main predicate offenses.
- Proceeds and instrumentalities of crime are rarely confiscated and confiscation is not pursued as a policy objective.
- FIU has attempted to improve timeliness of provisional measures via the BPL system.
- Technical deficiencies in the cross-border declaration system impair effective targeting and confiscation of falsely declared cross-border currency movements.
- Number of confiscations is very low given Mexico’s risk profile.

### C. Terrorist Financing and Financing Proliferation
- Authorities and private sector classify TF risks as “low-medium”; main focus is on STRs from FIs involving high-risk jurisdictions.
- Institutional framework to investigate and prosecute TF exists, including ad hoc unit UEITA (Specialized Unit on Terrorism, Arms Stockpiling, and Trafficking).
- UEITA lacks protocols or manuals for clear identification and prioritization of potential TF cases; investigations appear to be based on intelligence and rarely proceed to initiation of criminal investigations.
- Absence of TF cases results in lack of experience within prosecution body, diminishing UEITA’s capacity to identify and investigate TF cases using criminal procedure techniques.
- 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 demonstrate understanding of freezing and reporting obligations; system to detect, freeze, and report assets related to ML (same system used for TFS) appears effective though no positive matches for TF or PF have ever been identified.
- Weak supervision of DNFBPs raises concerns about compliance in the non-financial sector; BO deficiencies may impact detection of potential sanctions evasion.
- Mexico has not yet implemented a risk-based system for targeted monitoring of the NPO sector; authorities have conducted a revised risk assessment and are reviewing NPO regulations.

### D. Preventive Measures
- Financial sector, especially core FIs, demonstrates good understanding of primary ML threats from organized crime groups and associated criminal activities; 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); their understanding of TF risks is also less developed.
- FIs and most DNFBPs generally understand AML/CFT obligations (CDD, record keeping, reporting); basic CDD and record keeping quality for FIs is generally good but impacted by technical deficiencies.
- Lawyers and accountants have a lower level of awareness of AML/CFT obligations; professionals (lawyers and accountants) have not filed a single STR in the past three years.
- Beneficial owners are being identified only to a limited extent due largely to shortcomings in the legal framework. FIs seek BO identification in limited circumstances and unduly rely on customers’ self-declaration where identification is required.
- For the majority of legal persons not categorized as high risk, FIs 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.
- Risk categorization methodologies applied by core FIs 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.
- Quality of STRs has generally improved but concerns remain about substance, timeliness, and low reporting by DNFBPs.
- The basis of reporting obligations is somewhat blurred between suspicious and unusual, possibly contributing to cross-sector concerns about analysis adequacy.
- UTR/STR reporting by large FIs is not always prompt.
- Authorities have promulgated amendments to regulations claimed to address BO gaps for FIs; these were not in effect at the time of the onsite visit.

### E. Supervision
- Financial sector supervisors understand sectoral risks and have developed sound models to differentiate risks between institutions.
- DNFBP supervision is less clear; SAT’s appreciation of DNFBP risk is not fully developed and the number of entities SAT is responsible for poses a material challenge.
- Financial supervisors have adopted risk-based approaches for annual onsite inspections and are increasingly identifying key risk areas.
- SAT employs an AML risk model but is significantly under-resourced and inspected fewer than 0.2 percent of the entities for which it is responsible within the last three years.
- SAT has no authority to monitor for CFT compliance.
- Sanctions are not applied in an effective, proportionate, and dissuasive manner; system geared towards financial penalties for non-compliance with specific obligations.
- Time lag in final resolution with institutions resulted in majority of sanctions applied up to end-2016 being based on pre-2014 provisions with extremely low penalties.
- Current legislation potentially provides for more stringent penalties; effectiveness and dissuasiveness for larger institutions remain to be judged in due course.
- Supervisors, often in cooperation with FIU, have conducted outreach that improved understanding among regulated sectors.
- Outreach to DNFBPs has been undertaken virtually entirely by the FIU rather than SAT, focusing primarily on reporting obligations, NRA results, typologies, and red flag indicators.

### F. Transparency of Legal Persons and Arrangements
- Types, forms, and basic features of legal persons and arrangements are defined in Mexican law and creation processes are described on official government websites (publicly accessible).
- NRA does not specifically differentiate risks by legal person type, though it notes widespread use of front companies.
- LEAs, FIU, and SAT have good understanding of risks related to misuse of legal persons and arrangements for criminal purposes.
- Most widespread phenomenon: 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 in Mexico, the U.S., or other foreign jurisdictions.
- Not insignificant risk exists for misuse of fideicomisos (trusts); all fideicomisos must be registered in one way or another.
- Measures in place to provide safeguards:
  - bearer shares, nominee shares, and nominee directors are not allowed,
  - formation of all types of legal persons (one exception) must be conducted through public notaries or public brokers subject to AML/CFT obligations (CDD, record-keeping, immediate reporting to FIU),
  - fideicomiso trustees can only be FIs subject to full AML/CFT obligations,
  - all fideicomisos must be registered either in Registro Federal de Contribuyentes (RFC), Trust Control and Transparency System, or Information Department of the Financial System of the Bank of Mexico.
- These measures are effective only to a limited extent in addressing misuse risks of legal persons and arrangements.

### Share transfers, registers, and timeliness of ownership information
- 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.
- Impact:
  - This regime "impacts the ability of competent authorities to obtain up-to-date information even on the most basic information regarding the legal ownership of companies in a timely manner."
- Single federal registers:
  - 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 with backlogs of companies created before September 2016 that have not yet been entered into the single federal registers: Michoacán, Nuevo Léon, San Luis Potosi, Sinaloa, Tamaulipas, and Ciudad de México.
  - 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, beneficial ownership (BO) identification, and enforcement
- Compliance and accuracy concerns:
  - The level of compliance with BO obligations among notaries remains weak.
  - Notaries are the central element in ensuring the accuracy and authenticity of the information that is submitted in the federal registers; weak compliance raises questions regarding the accuracy of that information.
- Practical consequences:
  - To identify BO, authorities often have to rely on investigative techniques or international assistance, which are time-consuming and therefore do not ensure timely access to BO information.
- Sanctions and registers:
  - There are no specific sanctions foreseen for failure to maintain a register of shareholders or members and update it accordingly (for legal persons).
  - Any act that is not registered in the books of the legal entity will not have legal validity.
  - Sanctions that are available with regard to notaries and the financial institutions that act in the trustee capacity are not applied effectively.

### International cooperation and mutual legal assistance (MLA)
- Legal/institutional framework:
  - 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 limitations:
  - Mexico has decided as a policy matter to strengthen and favor other forms of cooperation while only pursuing MLA “when strictly necessary.”
  - Effectiveness of MLA is hampered by:
    - the lack of specific guidelines for prioritizing foreign requests;
    - the lack of legal provisions governing controlled deliveries and joint investigation teams.
  - When 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.

### Priority actions (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; to that end Mexico should 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, including by:
  - (i) deepening the NRA analysis of corruption as a ML threat;
  - (ii) requiring entities to determine whether a beneficial owner is a PEP and apply controls in line with the standard;
  - (iii) extending the requirements on PEPs to DNFBPs; and
  - (iv) providing guidance on assessing and managing risks associated with domestic PEPs.
- Strengthen measures on BO by:
  - (i) 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;
  - (ii) 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;
  - (iii) discouraging the undue reliance on customers’ self-declarations; and
  - (iv) 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 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.
- 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. Finally, the PGR should take a more proactive approach to ML investigations that have a transnational dimension.

### Compliance and effectiveness ratings (as presented)
- Compliance Ratings
  - R.1 R.2 R.3 R.4 R.5 R.6 R.7 R.8 R.9 R.10
    - LC LC C LC LC C C PC C PC
  - R.11 R.12 R.13 R.14 R.15 R.16 R.17 R.18 R.19 R.20
    - LC PC LC LC PC PC PC PC LC PC
  - R.21 R.22 R.23 R.24 R.25 R.26 R.27 R.28 R.29 R.30
    - LC PC NC PC LC LC LC PC C LC
  - R.31 R.32 R.33 R.34 R.35 R.36 R.37 R.38 R.39 R.40
    - LC PC PC LC LC LC PC PC LC LC
- Effectiveness Ratings
  - IO.1 IO.2 IO.3 IO.4 IO.5 IO.6 IO.7 IO.8 IO.9 IO.10 IO.11
    - Sub. Sub. Mod. Low Mod. Mod. Low Low Mod. Sub. Sub.

### Authorities’ response — recent legal and regulatory amendments
- General:
  - Before and during the Mutual Evaluation process of Mexico, Mexican authorities had been working on amendments to the AML/CFT preventive framework to address identified deficiencies, even when they came into force after the onsite visit was carried out.
- STR reporting and BO identification (paragraph 6):
  - Improvements have been made on STR reporting and the identification of beneficial owners.
  - Regarding Recommendation 20 (Reporting of Suspicious Transactions), the revised version of the AML/CFT General Rules issued by the Ministry of Finance and Public Credit (SHCP) states that STRs will be submitted within the three business days counted from the conclusion of the Committee that establishes such transaction as unusual/suspicious (with the referred 60 days for the Committee to carry out the session), being able to submit it as soon as possible.
  - The period established in the AML/CFT General Rules to submit an STR is in accordance with (i) the time it has to be ruled as a suspicious transaction by the Committee (the superior body of an FI which one of its main powers is to approve important matters in accordance with international standards); and (ii) the international context.
  - By the time of the amendments made to the AML/CFT General Rules, FATF had not defined the meaning of “promptly” (i.e., a specified period had not been established). As soon as FATF defines what “promptly” means, the Mexican AML/CFT framework will be in a position to be amended, in case it is needed in order to be in line with the FATF’s definition on this matter.
  - Regarding the identification of the beneficial owner (BO) shortcoming on paragraph 6, through the latest amendments to the AML/CFT preventive framework, the BO identification regime of legal persons and other legal structures was strengthened, since the definition of BO was broadened and a continuous updating of customer identification files was required, regardless of their risk level, which significantly contributes to a better and more expeditious identification of the BO by FIs.
- CDD measures and Risk Based Approach (paragraph 23 and paragraph 25):
  - As a result of the latest financial reform from February 24, 2017, which is currently fully in force, some technical shortcomings have been addressed.
  - AML/CFT General Provisions for each sector were amended and a new chapter on Risk Based Approach was added.
  - New obligations for FIs to establish a methodology and to perform a risk assessment for each of its supervised entities were implemented. This risk methodology also addresses the deficiency on domestic PEPs on paragraph 25.
  - Existing FIs customer identification policy shall be based on the customer’s risk level so that when the risk level is higher, FIs must obtain additional information about their main activity, as well as perform an enhanced supervision of their transactional behavior.

*International Monetary Fund — Extracted content from the specified chapter/section*

### 1. Based on the information provided in the NRA and other open source documents,

### 1. Based on the information provided in the NRA and other open source documents,

### Overview of ML/TF risk
- The amount of proceeds generated by predicate crimes committed in and outside of Mexico is high.
- Main domestic proceeds-generating crimes divided into three tiers of magnitude:
  - (i) domestic organized crimes, including drugs and human trafficking,
  - (ii) corruption,
  - (iii) tax evasion.
- Additional risks from laundering of proceeds derived from foreign predicate crimes mostly 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 beneficial ownership (BO),
  - purchase and sale of real estate and high-value goods,
  - cash smuggling across the U.S.–Mexico border.
- High cash usage and a relatively large informal economy increase rechanneling risk into the regulated formal economy.
- Bank of Mexico analysis: restrictions on FIs receiving cash in U.S. dollars resulted in a significant decrease in volume of U.S. dollars cash-in and cash-out; 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,” though some cases have been detected.

### Findings on compliance and effectiveness (summary)
- Mexico’s AML/CFT regime has significantly improved since the 2008 assessment.
- Principal ML risk remains high from organized crime activities (drug trafficking, extortion), corruption, and tax evasion.
- Legal and institutional framework is strong for criminalization of ML and TF, and for financial intelligence; weaknesses persist in:
  - identification of beneficial owners,
  - suspicious transaction reporting,
  - regulation and supervision of DNFBPs,
  - entity transparency.
- Effectiveness: substantial results in understanding and combating risks, TFS, and international cooperation; deficiencies remain in investigation and prosecution of ML, and in confiscation.

### A. Assessment of Risk, Coordination, and Policy Setting
- NRA concluded in June 2016 with involvement of all competent authorities and private sector; developed with Inter-American Development Bank assistance and FATF guidance.
- NRA uses qualitative and quantitative data from LEAs, civil/military/navy intelligence, and supervisory information; analysis relies more on FIU information than on law enforcement information.
- NRA acknowledged widespread use of front companies but did not adequately reflect vulnerability from absence of readily available and accurate BO information nor assess risks by legal person type.
- FIU, LEAs, and SAT have independently analyzed higher-risk companies for misuse in ML/tax evasion transactions.
- Mexico developing a national strategy based on NRA findings; two high-level groups of officials created in November 2016 for coordinated AML/CFT policy and actions.
- Government actions taken: new AML/CFT regulations, improved inter-agency coordination, feedback to FIs and DNFBPs; actions have not been sufficiently comprehensive or prioritized to ensure appropriate resource allocation at federal, state, and community levels.
- Implementation concerns due to lack of capacity (e.g., SAT) and high turnover of senior officials.
- Coordination: generally good between FIU, PGR, and supervisors; less so between LEAs and PGR; TF coordination less developed.
- No sectors exempted from AML/CFT requirements; authorities added some vulnerable activities beyond the standard (e.g., car dealers).
- Financial sector closely involved in NRA development and results dissemination; DNFBP involvement was more limited.

### B. Financial Intelligence, and ML Investigations, Prosecutions and Confiscation
- Competent authorities at federal, state, and local levels regularly receive a wide range of FIU-provided or maintained financial intelligence.
- FIU produces good operational and high quality strategic analyses, has resources and skills to collect and use varied intelligence, and several competent authorities have direct access to the FIU database.
- Financial intelligence is not regularly used to support ML/TF investigations and trace assets; FIU spontaneous disseminations to PGR related to ML and underlying offenses are generally low.
- Factors impeding ML investigations and asset identification/tracing:
  - lack of reporting by DNFBPs,
  - delays in FIU disseminations,
  - deficiencies in cash couriers' regime,
  - lack of BO information at federal and state levels,
  - lack of skills in PGR and LEAs.
- Institutional/legal framework exists to investigate ML and predicate offenses; greater priority is given to predicate offenses than to ML.
- Two specialized units established within PGR to undertake ML investigations at the federal level; no equivalent at the state level. Multiplicity of units creates coordination difficulties.
- Financial and human resources (including specialized training) for ML units appear insufficient given low numbers of investigations, prosecutions, and convictions.
- Corruption affecting LEAs, particularly at state level, undermines capacity to investigate and prosecute serious offenses.
- Low conviction rate reflects deficiencies in initiation and conduct of investigations (e.g., investigations opened without sufficient reasonable grounds; deficiencies in investigation methodology and financial investigation; overly long procedures; lack of internal coordination).
- Parallel ML investigations rarely conducted when investigating main predicate offenses.
- Proceeds and instrumentalities of crime are rarely confiscated and confiscation is not pursued as a policy objective.
- FIU has attempted to improve timeliness of provisional measures via the BPL system.
- Technical deficiencies in the cross-border declaration system impair effective targeting and confiscation of falsely declared cross-border currency movements.
- Number of confiscations is very low given Mexico’s risk profile.

### C. Terrorist Financing and Financing Proliferation
- Authorities and private sector classify TF risks as “low-medium”; main focus is on STRs from FIs involving high-risk jurisdictions.
- Institutional framework to investigate and prosecute TF exists, including ad hoc unit UEITA (Specialized Unit on Terrorism, Arms Stockpiling, and Trafficking).
- UEITA lacks protocols or manuals for clear identification and prioritization of potential TF cases; investigations appear to be based on intelligence and rarely proceed to initiation of criminal investigations.
- Absence of TF cases results in lack of experience within prosecution body, diminishing UEITA’s capacity to identify and investigate TF cases using criminal procedure techniques.
- 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 demonstrate understanding of freezing and reporting obligations; system to detect, freeze, and report assets related to ML (same system used for TFS) appears effective though no positive matches for TF or PF have ever been identified.
- Weak supervision of DNFBPs raises concerns about compliance in the non-financial sector; BO deficiencies may impact detection of potential sanctions evasion.
- Mexico has not yet implemented a risk-based system for targeted monitoring of the NPO sector; authorities have conducted a revised risk assessment and are reviewing NPO regulations.

### D. Preventive Measures
- Financial sector, especially core FIs, demonstrates good understanding of primary ML threats from organized crime groups and associated criminal activities; 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); their understanding of TF risks is also less developed.
- FIs and most DNFBPs generally understand AML/CFT obligations (CDD, record keeping, reporting); basic CDD and record keeping quality for FIs is generally good but impacted by technical deficiencies.
- Lawyers and accountants have a lower level of awareness of AML/CFT obligations; professionals (lawyers and accountants) have not filed a single STR in the past three years.
- Beneficial owners are being identified only to a limited extent due largely to shortcomings in the legal framework. FIs seek BO identification in limited circumstances and unduly rely on customers’ self-declaration where identification is required.
- For the majority of legal persons not categorized as high risk, FIs 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.
- Risk categorization methodologies applied by core FIs 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.
- Quality of STRs has generally improved but concerns remain about substance, timeliness, and low reporting by DNFBPs.
- The basis of reporting obligations is somewhat blurred between suspicious and unusual, possibly contributing to cross-sector concerns about analysis adequacy.
- UTR/STR reporting by large FIs is not always prompt.
- Authorities have promulgated amendments to regulations claimed to address BO gaps for FIs; these were not in effect at the time of the onsite visit.

### E. Supervision
- Financial sector supervisors understand sectoral risks and have developed sound models to differentiate risks between institutions.
- DNFBP supervision is less clear; SAT’s appreciation of DNFBP risk is not fully developed and the number of entities SAT is responsible for poses a material challenge.
- Financial supervisors have adopted risk-based approaches for annual onsite inspections and are increasingly identifying key risk areas.
- SAT employs an AML risk model but is significantly under-resourced and inspected fewer than 0.2 percent of the entities for which it is responsible within the last three years.
- SAT has no authority to monitor for CFT compliance.
- Sanctions are not applied in an effective, proportionate, and dissuasive manner; system geared towards financial penalties for non-compliance with specific obligations.
- Time lag in final resolution with institutions resulted in majority of sanctions applied up to end-2016 being based on pre-2014 provisions with extremely low penalties.
- Current legislation potentially provides for more stringent penalties; effectiveness and dissuasiveness for larger institutions remain to be judged in due course.
- Supervisors, often in cooperation with FIU, have conducted outreach that improved understanding among regulated sectors.
- Outreach to DNFBPs has been undertaken virtually entirely by the FIU rather than SAT, focusing primarily on reporting obligations, NRA results, typologies, and red flag indicators.

### F. Transparency of Legal Persons and Arrangements
- Types, forms, and basic features of legal persons and arrangements are defined in Mexican law and creation processes are described on official government websites (publicly accessible).
- NRA does not specifically differentiate risks by legal person type, though it notes widespread use of front companies.
- LEAs, FIU, and SAT have good understanding of risks related to misuse of legal persons and arrangements for criminal purposes.
- Most widespread phenomenon: 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 in Mexico, the U.S., or other foreign jurisdictions.
- Not insignificant risk exists for misuse of fideicomisos (trusts); all fideicomisos must be registered in one way or another.
- Measures in place to provide safeguards:
  - bearer shares, nominee shares, and nominee directors are not allowed,
  - formation of all types of legal persons (one exception) must be conducted through public notaries or public brokers subject to AML/CFT obligations (CDD, record-keeping, immediate reporting to FIU),
  - fideicomiso trustees can only be FIs subject to full AML/CFT obligations,
  - all fideicomisos must be registered either in Registro Federal de Contribuyentes (RFC), Trust Control and Transparency System, or Information Department of the Financial System of the Bank of Mexico.
- These measures are effective only to a limited extent in addressing misuse risks of legal persons and arrangements.

*International Monetary Fund — Extracted content from the specified chapter/section*

### 34. There is no obligation to involve a notary when transferring shares in the company if

### 34. There is no obligation to involve a notary when transferring shares in the company if

### Share transfers, registers, and timeliness of ownership information
- 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.
- Impact:
  - This regime "impacts the ability of competent authorities to obtain up-to-date information even on the most basic information regarding the legal ownership of companies in a timely manner."
- Single federal registers:
  - 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 with backlogs of companies created before September 2016 that have not yet been entered into the single federal registers: Michoacán, Nuevo Léon, San Luis Potosi, Sinaloa, Tamaulipas, and Ciudad de México.
  - 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, beneficial ownership (BO) identification, and enforcement
- Compliance and accuracy concerns:
  - The level of compliance with BO obligations among notaries remains weak.
  - Notaries are the central element in ensuring the accuracy and authenticity of the information that is submitted in the federal registers; weak compliance raises questions regarding the accuracy of that information.
- Practical consequences:
  - To identify BO, authorities often have to rely on investigative techniques or international assistance, which are time-consuming and therefore do not ensure timely access to BO information.
- Sanctions and registers:
  - There are no specific sanctions foreseen for failure to maintain a register of shareholders or members and update it accordingly (for legal persons).
  - Any act that is not registered in the books of the legal entity will not have legal validity.
  - Sanctions that are available with regard to notaries and the financial institutions that act in the trustee capacity are not applied effectively.

### International cooperation and mutual legal assistance (MLA)
- Legal/institutional framework:
  - 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 limitations:
  - Mexico has decided as a policy matter to strengthen and favor other forms of cooperation while only pursuing MLA “when strictly necessary.”
  - Effectiveness of MLA is hampered by:
    - the lack of specific guidelines for prioritizing foreign requests;
    - the lack of legal provisions governing controlled deliveries and joint investigation teams.
  - When 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.

### Priority actions (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; to that end Mexico should 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, including by:
  - (i) deepening the NRA analysis of corruption as a ML threat;
  - (ii) requiring entities to determine whether a beneficial owner is a PEP and apply controls in line with the standard;
  - (iii) extending the requirements on PEPs to DNFBPs; and
  - (iv) providing guidance on assessing and managing risks associated with domestic PEPs.
- Strengthen measures on BO by:
  - (i) 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;
  - (ii) 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;
  - (iii) discouraging the undue reliance on customers’ self-declarations; and
  - (iv) 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 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.
- 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. Finally, the PGR should take a more proactive approach to ML investigations that have a transnational dimension.

### Compliance and effectiveness ratings (as presented)
- Compliance Ratings
  - R.1 R.2 R.3 R.4 R.5 R.6 R.7 R.8 R.9 R.10
    - LC LC C LC LC C C PC C PC
  - R.11 R.12 R.13 R.14 R.15 R.16 R.17 R.18 R.19 R.20
    - LC PC LC LC PC PC PC PC LC PC
  - R.21 R.22 R.23 R.24 R.25 R.26 R.27 R.28 R.29 R.30
    - LC PC NC PC LC LC LC PC C LC
  - R.31 R.32 R.33 R.34 R.35 R.36 R.37 R.38 R.39 R.40
    - LC PC PC LC LC LC PC PC LC LC
- Effectiveness Ratings
  - IO.1 IO.2 IO.3 IO.4 IO.5 IO.6 IO.7 IO.8 IO.9 IO.10 IO.11
    - Sub. Sub. Mod. Low Mod. Mod. Low Low Mod. Sub. Sub.

### Authorities’ response — recent legal and regulatory amendments
- General:
  - Before and during the Mutual Evaluation process of Mexico, Mexican authorities had been working on amendments to the AML/CFT preventive framework to address identified deficiencies, even when they came into force after the onsite visit was carried out.
- STR reporting and BO identification (paragraph 6):
  - Improvements have been made on STR reporting and the identification of beneficial owners.
  - Regarding Recommendation 20 (Reporting of Suspicious Transactions), the revised version of the AML/CFT General Rules issued by the Ministry of Finance and Public Credit (SHCP) states that STRs will be submitted within the three business days counted from the conclusion of the Committee that establishes such transaction as unusual/suspicious (with the referred 60 days for the Committee to carry out the session), being able to submit it as soon as possible.
  - The period established in the AML/CFT General Rules to submit an STR is in accordance with (i) the time it has to be ruled as a suspicious transaction by the Committee (the superior body of an FI which one of its main powers is to approve important matters in accordance with international standards); and (ii) the international context.
  - By the time of the amendments made to the AML/CFT General Rules, FATF had not defined the meaning of “promptly” (i.e., a specified period had not been established). As soon as FATF defines what “promptly” means, the Mexican AML/CFT framework will be in a position to be amended, in case it is needed in order to be in line with the FATF’s definition on this matter.
  - Regarding the identification of the beneficial owner (BO) shortcoming on paragraph 6, through the latest amendments to the AML/CFT preventive framework, the BO identification regime of legal persons and other legal structures was strengthened, since the definition of BO was broadened and a continuous updating of customer identification files was required, regardless of their risk level, which significantly contributes to a better and more expeditious identification of the BO by FIs.
- CDD measures and Risk Based Approach (paragraph 23 and paragraph 25):
  - As a result of the latest financial reform from February 24, 2017, which is currently fully in force, some technical shortcomings have been addressed.
  - AML/CFT General Provisions for each sector were amended and a new chapter on Risk Based Approach was added.
  - New obligations for FIs to establish a methodology and to perform a risk assessment for each of its supervised entities were implemented. This risk methodology also addresses the deficiency on domestic PEPs on paragraph 25.
  - Existing FIs customer identification policy shall be based on the customer’s risk level so that when the risk level is higher, FIs must obtain additional information about their main activity, as well as perform an enhanced supervision of their transactional behavior.

*MEXICO — INTERNATIONAL MONETARY FUND.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17406-mexicorosc.pdf_