Money laundering is considered to be the crime of ‘operations with resources from illegal origins’ under article 400-bis of the Federal Criminal Code. The money laundering offence is also complemented by the Federal Law Against Organized Crime, which provides higher criminal sanctions for money laundering offenders considered to be members of a criminal organization, and the Federal Criminal Procedures Code, which considers the money laundering offence to be a serious offence and thus limits the ability of any defendant to obtain release prior to conviction.
With regard to anti-money laundering laws and regulations, the Ministry of Finance is the overall regulatory authority. The Ministry of Finance is authorized by the relevant laws to regulate and supervise the financial system, and to issue anti-money laundering regulations that establish measures and procedures for the subject entities to prevent and detect money laundering activities.
Pursuant to the Law for the Prevention and Identification of Transactions with Criminal Proceeds (subject to certain qualifications that may include monetary thresholds and habituality), entities and persons engaged in the following designated non-financial businesses and professions will also be bound to carry out certain AML measures:
- real estate development;
- activities related to the practice of gambling, contests or raffles carried out through the sale of tickets, tokens or any other type of proof of payment;
- activities related to the issuance and marketing of prepaid cards, payment service cards and any type of card comprising instruments for the crediting of money value;
- activities related to the issuance and marketing of traveler’s checks
- the granting of credit or guarantees;
- construction services, real estate development services, real estate brokerage or intermediation services;
- marketing of precious metals, precious stones, jewels or watches;
- marketing and auctioning of artworks;
- marketing and distribution of new or used vehicles;
- vehicle and real estate armouring services;
- money and value transportation services;
- certain representation activities carried out by lawyers and other independent service suppliers;
- certain notarial, attestation and appraisal activities carried out by notaries public, brokers and public officers;
- the receiving of donations by non-profit organizations;
- certain customs brokerage activities; and
- the lease and granting of personal rights of use over real estate assets.
- Mexico’s AML regulations require covered institutions to elaborate and send to the corresponding regulatory authority a document in which the institutions develop their customer identification and KYC policies, as well as all criteria, measures and internal proceedings that the institutions must adopt in order to comply with the AML regulations, including the selection proceedings of their employees and AML training requirements.
- Mexico is not listed as a non-cooperative country by the FATF, nor as an uncooperative tax haven by the OECD. It is on the EU’s white list of equivalent jurisdictions and is not included in the original IMF list.
- Despite acknowledging that there is still room for improvement, the FATF recognizes that Mexico has made progress in developing its systems for combating money laundering. In its latest Interim Follow-up Report of the Mutual Evaluation (2014), the FATF indicated that Mexico has focused on correcting deficiencies as well as enhancing the effectiveness of anti-money laundering and countering the financing of terrorism as a whole and has made significant progress in addressing the deficiencies identified in its mutual evaluation report and could be removed from the regular follow-up process
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. For example, in 2006, Australia set up the AUSTRAC system and required the reporting of all financial transactions.
Money Laundering is Nothing New
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:
- Real estate construction, purchase, rental, as well as fractional or time share, 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.
- KYC forms required from buyers and sellers by escrow company, and notary for further reporting to the government in response to anti money laundering laws.
- Buyer: Notary has to send a xml and (a pdf of that the xml file says) to buyer of property over $38,500 USD. 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 the 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.
- 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.
- 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 $38,500 USD by the 17thof 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: factura, escritura, fideicomiso trust.
The 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 making sure you have a good insurance policy in place for the building (through the HOA) and you have a good individual home owner´s policy for your unit, to cover accidents or injuries of person on the property who you have invited.
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