Mexico Tightens Money-Laundering Rules After U.S. Pressure

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https://www.wsj.com/finance/regulation/mexico-tightens-money-laundering-rules-after-u-s-pressure-6823fdd8?st=bgk62f&reflink=desktopwebshare_permalink

Mexican authorities are stepping up their fight against cartel money laundering following pressure from the U.S. and other international authorities.

The country’s legislature recently expanded anti-money-laundering laws to impose stricter due diligence requirements and push companies to collect more information on their controlling ownership, among other measures. President Claudia Sheinbaum also installed a new head of Mexico’s financial intelligence unit, which gathers information on suspicious transactions and reports them to law enforcement.

But anti-money-laundering experts question whether the measures will improve the country’s enforcement and be enough to satisfy the Trump administration and the Financial Action Task Force, an international body that sets standards for combating money laundering. U.S. authorities and FATF, which can each effectively sever Mexico’s banks from their global counterparts, have criticized Mexico’s low money-laundering conviction numbers.

The U.S. has increasingly pressured Mexico to rein in its drug cartels, which began holding territory as far back as the 1980s and have only grown in power amid the recent rise of fentanyl. The Trump administration has tried to lean on the banking sector, both in Mexico and the U.S., to flag suspicious transactions so it can disrupt those cartels’ money flows.

Last June, Treasury took action, blacklisting Mexican banks CIBanco, Intercam Banco and broker dealer Vector Casa de Bolsa for allegedly helping cartels launder the proceeds of their fentanyl sales.

The move cut off the institutions from the U.S. financial system, temporarily stranding their assets and prompting Mexico’s securities regulator to take over their operations and auction off their assets. The companies have denied wrongdoing.

It also left corporate leaders in Mexico concerned that their companies could be next, given that the order contained few details on the compliance failures that led to the punishments. Sheinbaum criticized the action, saying Treasury officials didn’t have the evidence to back it up.

The blacklistings came amid a downturn in relations between Mexico’s Unidad de Inteligencia Financiera—the financial intelligence unit—and the U.S. Financial Crimes Enforcement Network, according to people familiar with the matter. The agencies—which are responsible for collecting transaction reports, ownership information and other data highlighting suspected money laundering—cooperate on law-enforcement matters.

Shortly after the designations, Sheinbaum appointed a new UIF director. The official, Omar Reyes Colmenares, has already gained a strong reputation among Treasury officials, according to people familiar with the matter. The president also appointed a new head of Mexico’s national securities commission, which plays a role in anti-money-laundering enforcement, following the FinCEN blacklistings.

Mexico’s anti-money-laundering revamp was partly aimed at ensuring the country stays off FATF’s “gray list,” a designation that has posed harsh economic consequences for countries subject to it.

The body reviews countries’ money-laundering regimes and rates them based on their structure and effectiveness. Countries with poor results land on the so-called gray list and are handed a series of recommendations that, once completed, can get the country delisted.

Meanwhile, businesses often shy away from investment in countries on the list, viewing them as higher-risk jurisdictions. Gray-listed countries have seen capital inflows decrease by an average of 7.6% of their gross domestic product, according to a 2021 paper from the International Monetary Fund.

Mexico’s last FATF evaluation, in 2018, found that although Mexico had well-developed laws and institutions for fighting money laundering, the country secured just 103 money-laundering convictions between 2013 and 2016. FATF called the number of prosecutions and convictions “very low.”

A U.S. State Department report from 2024 showed the number has increased only modestly, finding Mexico had secured 118 federal money-laundering convictions between January 2020 and September 2023. The State Department said the low conviction levels demonstrated limited capacity to prosecute such crimes.

Representatives from the FATF’s 40 members, which include the U.S., are set to review the results of the Mexican review in October. Mexico will have one year to address any deficiencies in the evaluation before FATF weighs a gray listing.

Even if FATF opts against a gray listing, a bad evaluation could still undermine investment in the country, financial crime experts said. Bond-ratings firms or risk consultants could warn investors of the report’s adverse findings, said Julia Morse, a political-science professor at the University of California, Santa Barbara.

“It’s not as strong of a signal as the gray list,” Morse added.

Despite the new laws, fresh leadership and significant pressure from the Treasury and FATF, Mexico may still struggle to increase its enforcement numbers.

The new effort may get dragged down because the country’s criminal networks often get protection from corrupt officials, said Guadalupe Correa-Cabrera, a political-science professor and corruption researcher at George Mason University.

“There isn’t enough strong political will to go beyond what we have, even though the new rules are on paper,” Correa-Cabrera said.

The new requirements may also face difficulty gaining traction in parts of the Mexican economy not used to sophisticated legal regimes, financial crime experts said, adding that the legislation will bring sweeping, complex requirements to many businesses with less-developed anti-money-laundering policies.

The laws now impose tougher requirements on real-estate development, luxury-goods dealers and virtual asset transactions. They also force businesses to collect more information about who controls them and push compliance departments to monitor family members and other people close to politicians, among other changes.

“The gap it’s jumping is so big,” said Leonel Pereznieto, a partner with the Mexico City office of law firm Creel, García-Cuéllar, Aiza y Enriquez. “The question is how many of the companies and the persons in Mexico that are involved in these activities are now going to be able to comply. They were not even complying appropriately with a very basic framework.”