VZCZCXRO0252
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1097/01 1021718
ZNR UUUUU ZZH
P 111718Z APR 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 1402
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RUEAHLA/DEPT OF HOMELAND SECURITY
RHEHNSC/NSC WASHINGTON DC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/CDR USNORTHCOM
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 05 MEXICO 001097 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, S/CT FINANCE 
STATE FOR EB/ESC MCMANUS AND IZZO 
FINCEN FOR CARA BROADHEAD 
TREASURY FOR IA (ANNA JEWEL, LUYEN TRAN) 
TREASURY FOR TFFC (RACHEL FEDEWA) 
DOJ AFMLS FOR ROBERT STAPLETON 
DHS/PLCY/OIA 
CBP/OIA AC MULLEN 
ICE/OIA M VANACORE 
NSC FOR RICHARD MILES, DAN FISK 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (ANDREA RAFFO) 
 
E.O. 12958: N/A 
TAGS: EFIN ETRD KTFN PTER MX
SUBJECT: VISITING FINCEN DIRECTOR DISCUSSES ANTI-MONEY 
LAUNDERING COOPERATION WITH MEXICAN OFFICIALS 
 
¶1. (U) This is a joint message from Embassy Mexico City and 
FinCEN. 
 
¶2. (SBU) Summary: Financial Crimes Enforcement Network 
(FinCEN) Director James H. Freis, Jr. visited Mexico City 
19-23 February to meet with senior Mexican officials and 
address a joint FinCEN-FIU strategic analysis training 
seminar for Central American FIUs conducted 18-21 February. 
Specifically, Director Freis met with Finance Secretary 
Agustin Carstens; Luis Urrutia, Director of the Financial 
Intelligence Unit (FIU); Guillermo Babatz, President the 
National Banking and Securities Commission (CNBV); and Jose 
Quijano, Director General of Financial System Analysis at the 
Bank of Mexico (BOM).  The meetings concentrated on FinCEN,s 
Southwest Border Report and collaboration with the FIU on 
money laundering issues.  Throughout the meetings, Government 
of Mexico (GOM) officials communicated a strong resolve to 
form a deeper collaboration with their counterparts in the 
United States and increase their efforts to fight money 
laundering and bulk cash smuggling.  Of particular note, 
Secretary Carstens endorsed a joint FIU-FinCEN analytical 
 
SIPDIS 
study to examine mechanisms of money flows between our 
countries.  End Summary. 
 
-------------------------- 
Finance Secretary Carstens 
-------------------------- 
 
¶3. (SBU) Discussions with Finance Secretary Carstens centered 
on FinCEN's December 2007 Southwest Border:  Analysis of 
Currency Flow Issues Report (Southwest Border Report) and 
planned future collaboration between FinCEN and the FIU to 
examine the issue further.  The Southwest Border Report 
examines processes related to cross-border movement of 
currency between the United States and Mexico, and how 
various factors affect trends in currency repatriated from 
Mexico.  Data analyzed for this report suggest a large 
imbalance between the amount of U.S. currency that travels to 
Mexico, and the amount of U.S. currency returned from Mexico 
through traditional banking channels.  FinCEN's analysis of 
Currency Transaction Reports, CTRs, and other data indicate 
that approximately USD 9-10 billion of cash returned to the 
United States in 2006 remains unexplained by available 
estimates of legitimate activity.  See paragraph 23 for 
distribution details. 
 
¶4. (SBU) Director Freis provided a copy of the Southwest 
Border Report and discussed future collaboration with the FIU 
to examine the issue further.  Secretary Carstens expressed 
his appreciation for sharing the report with the Government 
of Mexico (GOM), and gave his approval for the FIU and FinCEN 
to begin work on a combined cash flow study.  In discussing 
whether any product between FinCEN and the FIU should be made 
public, Carstens opined that the FIU has been extremely 
effective while keeping a low profile, and voiced concern 
that increased visibility and public attention might lead to 
increased security concerns for the FIU. 
 
¶5. (SBU) In subsequent discussion between FinCEN and the FIU, 
the GOM proposed that FinCEN and the FIU analyze the whole 
cycle of currency flows that derive from sales of illicit 
drugs in the United States.  The FIU will contribute with all 
of the information it has contained within its databases and 
data obtained from the Bank of Mexico (BOM).  The GOM 
anticipates that FinCEN will reciprocate in sharing similar 
data as well as data obtained from the Federal Reserve. 
Director Freis and FIU Director Luis Urrutia have maintained 
an open dialogue on plans for the combined study and will 
 
MEXICO 00001097  002 OF 005 
 
 
meet in Washington on April 14 to further discuss the way 
ahead. 
 
------------------------------------------ 
National Banking and Securities Commission 
------------------------------------------ 
 
¶6. (SBU) Guillermo Babatz, President of the National Banking 
and Securities Commission (CNBV), also discussed money 
laundering and bulk cash smuggling issues with FinCEN. 
Babatz told Director Freis this issue is a top priority for 
President Calderon and, accordingly, important for the 
relevant GOM agencies.  Various agencies are beefing up their 
efforts to combat money laundering and bulk cash smuggling by 
increasing personnel and training opportunities.  Moreover, 
there is a push to improve coordination among counterpart 
agencies.  Babatz remarked that CNBV's relations with the 
Attorney General's Office have improved due to better 
communication. 
 
¶7. (SBU) Regarding bank clients that buy large quantities of 
U.S. dollars, Babatz remarked that it is often a challenge to 
discern legitimate transactions from illegitimate ones. 
According to Babatz, the CNBV would like to conduct a study 
to get a better handle on which companies/sectors buy cash at 
a bulk discount for a legitimate purpose.  Developing such 
profiles will help Mexico single out illicit activities. 
 
¶8. (SBU) Separately, Babatz expressed his concern regarding 
U.S. banks associating a high level of risk with casas de 
cambio (regulated money exchange houses or "CC") accounts 
since the Casa de Cambio Puebla case.  (Note: Puebla used its 
correspondent accounts with Wachovia and Harris Bank to 
launder money on behalf of Mexican cartels.  End Note.) 
According to Babatz, U.S. banks are closing their 
correspondent CC accounts -- which is basically putting the 
casas de cambio out of business.  He remarked that he would 
be surprised if there were any CCs left by the end of the 
year due to consolidations/mergers and business closures. 
Babatz is concerned that CC cash flows will shift to less 
regulated institutions such as centros cambiarios (unlicensed 
money exchange houses). 
 
¶9. (SBU) Babatz requested the United States and Mexico 
discuss and coordinate actions that could have repercussions 
for Mexico's financial system.  Babatz expressed his concern 
over the potential press reaction to any further actions, and 
the possibility that negative press on CCs will create a 
domino effect and potentially cause problems for Mexican 
banks.  He does not want future law enforcement and 
regulatory actions to affect confidence in the Mexican 
financial system by creating the impression that the Mexican 
financial system is a "complete mess."  Babatz told FinCEN 
and Econoff that he understands cooperation among U.S. and 
Mexican law enforcement agencies has improved, and suggested 
this may "help the problem take care of itself." 
 
--------------------------- 
Financial Intelligence Unit 
--------------------------- 
 
¶10. (SBU) Freis and his team met with the head of Mexico's 
Financial Intelligence Unit, Luis Urrutia, and the FIU's 
strategic analysis staff to discuss FIU operations and future 
collaboration. 
 
¶11. (SBU) FIU Operations: The FIU is in the process of 
modernizing its IT capabilities.  Although the FIU originally 
 
MEXICO 00001097  003 OF 005 
 
 
planned to implement the UN's anti-money laundering platform 
(goAML), Director Urrutia is now exploring additional 
options, including the possible creation of a Mexican system. 
 Urrutia will make a final decision once he visits the 
Canadian, Spanish, and French FIUs to review their systems. 
 
¶12. (SBU) Data Quality: The FIU will also revise its 
suspicious activity report (SAR) form to include more fields 
to capture additional information from reporting entities. 
In terms of providing feedback to reporting entities, the FIU 
will begin to send feedback about SAR quality on a quarterly 
basis.  According to Urrutia, the FIU has a feedback system 
in place and is currently in the testing process. 
 
¶13. (SBU) In 2004, centros cambiarios were mandated to report 
to the SAT, the Mexican tax authority; however, the FIU has 
yet to receive quality reporting from these institutions. 
The FIU is hopeful that the SAT has worked through its IT 
issues to permit effective reporting and expects to receive 
new test reports from this sector in May 2008. 
 
¶14. (SBU) FIU officials said that the GOM intended to release 
a national strategy to combat money laundering in March.  The 
strategy would identify money laundering risks and 
vulnerabilities.  In addition, the FIU will undertake risk 
assessments of identified vulnerable sectors.  Urrutia 
indicated that identifying who will be the regulator of new 
reporting entities will be a challenge for the GOM in the 
near future.  (Comment:  The concerns noted in paragraphs 
12-14 will be addressed in part by the USD 1 million training 
package that the USG is providing GOM anti-money laundering 
entities.  Specifically, the USG will address issues 
associated with prudential (Basel norms) risk-based 
assessments of money services businesses through hands-on 
seminars.  These workshops will provide background to 
establish monitoring guidelines for the SAT.  Moreover, in 
the training planned for the FIU, Treasury experts will 
review the planned changes to the 13 different reporting 
formats for SAR and CTR financial industry reporting to 
attempt to help standardize the information for inclusion in 
FIU databases that will be analyzed by data mining software 
for sophisticated link analysis.  This information is planned 
to be used in conjunction with the APIS (Advance Passenger 
Information System) information now received by SAT's General 
Customs Office.  End Comment.) 
 
----------------------------- 
Central American FIU Training 
----------------------------- 
 
¶15. (U) Freis and Urrutia provided closing remarks to a joint 
FinCEN-FIU strategic analysis training seminar for Central 
American FIUs.  The training was conducted 18-21 February and 
marked the first joint training initiative between FinCEN and 
the FIU.  Focused on enhancing Central American FIUs 
understanding of strategic analysis concepts, the training 
was attended by representatives of the following FIUs: 
Guatemala, Honduras, Belize, El Salvador, Panama, Colombia, 
Canada, Mexico and the United States. 
 
-------------- 
Bank of Mexico 
-------------- 
 
¶16. (SBU) Freis and Urrutia also met with the Bank of 
Mexico's Director General of Financial System Analysis, Jose 
Quijano Leon, and Patricia Torres of the Attorney General's 
Office to discuss information the BOM receives from Mexican 
 
MEXICO 00001097  004 OF 005 
 
 
financial institutions and how the FIU and FinCEN might use 
this information to inform a joint money flow study. 
 
¶17. (SBU) Quijano explained that the BOM was not involved in 
anti-money laundering efforts except for those that related 
to the safety and soundness of the Mexican financial system. 
As the regulator of foreign exchange transactions, the 
Finance Secretariat asked the BOM to examine transactions to 
see if new regulation would need to be created.  According to 
Quijano, the GOM wanted to know how many dollars the banks 
were buying on an aggregated basis from companies and 
individuals.  The BOM began collecting this information in 
¶2006. 
 
¶18. (SBU) The BOM routinely sends questionnaires to all 
reporting institutions, such as banks, casas de cambio, 
broker dealers, large companies that conduct business in the 
USD 1 million range, and companies conducting business in 
U.S. currency in the USD 3,000-1 million range.  The 
questionnaire collects the following information, which is 
reported on a quarterly basis: transactions with financial 
intermediaries; cash deposits; foreign exchange cash 
transactions; and the buying and selling of used U.S. 
dollars.  Institutions also must report on a monthly basis 
the amount of dollars repatriated back to the U.S. by 
denomination.  Quijano noted that the BOM does not receive 
information on every transaction, only aggregate amounts.  He 
also noted the BOM requires casas de cambio to classify 
transactions -- i.e. if the casa does transactions on behalf 
of centros cambiarios.  Quijano acknowledged that this 
reporting has not been very precise. 
 
¶19. (SBU) Quijano explained that the BOM views itself as the 
collector of these data and a conduit between institutions 
providing this information and other GOM agencies.  Through a 
memorandum of understanding, the BOM can share these data 
with other GOM authorities.  Quijano advised that the BOM has 
received and processed information for 2007.  Quijano stated 
that it would be good to compare Mexico's data with similar 
USG information to determine whether new regulation is 
needed. 
 
¶20. (SBU) Quijano estimated that most of the exportation of 
U.S. dollars has a legal or legitimate basis, such as large 
retail institutions on the borders.  These institutions 
receive U.S. cash and deposit it into the bank.  The bank 
will then export the cash immediately.  In addition, Quijano 
raised the theory that entities are buying dollars at a 
discount and paying suppliers abroad. 
 
¶21. (SBU) According to Quijano, the GOM is investigating the 
appropriate level of control for U.S. cash transactions.  One 
proposal is to lower the current reporting threshold from USD 
3,000 to USD 2,000.  Banks have proposed enacting a ceiling 
based on the risk of a client.  For instance, if the 
transaction is USD 500 or above, the bank would need to file 
a report and exercise more controls. 
 
¶22. (SBU) Freis shared with Quijano FinCEN's Southwest Border 
Report and discussed the joint cash flow study between FinCEN 
and the FIU.  Freis expressed the desire for the United 
States and Mexico to educate the public about legitimate 
flows between our borders, while focusing on finding the 
illegitimate.  Quijano expressed his support for the project 
but stipulated that a legal basis must be arranged with the 
Finance Secretariat about sharing its reports between the FIU 
and FinCEN.  Furthermore, Quijano stated that the sensitivity 
of its information will need to be discussed with the 
 
MEXICO 00001097  005 OF 005 
 
 
Secretary of Finance and BOM's Governor before any 
 
SIPDIS 
information could be disclosed to the public.  Quijano also 
conveyed his concerns about a publicly released report and 
the potential impact it would have on consumer confidence in 
the Mexican financial system. 
 
¶23. (U) FinCEN's Southwest Border Report is currently 
available for distribution in a Law Enforcement Sensitive 
version.  Authorized persons may contact Ann Martin 
(ann.martin@fincen.gov) or Joanna Kobliska 
(joanna.kobliska@fincen.gov) at FinCEN's Office of Law 
Enforcement Support to obtain a copy. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
BASSETT