Report on the Observance of Standards and Codes: FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism

This report examines Mexico’s observance of Standards and Codes on the Financial Action Task Force on Money Laundering's recommendations for antimoney laundering and combating the financing of terrorism. The Mexican government has instituted unprecedented measures to support law enforcement activities against organized crime and drug trafficking. The authorities have approved an Integral Strategy against Organized Crime, and various key national stakeholders have executed an interagency agreement entitled the National Agreement for Security, Justice, and Legality.


This report examines Mexico’s observance of Standards and Codes on the Financial Action Task Force on Money Laundering's recommendations for antimoney laundering and combating the financing of terrorism. The Mexican government has instituted unprecedented measures to support law enforcement activities against organized crime and drug trafficking. The authorities have approved an Integral Strategy against Organized Crime, and various key national stakeholders have executed an interagency agreement entitled the National Agreement for Security, Justice, and Legality.

A. Introduction

1. This Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations on Combating the Financing of Terrorism (CFT) was prepared by the Legal Department of the IMF1. The report provides a summary of the AML/CFT measures in place in Mexico and of the level of compliance with the FATF 40+9 Recommendations, and contains recommendations on how the AML/CFT system could be strengthened. The assessment is based on the information available at the time of the mission from January 14 through 30, 2008 and was conducted using the 2004 Assessment Methodology. The detailed assessment report (DAR) on which this document is based was adopted by the Financial Action Task Force on Money Laundering (FATF) on October 16, 2008 and by GAFISUD, the regional FATF-style body for South America. The views expressed here, as well as in the full assessment report, are those of the IMF assessment team and do not necessarily reflect the views of the Government of Mexico or the Executive Board of the IMF.

B. Key Findings

2. As has been the case in other countries, Mexico now faces an unprecedented threat to its national security and stability from drug trafficking and organized crime. Powerful drug cartels, resorting to extreme violence, have extended their activities across various parts of the country, and these activities pose significant challenges to the Government. This situation reflects the magnitude of financial and economic resources and power at the disposal of drug cartels and organized crime. The economic power of the criminal organizations helps them to continue operating and undermines good governance and the authority of the State.

3. In response, the Mexican government has instituted unprecedented measures to support law enforcement activities against organized crime and drug trafficking. The authorities have recently approved an “Integral Strategy Against Organized Crime” and various key national stakeholders have executed an interagency agreement entitled the “National Agreement for Security, Justice and Legality.” The Mexican authorities are also working to complete an AML/CFT National Strategy before the end of 2008.

4. There is strong political and institutional commitment to tackle crime and money laundering (ML) in Mexico. The authorities have taken a number of measures to counter the significant ML risks connected with drug trafficking, organized crime and related offenses, and they remain alert for any indication of terrorism or financing of terrorism (FT). The authorities perceive that the threat of terrorism financing in Mexico arises primarily from terrorist methods supported by organized crime, and from the proximity and close relation with other countries that face serious terrorism threats.

5. Overall, Mexico has made progress in developing its system for combating ML and FT since its last assessment by the FATF in 2004, but further work is needed to strengthen it. First, the laws criminalizing the ML and FT offenses are comprehensive but do not fully meet international standards, and there is scope to significantly improve their implementation. In particular, laws and procedures do not adequately provide for the freezing without delay of terrorist funds or other assets of persons designated in accordance with relevant United Nations Security Council resolutions (UNSCRs). Given the extent of drug trafficking, organized crime and other predicate criminal activities, the ML offenses are not being adequately investigated; the authorities have obtained only 25 convictions for ML since the criminalization of the ML offense in 1989. During the period 2004–2007, prosecutors secured 149 indictments for ML, but only two were related to financial intelligence reports produced by Mexico’s financial intelligence unit (FIU).

6. Coordination arrangements among the intelligence, investigation and prosecution agencies have been strengthened recently but need to be further developed as the new relationship evolves. The insufficient resources allocated to investigation units of the Deputy Attorney General’s Office for the Investigation of Organized Crime (SIEDO) have impeded Mexico’s capacity to conduct investigations and prosecutions of ML offenses in an effective manner. The structure and processes for case management by SIEDO also needs to be improved, and prosecutors and judges could also benefit from additional training on AML/CFT issues.

7. The FIU has made progress in developing its financial intelligence infrastructure and staff, and it has markedly improved its working relationship with the prosecutorial authorities at the Office of the Attorney General (PGR). The Tax Administration Service (SAT) and the FIU need to work together to ensure the full, timely and secure access to suspicious transaction reports (STRs) from exchange centers, money services businesses and certain other businesses. The FIU currently does not have direct access to criminal records due to legal constraints, except ex-post with respect to cases or subjects informed by the FIU to the PGR. The number of staff remains low relative to the large volume of reports it receives and the other activities assigned to it. However, to help it cope with the volume of STRs, the FIU has considered measures with reporting entities to reduce over-reporting and has adopted an automated “risk-based” system to filter cases that do not merit deeper analysis. As part of a restructuring of the FIU that is expected to conclude at the end 2009, the FIU has embarked upon a project to significantly increase its staff resources.

8. The AML/CFT preventive measures are comprehensive, contain risk-based elements, and are being implemented across all the principal sub-sectors of the financial system. Nonetheless, the AML/CFT regulations are still evolving, particularly for the non-deposit taking sectors, and they should be revised to add clarity and consistency. A key challenge is the lack of staff and resource capacity of the SAT to enforce registration requirements and conduct ongoing AML/CFT supervision of the very large number of foreign exchange centers and remittance operators. This challenge is being compounded by the increasing number of unregulated multi-purpose finance companies (SOFOMES) coming on stream, a product of deregulation of limited purpose finance companies (SOFOLES) that are engaged in, e.g., lending, leasing, and factoring. Notwithstanding these challenges, all of the supervisory authorities are implementing fairly comprehensive on-site AML/CFT supervision which is largely focused on regulatory compliance and which could benefit from the introduction of more risk-based processes.

9. There are no AML/CFT legal or regulatory measures, nor supervision, for any of the categories of FATF designated non-financial businesses and professions (DNFBPs)2, except for trust services which, by law, can be provided only by licensed financial institutions. The lack of measures with respect to the other categories of DNFBPs represents a significant gap in the AML/CFT regime. In addition, no review has been conducted of the domestic nonprofit organization (NPO) sector to support the adoption of measures to prevent the unlawful use of legal persons in relation to ML and FT.

10. Mexican authorities have been cooperating effectively with authorities from other countries, particularly in the area of mutual legal assistance and extradition involving ML and related crimes.

C. Legal Systems and Related Institutional Measures

11. The ML legislation applies to the proceeds of all crimes committed in Mexico and includes all of the designated categories of offenses under the FATF recommendations. The principal ML provisions are contained under Article 400-Bis of the Federal Criminal Code and complemented by the provisions in the Federal Law Against Organized Crime. The Federal Criminal Code applies more severe criminal sanctions for ML that is committed by members of a criminal organization.

12. Mexican law allows for the prosecution of persons who commit both the predicate offense and the ML offense (self-laundering). The offense of ML extends to any type of property, regardless of its value, that directly or indirectly represents the proceeds of a crime.

13. Criminal liability for ML or FT currently does not extend to legal persons but recently proposed legislation may allow for it. The law provides for administrative and civil sanctions against legal persons if a member or representative of a legal entity engages in criminal conduct in the name of, on behalf of, or for the benefit of the legal entity.

14. While the ML criminalization provisions are generally broad, there are a few technical deficiencies that could affect implementation. These include the lack of an explicit criminalization of the conducts of “concealment or disguise,” and the mere “possession or use of property regardless of the purpose”. Mexican criminal law provides a broad range of procedures and tools to attach and forfeit property. However, the legislation does not provide for the forfeiture of property “for the equivalent or corresponding value”. In addition, it makes no provision for preventing or voiding contracts or other acts in which the persons involved knew or should have known that as a result of those contracts or acts the authorities’ ability to recover property subject to forfeiture would be impaired. Mexico also has not implemented legislation or procedures to enable the freezing of terrorist funds or other assets without delay of persons designated in accordance with relevant UNSCRs.

15. The authorities are committed to increasing the number and significance of prosecutions and convictions for ML. Notwithstanding the 149 indictments for ML issued by the PGR since 2004, there have only been 30 judicial decisions, 25 of which resulted in convictions and five in acquittals. These figures are indicative of a lack of capacity at the judicial level and the need to strengthen evidence used by PGR to support its indictments. Moreover, most of these convictions resulted from uncomplicated investigations arising out of seizures of cash at the airports and borders where the defendants were unable to demonstrate the legal origin of funds. Given the level and sophistication of organized criminal activity in Mexico, these results reflect a disappointing lack of effectiveness in implementation of the ML offense. The ongoing development of a national strategy to combat ML and FT should help lay the foundation for more effective implementation of the ML and FT legislation.

16. There is also currently close collaboration between the FIU and PGR, and the relationship between these two entities has been evolving and improving over time. Nonetheless, it could benefit from more formal arrangements as work processes are developed. Enhanced use of FIU-generated reports would also lead to more effective ML investigations and prosecutions.

17. In June 2007, terrorist financing was criminalized under the Mexican Federal Criminal Code, which distinguishes between “domestic terrorist financing” and “international terrorist financing”. Terrorism financing is also a predicate offense to money laundering and is a serious felony under the Federal Code of Criminal Procedures. When committed by members of organized crime, such offenses are subject to more severe sanctions.

18. The international terrorist financing offense extends to any “funds” as that term is defined in the United Nations’ (UN) Terrorist Financing Convention. However, the legal provisions do not fully comply with SR II. While the UN’s Terrorist Financing Convention focuses on the intention of the act to cause death or serious bodily injuries, the law seems to focus on what is used to carry out the act. The requirement to demonstrate that the terrorist act generates alarm, fear, or terror to a population or to a group or sector thereof is not consistent with Article 2 of the UN’s Terrorist Financing Convention, as the Convention only requires that “the purpose” of the act, by its nature or context, be to intimidate a population. Moreover, while the FT offense covers the financing of a significant number of terrorist acts, it does not extend the financing conduct to all of the acts that constitute offenses within the scope and definition of the treaties listed in the annex of the UN’s Terrorist Financing Convention. Nor does it extend to all situations where a person may willfully provide funds. It only covers the provision of funds through the “financing,” “contributing,” and “procuring” conducts. This would leave out the provision of funds “by any means” as required by the standard. Moreover, the collection of funds is not covered.

19. The FIU has made progress in developing its financial intelligence infrastructure and staff capacity, including improving its working relationship with the prosecutorial authorities at the PGR. At the time of the on-site visit, it was not fully receiving suspicious activity reports in a timely way sent through the SAT by foreign exchange centers and money remitters.3 Moreover, it does not have full legal authority to access criminal records to inform its analytical work. The number of staff relative to the volume of reports it receives and its current and future workload is inadequate, even though the FIU has implemented an automated risk-based system to filter out cases that do not merit deeper analysis. As part of an ongoing restructuring project of the FIU, its staff will be increased significantly.

D. Preventive Measures—Financial Institutions

20. The various financial sector laws establish the principal AML/CFT preventive obligations for financial institutions. In turn, the AML/CFT legal provisions are implemented through regulations (“Disposiciones de Carácter General”) issued under such laws. All the detailed AML/CFT requirements for financial institutions are contained in these regulations. In addition, the Ministry of Finance and Public Credit can also issue written communications (“Oficios”) to financial institutions for, inter alia, clarifying and interpreting the provisions in the regulations. Both laws and the subsidiary regulations are enforceable and sanctionable in accordance with the provisions established in the applicable financial sector laws. The FIU, National Banking and Securities Commission (CNBV), and financial sector representatives jointly issued a set of best practice guidelines to help improve the quality of STRs submitted to the FIU by financial institutions subject to CNBV’s supervision.

21. At the time of the mission, the AML/CFT laws and regulations covered all of the known financial activities applicable to Mexico as set out under the FATF definition of “financial institution”. The sectoral regulations impose detailed AML/CFT requirements on the financial sector for; inter alia, customer due diligence (CDD), record-keeping, large and suspicious transaction reporting, internal controls, compliance management arrangements, and training. However, Mexico has not yet issued implementing AML/CFT regulations for the recently deregulated SOFOMES. Unregulated SOFOMES are non-deposit taking financial institutions (e.g. engaged in lending, leasing, factoring) that are not members of a regulated financial group. The absence of such regulations, combined with a recent sharp increase in the number of SOFOMES in Mexico, constitute a significant vulnerability in the system.

22. The Mexican authorities acknowledge the need to upgrade and align the 2004 AML/CFT regulations (e.g. for the securities, insurance, money services sectors) with the 2006 regulations (for the banking, savings and loans, and SOFOLES sectors). There is also a need for greater clarity in some of the provisions, including for internal and cross-sectoral regulatory consistency with respect to CDD for business relationships and occasional transactions, risk-based provisions, and suspicious transaction reporting. The CDD requirements also need to be enhanced in key areas such as for recently established corporate entities that have not completed incorporation requirements, and for insurance policyholders. The authorities expect to issue new regulations by the end of 2008.

23. Implementation of the regulatory requirements by financial institutions is more advanced in the core financial sector entities (i.e., deposit-taking, insurance, and securities), but less so in some systemically important and risky sectors (i.e., foreign exchange centers, money remitters and unregulated SOFOMES). The authorities estimate that a large proportion of the thousands of foreign currency exchange centers and money remitters have now registered with the SAT (the designated AML/CFT supervisor), but a significant number has not done so.

24. All of the AML/CFT regulations include risk-based elements for purposes of CDD and the authorities are to be commended for implementing such practices. Going forward, these risk-based provisions could be better supported with sector-specific guidelines, and refinements to the simplified CDD regime allowed for in the regulations. The authorities should also consider conducting a systemic assessment of ML and FT risks in Mexico to support the development and implementation of preventive measures regime.

25. Recordkeeping and CDD requirements for introduced business and third parties are generally comprehensive. However, they could be improved, as is now being contemplated by the authorities, by specifically requiring that the necessary CDD information be obtained immediately by the financial institutions. The threshold for recordkeeping and other requirements with respect to wire transfers should be reduced from the equivalent of US$3,000 to US$1,000 in line with the standard.

26. There is a clear obligation to report suspicions of ML and FT, but the obligation does not extend to suspected financing of international acts of terrorism (except in relation to lists issued by international organizations or foreign countries). Most sectors are actively filing reports but there is a need to improve their quality and reduce the occurrence of “defensive” reporting.

27. There are four principal supervisory authorities responsible for AML/CFT compliance supervision, and for the enforcement of requirements. All of them have broad powers to obtain access to and inspect the businesses under their jurisdiction and to sanction for noncompliance. In practice, they have applied administrative sanctions (e.g., fines) for noncompliance with the AML/CFT regulations. However, most fines have been applied by the CNBV and their average amount has been relatively low, particularly for the larger institutions.

28. Most supervisory agencies have implemented relatively comprehensive on-site supervisory systems for AML/CFT compliance. Supervision by the CNBV is more advanced in terms of processes and capacity, and it has developed a specialized AML/CFT supervisory unit. However, it could enhance its offsite AML/CFT processes, and undertake more risk-based and consolidated AML/CFT supervision.

29. Limited staff resources have prevented the SAT from fully implementing AML/CFT supervision of foreign exchange centers and money remitters. It has about 4,380 such entities subject to its supervision, and the transfer of unregulated SOFOMES (currently 634 entities and rapidly increasing) under its supervision will further compound this problem. There is a potential of contagion risk for other financial institutions, e.g., banks that transact with these businesses. Nonetheless, the SAT indicated that it has conducted around 800 inspection visits to-date.

30. With respect to the insurance and bonding sectors, there is a need to strengthen supervision of the channels of distribution, in particular enforcing the training and oversight requirement placed on insurance and bonding companies with respect to their agents. A review of the contracting arrangements between these companies and their agents is also recommended to support implementation of the regulatory requirements.

E. Preventive Measures – Designated Non-Financial Businesses and Professions

31. The AML/CFT preventive measures have not been extended to DNFBPs. The only requirement that applies to this group is an obligation under the Income Tax Law to report cash transactions to the SAT in excess of Mexican pesos $100,000 (equivalent to approximately US$10,000). This is an obligation imposed on all taxpayers and NPOs. In addition, notaries public are required to report to the SAT every purchase of real estate in Mexico in which they participate regardless of the method of payment. This information is available to the FIU for AML/CFT purposes.

32. All types of DNFBPs are active in the Mexican economy. However, by law the administration of “fideicomisos” can be done only by designated licensed financial institutions. (A “fideicomiso” is broadly similar to a trust). Casinos are prohibited by law, including slot machines, except during regional fairs, in which case they require a temporary license. One to five such casino licenses are issued every year. The authorities are unable to prevent the existence of many unauthorized gaming-machine establishments due to resource limitations and gaps in the applicable legal framework which allow these businesses to pose as games of skill and not of chance. According to the authorities, these businesses are perceived as legitimate by the communities in which they operate, including by financial institutions, and this makes them vulnerable to money laundering and exposes the financial institutions that conduct business with them.

F. Legal Persons and Arrangements & Non-Profit Organizations

33. Mexico has not taken concrete measures to prevent the unlawful use of legal persons in relation to ML and FT. Moreover, competent authorities in Mexico are not able to obtain or do not have access to sufficient, accurate, and current information in a timely fashion, on beneficial ownership and control of legal persons.

34. Legal persons created under Mexican law are not able to issue bearer shares. However, the shareholder of a Mexican entity can be a foreign bearer share company incorporated in a jurisdiction that allows the issuance of such shares. Mexico does not have specific measures in place to help prevent Mexican subsidiaries of such bearer share companies from being used for illicit ML.

35. Only designated licensed financial institutions may administer “fideicomisos” in Mexico. Financial institutions are covered by the preventive measures applicable to them and are hence required to obtain, verify, and retain details of the “fideicomisos”, including beneficial ownership and control information. Such information would be available to the competent authorities. However, due to the lack of statistics on authorities’ requests for information, it was not possible to assess the effective implementation of these measures.

36. Mexico has not undertaken a review of the adequacy of domestic laws and regulations that relate to NPOs, nor has it undertaken outreach to the NPO sector with a view to protecting the sector from FT abuse.

G. National and International Co-operation

37. There are no legal impediments for cooperation among the various supervisory bodies and other domestic authorities in Mexico. It was evident prior to and during the mission, that there are adequate processes for national cooperation and that such processes has been very efficient and effective. Cooperation between PGR and the FIU has been enhanced since 2007 and is currently working satisfactorily.

38. Mexican authorities have the power to collaborate with foreign counterparts in their respective areas of competence. In the majority of cases, international cooperation takes place directly between authorities exercising similar responsibilities and functions. They have cooperated with their foreign counterparts in the areas of mutual legal assistance and extradition. Supervisors have also entered into a number of memoranda of understanding with their foreign counterparts, and these have been put into practice especially as it concerns the banking sector. The mission received comments from various countries which highlight the significant improvements in international cooperation with Mexico last year. In particular, these countries underscored the constructive cooperation with Mexico’s FIU and the PGR.

Summary Table of Observance and Key Recommendations

article image
article image
article image
article image
article image
article image

The assessment team consisted of: Richard Lalonde (team leader), Manuel Vásquez, Ernesto López and Mariano Federici (all of LEG); Federico Di Pasquale and Bernardo Mota (both consultants for LEG); Alejandro Montesdeoca (observer, South American FATF-style Regional Body (GAFISUD)) and Rachel Fedewa (observer, FATF).


In Mexico, applicable DNFBPs include real estate agents, dealers in precious metals and stones, lawyers, notaries and other independent legal professionals and accountants, and company services providers.


More recently, the authorities have indicated that these obstacles had been overcome but the mission is not in a position to verify the effectiveness of the reporting arrangement with the SAT.


Compliant (C): the Recommendation is fully observed with respect to all essential criteria. Largely compliant (LC): there are only minor shortcomings, with a large majority of the essential criteria being fully met. Partially compliant (PC): the country has taken some substantive action and complies with some of the essential criteria. Non-compliant (NC): there are major shortcomings, with a large majority of the essential criteria not being met. Not applicable (NA): a requirement or part of a requirement does not apply, due to the structural, legal or institutional features of a country.

Mexico: Report on the Observance of Standards and Codes: FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism
Author: International Monetary Fund