Every time that the Financial Action Task Force releases a document, its reading becomes mandatory for all Anti-Money Laundering and Terrorism Financing discussions, actions or nearly for simple briefing if you want.
Recently I was rereading the Mutual Evaluation Report –Anti-Money Laundering and Combating the Financing of Terrorism for México released in October’08; never the less that such document is considered an objective assessment of the current situation in México, I must disagree with some of the key points of the report.
Yes, the report recognizes the huge progress accomplished by México’s Federal Government on Anti-Money Laundering and Terrorism Financing issues since the 2004 assessment, yes the report recognizes the unprecedented war it is facing against Organized Crime and its threat to Mexico’s security and stability due to its billionaires resources and increasing violence methods, yes, the report develops the negligible (and shocking) number of 149 indictments vs. 30 judicial decisions on Money Laundering cases since 2004 (and even more, from those 30 judicial decisions, 5 of them resulted in acquittals!); yes, the report brings clearness about a couple of issues that I cannot fight back ( and consider those as an window of opportunity), but the report also points out specific situations that allegedly do not fully meet FINANCIAL ACTION TASK FORCE’s and international standards but if we take a closer look we will find that those “findings” are not totally accurate.
Obviously right now I can’t go over the entire 38 key points, so I will focus my attention only on two of them:
I. The FINANCIAL ACTION TASK FORCE claims that Mexico has a strong Criminal Law frame but it doesn’t contains non-delay freezing procedures for funds and assets from designated persons or legal entities which have been designated in accordance with relevant United Nations Security Council resolutions.
Such is absolute right, never the less; they didn’t take in consideration that México’s Constitutional Law has its source in the Romanic-Germanicus Law system, which is not necessary compatible with the Anglo-Saxon Law system which rules in the United States. We all know that the worldwide Anti-Money Laundering and Terrorism Financing Laws, Regulations and best practices are always looking to align with the United States requirements, México is no stranger to such process, as a member of the FINANCIAL ACTION TASK FORCE, the Egmont Group and other worldwide organizations we are always looking up to meet the international parameters; as a matter of fact, México’s financial system has been considered by many local and foreigner experts as a “over regulated one” and its Anti-Money Laundering and Terrorism Financing legal frame has been adapted to match the world wide requirements as much as its Constitutional Law allows such.
It was also ignored that the United States Anti-Money Laundering and Terrorism Financing Laws and Regulations have been tightened in the extreme since 9/11 and in several cases those can’t match México’s Constitutional Law; as an quick example we can mention the FINANCIAL ACTION TASK FORCE’s signaling that never the less México has a strong Criminal Law frame, it doesn’t contains non-delay freezing procedures for fund and assets from designated persons or legal entities that have been designated in a governmental “black list”. It is crystal clear that such requirement is looking to force Mexican system to perform a self-alignment with the US Patriot Act, and such requirement, at least for our Law system, is unacceptable because the US Patriot Act runs against our due legal process system; article 16 of the Mexican Federal Constitution guarantees that no one may be molested in his person, family, home, papers or possessions except by written order of the competent authority, which must sustain and motivate the legal cause of the proceeding, does US Patriot Act meets such legal guarantee?
It has been explained in several forums that If Mexico’s Federal Government modifies its Criminal Law procedures to fulfill such requirement the true outcome could be that Organized Crime attorneys will use such amendment as a legal nook before the entire Mexican Courts system; the most probable result? Their percentages to obtain acquittals will increase in any Criminal and/or Civil trial (Ley de Extinción de Dominio: forfeiture procedure to fight against Organize Crime) because such amendment could be considered by Circuit and Appellation Courts as a violation of Constitutional Law principles.
It is a fact that over reporting, over ruling and over monitoring will not necessary brings positive effects; the right thing to do is make an entire analysis of Mexico’s Law system.
II. The FINANCIAL ACTION TASK FORCE points out that in México operates Multi-Purpose Finance Companies (Sociedades Financieras de Objeto Múltiple) and that those jeopardizes the entire Mexican Federal Government’s hard work because the increasing number of such financial companies.
Ok, but what the Multi-Purpose Finance Companies really are?
From 1998 to 2004, there was a “boom” of alternative financial institutions due to Mexican 1995 crisis, so the Mexican Government decided to create financial institutions focused to the lending, leasing, and factoring businesses in accordance Mexico’s General Law of Organizations and Credit Related Activities called Limited-Purpose Finance Companies; this institutions difference themselves from Banking institutions because they aren`t authorized to capture public resources in the form of cash deposits and savings accounts, and they specialize in lending to one sector, for example mortgages or automobile or personal lending, but yet they made consumer credits available to general population and currently are subjected to Regulators surveillance.
After its consolidation, a new financial institution arises: the Multi-Purpose Finance Companies which have the same goals that the Limited-Purpose ones without being (of course) limited to “attack” only one business segment; this Companies are not currently regulated by Law on Anti-Money Laundering and Terrorism Financing issues. Never the less they will become regulated at some point near, the FINANCIAL ACTION TASK FORCE considered that having financial businesses with no supervision on Anti-Money Laundering and Terrorism Financing means a significant gap on Mexico`s system and makes it vulnerable.
What the FINANCIAL ACTION TASK FORCE team didn’t got clear is that such financial institutions were created to approach consumer credits to general population that had at those time no access to Banks credits, everything was about lifting Mexico’s popular economy and of course, they also didn’t notice that never the less there is no current banking supervision on Money Laundering, the Article 400-Bis of the Federal Criminal Code is applicable to any person that executes any activity related to Money Laundering and Terrorism Financing and that it is complemented by the provisions in the Federal Law Against Organized Crime, it is nothing but a simple matter of legal principles supplementation, actually all the Mexico’s current General Provisions to Prevent Money Laundering and Terrorism Financing must be understood as a Regulation, and so, they are under the Federal Criminal Code and the Federal Law Against Organized Crime in Law hierarchy.
In my opinion the FINANCIAL ACTION TASK FORCE examination isn’t as precise as I thought at the beginning, it was mandatory to take also into consideration Mexico’s society, economy, history and Law tradition, those aspects were totally ignored, simple as that. As an Anti-Money Laundering and Terrorism Financing expert, such generates doubts about the accuracy of all the available reports; I need to question myself that if I read the reports for Finland or Singapore or New Zeeland or Brazil am I going to get the big picture?
I believe that Anti-Money Laundering and Terrorism Financing professionals can be classified in 3 kinds:
1. Local experts which are fully aware about the know-how of their region.
2. International connoisseurs which are worldwide best practices experts, and
3. Regional experts and International connoisseurs who are able to understand the know-how beyond their own region and that are worldwide best practices experts.
I am not sure how the FINANCIAL ACTION TASK FORCE’s and Mexico’s Government teams were conformed, but I am sure that the expression “lost in translation” is not out of place.
Perhaps the FINANCIAL ACTION TASK FORCE needs to look closer next time for everyone’s benefit.