U.S., Mexico Declare Need to Tackle Illicit Financial Flows in Fight Against Drugs

March 29th, 2010

The United States and Mexico released a joint statement on the Merida Initiative today—following up on the high-level rendezvous between senior U.S. and Mexican authorities which took place last week in Mexico City.  With drug-related violence in Mexico at abhorrently high levels and rising, both governments clearly recognize the need to tackle this issue.

Moreover, the scale of the problem seems to have forced them to consider alternative solutions. Indeed, the joint statement expresses both governments’ intent to tackle illicit financial flows—directly linking these flows to violence and corruption for the first time.

From the statement:

13. Our governments intend to establish a bilateral work program to combat illegal weapons and illicit financial flows, crimes that contribute to spread violence and corruption. This scheme will have concrete objectives and progress indicators that will be periodically reviewed. It will seek to identify new areas of cooperation and actions that each State can take within its jurisdiction.

GFI’s long advocated addressing illicit financial flows as a way to significantly curtail drug trafficking between Mexico and the United States.  Indeed, while the U.S. government’s been reticent, the Mexican government has previously acknowledged this. In a February ’09 letter sent to then-recently-confirmed Treasury Secretary Tim Geithner, Mexican Finance Secretary Agustin Carstens linked this issue directly to the drug trade:

Soon after the Obama Administration took office, Mexico sent Treasury Secretary Tim Geithner a letter complaining about the de facto secrecy U.S. banks offer Mexicans holding accounts by not reporting to anyone the names or interest income paid on those deposits. “The exchange of information on interest paid by banks will certainly provide us with a powerful tool to detect, prevent and control tax evasion, money laundering, terrorist financing, drug trafficking and organized crime,” said the Feb. 9 letter from Mexican Finance Secretary Agustin Carstens, who also noted that the two countries do not have a “solid and reliable mechanism to verify actual residence of the foreign depositors.”

Indeed, this is a serious issue for Mexico.  Robert Goulder at Tax Analysts goes a step further in explaining the importance of this matter:

“If you are a Mexican drug lord, you can put as much money as you want into U.S. banks. We ain’t going to tax it, and the Mexicans can’t tax it because they are never going to know about it. It’s the financial equivalent of ‘Don’t ask, don’t tell.’ “

Unfortunately, as far as I know, the United States has yet to respond to Mr. Carstens’ letter—something which makes today’s joint statement an important evolution in U.S.-Mexico relations.  Now let’s hope that the U.S. follows through with their language by implementing real reforms to curtail illicit financial flows.

Written by Clark Gascoigne

Follow @FinTrCo