On April 28, 2011, the Mexican Senate approved a draft of “Federal Law on the Prevention and Identification of Operations from Illicit Sources” (the “Law”), which has since then been referred to the Mexican Chamber of Representatives for consideration. This initiative is intended to implement a system to combat organized crime by preventing the financing of its activities through money laundering.
- The Law implements a system to identify and require reporting of “vulnerable activities” involving cash, gemstones, precious metals, real estate, and undisclosed principals.
- The Law grants the authorities powers of coordination and information sharing to combat organized crime.
- The Law imposes certain due diligence, inquiry, and reporting obligations on persons or entities involved in “vulnerable activities.” The Law addresses regulated financial institutions separately from other persons or entities, applies a different definition of “vulnerable activities” to each group, and imposes somewhat different standards and obligations of due diligence and reporting.
- The Law presumes that all operations and services of regulated financial institutions are deemed “vulnerable activities.” Those institutions will have to implement systems and procedures to create customer activity profiles, track customer activity, assign a customer risk factor, and identify unusual activity. They will have to report unusual, unjustified activity, and over a certain amount, operations in cash, travelers’ checks, or precious metal coins.
The Law requires that the persons and entities (other than regulated financial institutions) which are habitually or professionally (other than the first category below) involved in the “vulnerable activities” described below, request certain information from their customers and make periodic reports to the authorities under certain circumstances:
- Those in the gambling or raffle business, when the transaction (or series of related transactions) equals or exceeds $40,000 Mexican pesos.
- Those in the business of issuing or selling travelers’ checks or instruments used as a method of payment (such as credit and service cards, including pre-paid cards), regardless of amount; and those only occasionally in such business, if the amount equals or exceeds $40,000 Mexican pesos.
- Those in the lending, mortgage, or commodity or currency exchange businesses.
- Those in the businesses of providing real estate construction, brokerage, or development services, as to transactions involving the purchase or sale of real estate for or on behalf of clients of those service providers.
- Those in the business of commercializing or brokering precious metals, gemstones, jewelry, or watches, as to transactions equal to or exceeding $20,000 Mexican pesos.
- Those in the business of auctioning or selling works of art, as to transactions equal to or exceeding $300,000 Mexican pesos.
- Those in the business of selling or distributing new or used vehicles, aircraft, or vessels, as to transactions equal to or exceeding $400,000 Mexican pesos.
- Those in the business of armoring new or used vehicles or real estate, as to transactions equal to or exceeding $300,000 Mexican pesos.
- Those in the business of providing transportation and custodial services for money and securities.
- Notary Publics providing their services with respect to transactions involving real estate, the creation, merger, or spin off of any entity or trust, the purchase or sale of shares or partnership interests, and the execution of credit, currency exchange, or commodity contract when the creditor is not a member of the Mexican financial system or a governmental agency.
- Independent professionals and consultants in the accounting, tax, financial, and legal businesses when the professional or consultant acts as the attorney-in-fact for a client respecting certain transactions, such as the purchase or sale of real estate or grant of rights in real estate, administration and management of resources, securities, or other assets, management of bank or securities accounts, organization of capital or other resources for the constitution, operation, or administration of a company, or the constitution, spin-off, merger, operation, administration, and purchase and sale of corporate entities and trusts.
- The due diligence, document retention, and reporting obligations of the persons listed above vary depending on the category of “vulnerable activity.”
- Non-fraudulent failures to comply are castigated by fines; fraudulent failures are punished by fines and prison.
The Law exempts and immunizes independent professionals that adhere to the Law from all confidentiality and professional secrecy liabilities, whether contractual or legal. Although the Law anticipates these issues by providing a safe harbor, the protection afforded may be of little use to independent professionals who are bound by laws and professional codes of ethics in other jurisdictions.
The Law will clearly increase the regulatory burden and associated cost of doing business in Mexico through a rather broad swath of industries.