The September 11 attacks in 2001, which led to the Patriot Act in the US and similar legislation worldwide, led to a new emphasis on money laundering laws to combat terrorism financing. The Group of Seven (G7) nations used the Financial Action Task Force on Money Laundering to put pressure on governments around the world to increase surveillance and monitoring of financial transactions and share this information between countries. Starting in 2002, governments around the world upgraded money laundering laws and surveillance and monitoring systems of financial transactions.
Anti-money laundering regulations have become a much larger burden for financial institutions and enforcement has stepped up significantly. During 2011–2015 a number of major banks faced ever-increasing fines for breaches of money laundering regulations. This included HSBC, which was fined $1.9 billion in December 2012, and BNP Paribas, which was fined $8.9 billion in July 2014 by the US government.
Many countries introduced or strengthened border controls on the amount of cash that can be carried and introduced central transaction reporting systems where all financial institutions have to report all financial transactions electronically.
The concept of money laundering regulations goes back to ancient times and is intertwined with the development of money and banking. Money laundering is first seen with individuals hiding wealth from the state to avoid taxation or confiscation or a combination of both.
In China, merchants around 2000 BCE would hide their wealth from rulers who would simply take it from them and banish them. In addition to hiding it, they would move it and invest it in businesses in remote provinces or even outside China.
Real estate transactions in Mexico
1. Real estate construction, purchase, rental, as well as fractional or timeshare, are havens for dirty money according to international anti-money laundering laws. Money coming from illegal sources of income and money to finance terrorism. Mexico instituted laws in 2012 and make them effect to follow since Sept 1, 2013. USA began these laws officially beginning n 1980. Since 911 and the Twin Towers attack on the USA, anti-money laundering laws have included anti-terrorism financing. Original laws against laundering starting in China centuries ago when royalty could take the money or resources of commoners.
2. KYC forms required from buyers and sellers by the escrow company, and notary for further reporting to the government in response to anti-money laundering laws.
3. Buyer: Notary has to send an xml and (a pdf of that the XML file says) to the buyer of property over $38,500usd. Buyer must keep the xml file to use when the property is sold, in order to prove what you paid for the property. SAT or the Mexican IRS, can identify your transaction with the xmls file to prove what you paid is declared to be true. The pdf is a copy of what the code says so you can know if the true price has been declared. You must keep both of these records in a safe place, and you should keep backups on other devices. If you do not have the xml file or it is corrupted, you will not be able to claim the entire price you paid as your basis upon which future tax will be computed when you sell.
4. Seller: Notary has to send by email an electronic facture which shows the amount of ISR or capital gains tax paid at closing. This factura can be used by Americans as a tax expense when filing their US tax returns. The notary should also send a receipt if he charged (or a third party hired by the notary) for a strategy to lower the ISR. This receipt should be turned in by the American to his US accountant to show as an expense. Currently, Mexicans cannot use the receipt for strategy since it is not a factura or formal receipt.
5. Notaries and real estate agents, both sides representing the buyer and the seller, are required to report to SAT a closed transaction of a property over $38,500usd by the 17th of the month following the occurrence. Reports include what is noted in the escritura: seller and buyer identification, details of the closing price, and formal reference of the identification the new escritura and its filing information in the public registry.
As an owner or buyer, you should be familiar with this and understand well the terms: facture, escritura, fideicomiso trust.
Additionally, you as a consumer should know you cannot own a residential property in Mexico without a trust. You may have a Mexican LLC without a fideicomiso trust, if you develop and or own commercial property. No tricks such as long-term leases (which have an automatic expiration in Mexico) can circumvent this fact of trust required or not. If you want to have an American or Mexican LLC in a trust to own a residential property, for the reason that you want to avoid or lessen liability, you are far better at making sure you have a good insurance policy in place for the building (through the HOA) and you have a good individual homeowner´s policy for your unit, to cover accidents or injuries of the person on the property who you have invited.
All the procedures and steps now to be clear of anti-laundering money charges, and disclosure of all parties, now makes it longer to close a transaction that has any relationship with certain banks who have been charged with mistakes or breaking the laws now under the umbrella of Anti-Laundering Money laws. Covid and fewer persons working in offices, has increased the delays, also.
Hopefully, 2021 will bring better streamlining of systems, and more awareness from bureaucratic government and trustee banks that the customer needs help, and more efficiency to shorten these delays.
Puerto Vallarta Real Estate Blog published every week –
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This article is based upon Flex MLS reporting, legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review. If you have any other questions, contact me through my website.Harriet Murray