Mexico as a Money-Laundering Paradise

It’s important to consider that out of the 124,000 people investigated for the suspicion of money laundering by Mexican authorities, these efforts unfortunately only led to the financial blocking of 14 individuals and a total of 198 million pesos ($11 million dollars) frozen by authorities. The fact is that money laundering in Mexico is a ripe issue.

The results of last year’s investigations are a basic cover up that underlines the country’s incompetence in matters of financial crime. Bearing in mind that Mexican organized crime is annually generating billions of dollars in illicit revenue; the small amount of individuals identified for potential money laundering is laughable.

Mexico’s Tax Administration Service (SAT), for instance, only audited about 1% of the 60,000 businesses with potentially fraudulent financial activities in 2018. The sanctions issued by the SAT are rarely applied and there are few instances when seized assets can be properly accounted for. This basically means that organized crime has a clear advantage in money laundering matters because the Mexican State lacks a competent agency to investigate and sanction financial inconsistencies.

Though nowadays some may consider Mexico’s government as socialist, it is perhaps more adequate to say that it is social when it comes to drug dealers. Said otherwise: it instigates and actively participates in a society characterized by drug dealing and illicit crime.

It is unlikely that the construction of a new federal security arm, the National Guard proposed by Mexico’s newly elected president, Andres Manuel Lopez Obrador, could be successful in improving security because the fundamental problem is corruption and the relationship between authorities and organized crime. These two actors are particularly connected through financial structures and the banking system, an issue the Mexican State has not shown a real interest in resolving.

In fact, organized crime flourishes due to the inability to properly identify individuals involved or possibly involved in money laundering and the incapacity to conduct due diligence through financial structures such as banks. If the “good old boy network” is at play in U.S. cases of corruption it is more adequate to refer the “good old family network” given Mexico’s social specificity. There is a specific non-Anglo custom observed in Mexican society that complicates typical approaches to financial crime.

The beneficiaries of money laundering in Mexico are often carefully hidden because investigations rarely consider the familial relationships implicated through bank employees. International banks such as BBVA Bancomer, Citibank, Santander, HSBC Mexico, Mitsubishi Bank and Scotiabank could perform more comprehensive investigations on employees that include a family background check in order to prevent hiring or working with representatives that may have familial or friendly ties to organized crime.

Though the juridical system in the U.S. or Britain does not tend to consider blood ties and familial relationships in their investigations, in the case of Mexico it rings true that “the apple does not fall far from the tree.” Bank employees at all scales must be properly investigated with the aim of working against money laundering and curtailing corruption, which often spreads with the efficacy of a septic infection. The amount of connections between employees and organized crime are astounding.

The CJNG, for instance, was found to be laundering money through familial ties through its currently known leader, Nemesio Oseguera, in December 2018. This single example evidences the danger of a poor background investigation in terms of familial relationships on bank employees, which may lead to monetary sanctions or international financial entities currently operating through Mexican soil.

Organized crime will continue to utilize legal financial structures to launder billions of dollars in illicit assets. The proliferation of shell companies, the inefficacy of Mexican financial regulatory institutions (that lack competent training in the procedures necessary to investigate) and the generalized atmosphere of corruption contribute to making it an almost simple task. Mexico consequently is not far from becoming a money laundering paradise, if it isn’t one already. It is critical that international financial institutions operating in Mexico rigorously investigate the family ties of their employees in order to avoid participating in financial crime.