Briefing for donors on the Anti-money Laundering Law in Mexico
Briefing for onors on the Anti-money Laundering Law in Mexico
May 5, 2015
Prepared by Guadalupe Mendoza-Trejo, Independent Philanthropy Consultant
May 5, 2015
Prepared by Guadalupe Mendoza-Trejo, Independent Philanthropy Consultant
NOTE
This report is intended solely to provide guidance to donor agencies to allow them to better understand the content and administrative procedures associated with Mexico’s Anti-money laundering law as reflected in the report. It is not intended to substitute for or override any internal legal or administrative directive of any international donor organizations or control their interpretation of such law. It does not pretend to substitute nor should it be considered as formal legal, financial or accounting counsel. It is recognized that donor agencies have internal regulations and policies, and consult with their own legal, financial, administrative or accounting managers in order to maintain themselves updated on changes in the law. Also note that fiscal and financial laws and regulations in Mexico are subject to continuous reforms. The information included in this document is updated to the date quoted above, but might change in the future.
This report is intended solely to provide guidance to donor agencies to allow them to better understand the content and administrative procedures associated with Mexico’s Anti-money laundering law as reflected in the report. It is not intended to substitute for or override any internal legal or administrative directive of any international donor organizations or control their interpretation of such law. It does not pretend to substitute nor should it be considered as formal legal, financial or accounting counsel. It is recognized that donor agencies have internal regulations and policies, and consult with their own legal, financial, administrative or accounting managers in order to maintain themselves updated on changes in the law. Also note that fiscal and financial laws and regulations in Mexico are subject to continuous reforms. The information included in this document is updated to the date quoted above, but might change in the future.
I. Background
a) On the Law
Mexico’s Anti-Money Laundering Law was passed on October 2012 in response to the recommendations issued by the Financial Action Task Force (FATF), an inter-governmental body established in 1989 by the G7 secretariat. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory, and operational measures for combatting money laundering, terrorist financing and other related threats to the integrity of the international financial system, and national security around the globe. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
Mexico became a full-fledged member of the FATF in 2000. It is one of the 36 members ofthe Task Force, which includes 34 countries and two regional organizations representing the most important financial centers of the world.
Since 2000, Mexico’s anti-money laundering policies were subject to close monitoring by the FATF, specifically in their quality vis à vis the standard, as well as their implementation. This assessment took place on a yearly basis. In February 2014, after the FATF assessment was finalized, Mexico was finally removed from the list of countries that needed a “regular followup process” due to significant improvements in anti-money laundering policies and law enforcement; all in compliance with FATF’s agreements and recommended norm standards.
For Mexico’s Finance Intelligence Unit (UIF for its acronym in Spanish) and Mexico’s government in general, this is a significant positive outcome after several reforms that have culminated in the Federal Law to Prevent and Identify Transactions using Resources Derived from Illegal Sources (Ley Federal para la Prevención e Identificación de Operaciones conRescursos de Procedencia Ilícita, LFPIORPI) as we know it today. FATF’s recognition of Mexico’s anti-money laundering policies and regulations makes it hard for advocates to promote regulatory improvements, particularly in the rules that affect civil society organizations in Mexico. As a result of the interviews and research I conducted, I believe it is unlikely for any changes to be made in the short run that could lessen the burden to civil society organizations, making it essential for those affected by the law, including donor agencies and civil society organizations, to understand the law and how to comply with it.
This law has been in full implementation mode for all regulated activities since January 2014. During the preceding implementation grace period it became clear that the number of transactions to be monitored by the Financial Intelligence Unit (UIF for its Spanish acronym) is massive, and that UIF itself might have its own capacity concerns. However, UIF appears strict in implementing these new regulations, particularly in monitoring activities that entail significant monetary transactions. At the time of writing, three civil society organizations in the service delivery charity community were being inspected.
Some donors and CSOs have expressed concern about the potential use of this law to target and repress civil society, as has been the case in other countries. To date, there is no record of this in Mexico.
b) On this Briefing
Over the last year a group of donors that support civil society organizations in Mexico has been concerned about the implementation of this law and its implications for their grantees and themselves. Consequently, the group decided to raise awareness among their grantees about the Anti-Money Laundering Law and its requirements. Donors had differing interpretations about the requirements and the impression that only a limited number of organizations knew about the law and were complying with it. The hypothesis was based on the limited number of information requests they received from grantees.
Hence, the first phase of the study included an online survey to assess whether organizations knew about the law, its compliance mechanisms, and the consequences of non-compliance. The survey also aimed to identify the main obstacles organizations face for appropriate compliance, as well as their proposals to improve compliance processes. This last input was requested with the idea to provide feedback to regulators if the opportunity to meet with them were to materialize over the course of the project.
a) On the Law
Mexico’s Anti-Money Laundering Law was passed on October 2012 in response to the recommendations issued by the Financial Action Task Force (FATF), an inter-governmental body established in 1989 by the G7 secretariat. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory, and operational measures for combatting money laundering, terrorist financing and other related threats to the integrity of the international financial system, and national security around the globe. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
Mexico became a full-fledged member of the FATF in 2000. It is one of the 36 members ofthe Task Force, which includes 34 countries and two regional organizations representing the most important financial centers of the world.
Since 2000, Mexico’s anti-money laundering policies were subject to close monitoring by the FATF, specifically in their quality vis à vis the standard, as well as their implementation. This assessment took place on a yearly basis. In February 2014, after the FATF assessment was finalized, Mexico was finally removed from the list of countries that needed a “regular followup process” due to significant improvements in anti-money laundering policies and law enforcement; all in compliance with FATF’s agreements and recommended norm standards.
For Mexico’s Finance Intelligence Unit (UIF for its acronym in Spanish) and Mexico’s government in general, this is a significant positive outcome after several reforms that have culminated in the Federal Law to Prevent and Identify Transactions using Resources Derived from Illegal Sources (Ley Federal para la Prevención e Identificación de Operaciones conRescursos de Procedencia Ilícita, LFPIORPI) as we know it today. FATF’s recognition of Mexico’s anti-money laundering policies and regulations makes it hard for advocates to promote regulatory improvements, particularly in the rules that affect civil society organizations in Mexico. As a result of the interviews and research I conducted, I believe it is unlikely for any changes to be made in the short run that could lessen the burden to civil society organizations, making it essential for those affected by the law, including donor agencies and civil society organizations, to understand the law and how to comply with it.
This law has been in full implementation mode for all regulated activities since January 2014. During the preceding implementation grace period it became clear that the number of transactions to be monitored by the Financial Intelligence Unit (UIF for its Spanish acronym) is massive, and that UIF itself might have its own capacity concerns. However, UIF appears strict in implementing these new regulations, particularly in monitoring activities that entail significant monetary transactions. At the time of writing, three civil society organizations in the service delivery charity community were being inspected.
Some donors and CSOs have expressed concern about the potential use of this law to target and repress civil society, as has been the case in other countries. To date, there is no record of this in Mexico.
b) On this Briefing
Over the last year a group of donors that support civil society organizations in Mexico has been concerned about the implementation of this law and its implications for their grantees and themselves. Consequently, the group decided to raise awareness among their grantees about the Anti-Money Laundering Law and its requirements. Donors had differing interpretations about the requirements and the impression that only a limited number of organizations knew about the law and were complying with it. The hypothesis was based on the limited number of information requests they received from grantees.
Hence, the first phase of the study included an online survey to assess whether organizations knew about the law, its compliance mechanisms, and the consequences of non-compliance. The survey also aimed to identify the main obstacles organizations face for appropriate compliance, as well as their proposals to improve compliance processes. This last input was requested with the idea to provide feedback to regulators if the opportunity to meet with them were to materialize over the course of the project.
- 90% of organizations know about the Anti-money Laundering Law and the requirements to comply with it.
- 73% report that they are fully aware of the implications of this law for their organizations.
- Over 70% of organizations report being aware of their obligation to comply regardless of their tax status. Close to 30% of organizations erroneously think that only certain types of nonprofits are subject to this law.
- 49% of organizations report that they are making every effort to comply with the law, 17% do not comply with the law, and 34% skipped the question (one possible interpretation is that this percentage closely matches with those who think that compliance is for “others”).
- 79% of organizations report that inability to obtain required information and documents from donors is the main obstacle to comply with this law.
- 55% of organizations consider that their own deficient knowledge about the law is also an obstacle for compliance.
- 93% of organizations feel that their administrative capacity is stretched out by this new administrative burden.
- 71% of respondents are aware of the penalties, but in contrast, only 13% feel at risk to be sanctioned.
II. 8 important facts for donors.
- As of September 1, 2014, compliance with this law and its reformed regulations is mandatory.
The Law was promulgated on October 17, 2012 and the first version of its regulations for implementation was published in August 2013. A grace period for compliance ended in early 2014. The General Rules (Reglas de Carácter General) to implement this law were reformed on August 2014 simplifying compliance by reducing the amount of personal data required from donors’ legal representatives. For example, it is no longer mandatory for legal representatives to submit personal information such as address or tax ID among others. This document provides the current list of data and documents required in section 5 below. - Receiving donations is defined as a vulnerable activity under the law, and reporting donated income is mandatory.
The Law requires individuals and legal entities (nonprofits or other) to report financial transactions, such as donations, that are included in a catalogue of 15 different vulnerable activities. - The Law is clear in its mandate to organizations: They must not accept grants without having obtained the information and documentation required by the Law at the time of the grant transaction.
Organizations receiving donations above a certain amount must obtain information and back-up documentation from the donor to prove the legality of the source of funding. This information is used by grantees to file a “grant-receipt notice” before financial authorities. Many civil society organizations have continued to receive grants despite having incomplete files. These organizations are notcomplying with this Law and couldbe sanctioned severely if they were to be audited by the UIF. - Although not all donations need to be reported, the lowest reporting threshold is quite low and is cumulative for periods of six months.
a. When grants received exceed the equivalent of approximately US$ 7,550, organizations must create an electronic or hard copy file for each donation with the information and documentation required by law, and this must be complete and available for five years in the event of an audit by the UIF.
b. When grants received are equal to or exceed the equivalent of approximately US$ 15,100 grantees are obliged to notify Mexico’s Finance Intelligence Unit through an online platform. They must also provide information taken from the documentation submitted by the donors. A separate electronic or hard copy file must also be created as a back-up, and ought to be available for five years in the event of an audit by the UIF. - Organizations must complete a report with information taken from documents donors provide, create a back-up, and safeguard the files for five years. Requirements were simplified in recent reforms.
a. To fill-in the reporting template, CSOs need to obtain the following data from donors:
· Legal name of donor agency
· Incorporation date
· Nationality
· Main activity
· Tax ID number or equivalent (for all nationalities)
· Full address (no PO Boxes)
· Phone number for the above mentioned address
· E-mail
· Legal representative’s name in full. This includes information from headquarters and, when one exists, the legal representative of a Mexico office. and headquarters.
· Legal representative’s birthday, or tax ID number, or Mexico’s population registry number (not all three of them, only one)
· ID type, issuing authority and ID number.
The law stipulates that grantees must have on hand copies of the following documents that are required to substantiate the information provided to grantees. Documents will not be submitted to the UIF, but grantees must create a file for each of its donors, safeguard it for five years, and make it available in the event of an audit by the UIF.
i. Incorporation document (charter, bylaws, or equivalent)
ii. Proof of address (i.e. recent copy –not older than three months at the time of transferring the funds- of any utility bill)
iii. Power of attorney for legal representative
iv. Legal representative copy of legal ID, valid at the time of submitting the copy, and not older than two years. The ID must include photo, expiration date and birthday. A passport, driver’s license showing birthday or Mexico’s immigration ID is recommended for non-Mexican individuals. For Mexican individuals copy of the voter’s registration card will be the best alternative.
v. Donor institution’s tax ID registration. International donors with legal representation in Mexico must submit the local tax ID registration and the one for the institution’s headquarters.
vi. Proof of request to the donor about the existence of “beneficial ownership” (dueño beneficiario). (This requirement can be substantiated in an easy way since non-profit donors by design do not have controlling shareholders. A two-line signed statement would be enough. Please refer to suggested language in the footnote.) - Similar laws in other countries do not substitute this one. Somewhat parallel mechanisms exist in other countries, such as “Know Your Customer” rules. Compliance with these laws does not fulfill the requirements of the Mexican Anti-Money Laundering Law.
- This law carries significant economic penalties for organizations in non-compliance.
Penalties under this law are so significant that many Mexican CSOs would forfeit a significant portion of their yearly budget should they be sanctioned. There is no clarity about the criteria for calculating penalties within the established margins, but penalties can be cumulative according to the chart below. Unlike in other countries such as the United States, Mexican legal customs do not consider good faith interpretations of the law and noncompliance is subject to penalties regardless of the reasons for noncompliance. According to the UIF, “partial compliance” or incomplete data or documentation is noncompliance altogether.
|
Punishable activity
Failure or refusal to comply
Failure to identify donors, keep files in an inappropriate way, obstruct audits, or extemporary filing. Failing to report transactions within 30 days of receipt If reporting does not include all the information required by the law Skip reporting Fail to observe restrictions in the use of cash or precious metals. |
Penalties
(figures in U.S. dollars*) Between $941 and $ 9,409**
Between $941 and $ 9,409** Between $941 and $ 9,409** Between $941 and $ 9,409** To be determined between $47,047 and $305,805*** or between 10% and 100% of the transaction, whichever amount is greater. To be determined between $47,047 and $305,805*** or between 10% and 100% of the transaction, whichever amount is greater. |
* Currency exchange rate used is the average for the month of February 2015 at US$1 = MXN$14.90
** Between 200 and 2,000 x minimum wage units in Mexico City = MXN$ 14,020 – MXN$ 140,200
*** 10,000 and 65,000 x minimum wage units in Mexico City = MXN$ 701,000 – MXN$ 4’556,500
8. Organizations are at risk even if they fail to obtain information from only one of their donors, whether national, international or governmental (like the EU or USAID).
** Between 200 and 2,000 x minimum wage units in Mexico City = MXN$ 14,020 – MXN$ 140,200
*** 10,000 and 65,000 x minimum wage units in Mexico City = MXN$ 701,000 – MXN$ 4’556,500
8. Organizations are at risk even if they fail to obtain information from only one of their donors, whether national, international or governmental (like the EU or USAID).
III. Recommendations
While the purpose of this document is informational only and does not constitute legal, financial or accounting advice, donors unfamiliar with the law and Mexican legal customs may find useful the following general recommendations.
Given the sensitivity of the information required by this law, donors may understandably have concerns about security and information integrity, and be reluctant provide this information to grantees. The risk of identity theft and the fact that donors do not know exactly what will happen to the information they provide are the most commonly identified fears.
Some donors are already providing all the information grantees need to comply. Based on their experience, and keeping in mind the urgent need to minimize possible financial repercussions for grantees, the following are some suggestions for donors to help grantees comply with the law in Mexico. These suggestions are obviously subject to analysis by each donor internally. The intention is to inform the development of these processes within donor institutions and to help donors help grantees to stay safe:
While the purpose of this document is informational only and does not constitute legal, financial or accounting advice, donors unfamiliar with the law and Mexican legal customs may find useful the following general recommendations.
Given the sensitivity of the information required by this law, donors may understandably have concerns about security and information integrity, and be reluctant provide this information to grantees. The risk of identity theft and the fact that donors do not know exactly what will happen to the information they provide are the most commonly identified fears.
Some donors are already providing all the information grantees need to comply. Based on their experience, and keeping in mind the urgent need to minimize possible financial repercussions for grantees, the following are some suggestions for donors to help grantees comply with the law in Mexico. These suggestions are obviously subject to analysis by each donor internally. The intention is to inform the development of these processes within donor institutions and to help donors help grantees to stay safe:
- Get a good translation of the law into your language of origin.
- Work together with your grantees on confidentiality agreements. Under reformed operational rules for the Anti-money Laundering Law, actual copies of documents are not submitted to the Financial Intelligence Unit. Grantees must safeguard that information in a file for at least five years and make it available in case of an inspection by the UIF. Some organizations already offer their donors these binding agreements and are open to working with donors to reach agreements that work for both parties.
- Keep an eye for changes in these rules. They have been adjusted several times since they were issued, simplifying requirements.
- Provide the information grantees need to safeguard them from noncompliance.
The Group of 7 (G7) is a group consisting of the finance ministers and central bank governors of seven major advanced economies as reported by the International Monetary Fund: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The European Union is also represented in this group, which concentrates 64% of the global wealth, and get together to discuss and set trends primarily on economic issues.
Other regulated activities are all financial transactions over an established money limit related to: casinos, lotto and other kinds of gaming, credit card payments, purchase of debit or gift cards, reward cards, traveler checks, credits and other kinds of loans outside the financial system, armor services, real state purchase and rent, precious metals and jewelry, luxury cars, art dealing, transport of cash and other valuables, professional services related to financial and real state brokering, public notaries, and foreign trade.
Donors in this group are, The Ford Foundation, The MacArthur Foundation, Open Society Foundations, The
Hewlett Foundation, The Fund for Global Human Rights and Sociedad Mexicana Pro Derechos de la Mujer (SEMILLAS).
Refer to footnote 2 for a complete list of regulated activities in addition to “receiving donations”.
Requirements are provided in point b. below.
The calculation of the threshold is done using “minimum wage units” for Mexico City. The official minimum wage for 2015 is MXN$ 70.10. It is important to note that minimum wages are approved by Congress and are adjusted every year. Donations above 1,605 x minimum wage (or MXN$ 112,510 pesos) require grantees to create donor files. The exchange rate used for the conversion is the Mexico’s Central Bank average for February 2015 MXN$ 14.9 = USD$ 1.
Counting from the day the funds are received.
The calculation of this higher threshold is also done in “minimum wage units”. It is established at 3,210 x minimum wage (or MXN$ $225,021 pesos). Exchange rate is the same as above.
In this section “donors” refer only to foundations and other non-governmental donors. There are different requirements for consulates, embassies or international organizations officially represented in Mexico.
This information comes from a direct and explicit consultation with UIF regulators.
Not all Mexican driving licenses show the holder’s birthday; which is a critical piece of data requested by this law.
The XXXXXX Foundation is a non-profit institution that does not have a beneficial owner of its assets and operations. Neither a single individual, nor group of individuals exercises legal rights to control the use, enjoyment, usufruct or disposition of any goods and/or services of our institution.
This information comes directly from the web portal on money laundering ran by Mexico’s Treasury. https://sppld.sat.gob.mx/pld/interiores/sanciones_administrativas.html consulted on February 10, 2015.
Other regulated activities are all financial transactions over an established money limit related to: casinos, lotto and other kinds of gaming, credit card payments, purchase of debit or gift cards, reward cards, traveler checks, credits and other kinds of loans outside the financial system, armor services, real state purchase and rent, precious metals and jewelry, luxury cars, art dealing, transport of cash and other valuables, professional services related to financial and real state brokering, public notaries, and foreign trade.
Donors in this group are, The Ford Foundation, The MacArthur Foundation, Open Society Foundations, The
Hewlett Foundation, The Fund for Global Human Rights and Sociedad Mexicana Pro Derechos de la Mujer (SEMILLAS).
Refer to footnote 2 for a complete list of regulated activities in addition to “receiving donations”.
Requirements are provided in point b. below.
The calculation of the threshold is done using “minimum wage units” for Mexico City. The official minimum wage for 2015 is MXN$ 70.10. It is important to note that minimum wages are approved by Congress and are adjusted every year. Donations above 1,605 x minimum wage (or MXN$ 112,510 pesos) require grantees to create donor files. The exchange rate used for the conversion is the Mexico’s Central Bank average for February 2015 MXN$ 14.9 = USD$ 1.
Counting from the day the funds are received.
The calculation of this higher threshold is also done in “minimum wage units”. It is established at 3,210 x minimum wage (or MXN$ $225,021 pesos). Exchange rate is the same as above.
In this section “donors” refer only to foundations and other non-governmental donors. There are different requirements for consulates, embassies or international organizations officially represented in Mexico.
This information comes from a direct and explicit consultation with UIF regulators.
Not all Mexican driving licenses show the holder’s birthday; which is a critical piece of data requested by this law.
The XXXXXX Foundation is a non-profit institution that does not have a beneficial owner of its assets and operations. Neither a single individual, nor group of individuals exercises legal rights to control the use, enjoyment, usufruct or disposition of any goods and/or services of our institution.
This information comes directly from the web portal on money laundering ran by Mexico’s Treasury. https://sppld.sat.gob.mx/pld/interiores/sanciones_administrativas.html consulted on February 10, 2015.
