Looking At Mexico's New Anti-Money Laundering Legislation

October 16th, 2012

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Mexican President Felipe Calderon signed a bill, unanimously passed by the Senate, today aiming to crack down on money laundering that according to experts may account for at least $10 billion every year in Mexico, or as high as $50 billion, according to estimates from Global Financial Integrity. The bill prohibits the giving or accepting of cash payments greater than half a million pesos ($38,750) for real estate purchases, as well as forbidding cash transactions of more than 200,000 pesos ($15,500) for items such as cars, jewelry or lottery tickets.

The law also requires brokers and dealers report the forms of payment for any purchases over half a million pesos and for credit card companies to report when monthly balances exceed 50,000 pesos ($3,875). Violators of the law will face up to 20 years in prison, and a specially-designed financial analysis unit has been set up to work under the prosecutor in tandem with the finance ministry.

The reasoning behind the law is simple. Financial windfall provides incentives for criminals to continue to break the law, use violence as a means of communication and to generally act with impunity. Closing one very financially beneficial door for organized crime is a logical step in fighting it.

“There is no way to go after organized crime, if not to hit their finances,” said Senator Cristina Diaz Salazar, a member of President-elect Enrique Pena Nieto’s Institutional Revolutionary Party. As long as cartels can legitimize their illegally-obtained billions in real estate, vehicles, lottery tickets and other luxury goods, they’ll be able to continue to fund the violence that has plagued Mexico since it became the main transit point for U.S.-bound South American narcotics in the early 1990s.

If implemented correctly and enforced, stronger anti-money laundering rules could not only help Mexico fight its sophisticated organized crime organizations, but also

Some in Mexico are opposed to the law. Those in the jewelry and auto industry, specifically, are worried that they will lose business as a result of more strict regulation. This is understandable. However, Alejandro Encinas of the Democratic Revolution Party summed up the reality of the situation in saying “as long as we don’t effectively combat money laundering and dismantle the financial power of organized crime, the problem of violence and drug trafficking won’t disappear from our country.” In the long run, a less violent and more financially transparent system will be more beneficial for all legal businesses. Losing illicit business is a feature, not a bug.

Since President Felipe Calderon’s election in 2006, more than 60,000 people have been killed as a result of the violence stemming from turf wars among drug cartels. This law was first introduced in 2010 as part of Calderon’s multi-pronged plan to combat organized crime, proposing to bar all cash real estate purchases as well as cash purchases of cars, planes and other goods for amounts exceeding 100,000 pesos ($7,700). This initial proposal received considerable pushback, likely due to the amount of money at stake and the notorious levels of corruption in the upper echelon of the Mexican political and law enforcement spheres.

The official argument against the bill at its inception was that it would inhibit healthy economic growth due to the fact that many small businesses in Mexico still transacted solely in cash. This argument apparently won some legislators over. Sen. Roberto Gil, of Calderon’s conservative National Action Party, said the legislation now going to Calderon for his signature into law “has achieved a healthy and reasonable balance between the need to inhibit the use of cash and the normal development of our country’s economic activity.” The bill now goes to Calderon to be signed, but will not actually go into effect for another nine months, when president-elect Enrique Pena Nieto will be president.

The passage of this law is a fantastic example of the very real and tangible intersection of economic regulation and national and international security. Illicit financial flows allow for drug cartels and organized crime to fund the large-scale violence that Mexico has come to know intimately, and less money will invariably mean fewer weapons in the hands of criminals. Though it is a diluted version of its Calderon’s original proposal, this iteration of the law will be a great tool for the Mexican government to lessen the financial incentives of illegal activity while also providing greater insight into the financial behavior of organized crime.

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Written by Arya Andersen

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