Mexican Anti-Money Laundering Law Focuses on Companies and Individuals

Money laundering schemes are pervasive in the world today, with perpetrators of such schemes using a variety of transactions with financial institutions, companies and even individuals. Typically however, anti-money laundering regulations have focused primarily on financial institutions. This practice changed in Mexico beginning July 17, 2013, when the Mexican government issued new anti-money laundering regulations that may have an impact on regular companies and individuals.

Federal Law & Impact

The Mexican Federal Law of Prevention and Identification of Operations with Resources from Illicit Origin (the “LFPIORPI”) states that “the purpose [of the law] is to protect the financial system and the national economy, establishing measures and procedures to prevent and detect acts or operations that involve resources from illicit sources.” In general, the law establishes diverse mechanisms that will provide the Mexican tax authorities and the new Unit of Financial Intelligence (UFI) with sufficient information to detect and investigate transactions that may be related to illicit or unlawful activities.

The LFPIORPI will require companies and individuals involved in certain “Vulnerable Activities” to register with the government and provide information on Vulnerable Activities that exceed a certain threshold.

Vulnerable Activities include:

• Activities related to gambling, raffles and lotteries;
• Service cards, credit cards, pre-paid cards that store monetary value sold or issued by merchants (not by financial institutions);
• Trade or sale of precious stones and metals, jewelry, watches autos, planes and boats;
• Loans and guarantees – when not through a financial institution;
• Issuance of traveler’s checks – when not through a financial institution;
• Construction or real estate development or brokerage services;
• Auction or sale of artwork;
• Customary or professional vehicle armoring services, trucks and custody services except those involving Central Bank (Banco de Mexico) and institutions involved in securities deposits;
• Providing professional services: real estate transactions, administration of securities, structuring corporations, mergers, spin-offs, capital contributions and acquisitions;
• Public notary services related to: real estate transactions, irrevocable powers of attorney, company modifications and trusts;
• Receipt of donations for not-for-profit organizations;
• Customs agent services for customs clearance in relation to: art work, autos, planes, ballistic resistance metals for armored vehicles, boats, precious metals and stones, watches and jewelry; and
• Creation of personal rights in relation to real estate.

If one or more Vulnerable Transactions are below the minimum threshold but exceed the threshold in the aggregate over a six-month period, then each transaction may be subject to the notification requirements of the LFPIORPI. Further, the law prohibits payments made with cash and precious metals above certain threshold amounts.

Effect on Companies and Individuals

Reporting of the aforesaid transactions will be complex and must be in computerized XML format and sent to the authorities. Although registration will typically be a one-time event, transaction reporting could become a monthly event for certain recurrent activities. Companies and individuals will be required to obtain certain due diligence on the parties to the transactions and to maintain such documentation for a period of five years. Companies and individuals required to report transactions must also allow visits from federal authorities for review of documentation.

The current deadline to report Vulnerable Activities is the 17th of each month; however, the authorities have resolved to be understanding during the initial period of compliance by extending compliance deadlines.

Penalties

Penalties apply for failure to comply with the requirements of the LFPIORPI. Penalties for failure to report range from as low as $900 to as high as $10,000. For notaries and brokers, penalties for failure to report may reach as high as $45,000. A penalty of imprisonment (two to eight years) may occur if a person provides false information to the authorities.

Please note:  Those who could be affected should seek assistance to determine whether their company and personnel should be registered, and whether a person is engaged in any Vulnerable Activities under the new law.

If you have any questions about this tax alert, please contact Dara Green, J.D., LL.M., a director of international tax at Kaufman Rossin and editor of Praxity Tax Alerts. She can be reached at dgreen@kaufmanrossin.com. This tax alert was written by Rob Wagner of BKD, LLP, and Raul Montemayor, Alberto Gomez and Heriberto Torres of Mazars Mexico.