VZCZCXRO5876
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1779/01 1622111
ZNR UUUUU ZZH
P 102111Z JUN 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 2191
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
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 001779 
 
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 (RACHEL JARPE, 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 (BORA DURDU) 
 
E.O. 12958: N/A 
TAGS: EFIN KTFN PTER MX
SUBJECT: MEXICAN BANKERS DISCUSS ANTI-MONEY LAUNDERING 
EFFORTS 
 
REF: A. MEXICO 1097 
     ¶B. 07 MEXICO 5793 
     ¶C. 07 MEXICO 1119 
 
¶1. (SBU) Summary.  During roundtable discussions with Embassy 
officials, bank compliance officers said their institutions 
base their anti-money laundering (AML) and combating 
terrorism financing (CTF) practices on international 
standards.  They commented on how difficult it can be to stop 
illicit flows without harming legitimate businesses.  Mexico 
is a particularly challenging environment given the 
pervasiveness of organized crime, tax evasion, and informal 
economic agents; the fact that Mexico is a cash intensive 
society; and the lack of both public information on companies 
and a universal identification card.  A Finance Secretariat 
official acknowledged that complying with AML/CTF regulations 
is costly for financial institutions, and remarked that new 
regulations might make it even more expensive.  The bankers 
said recent events involving regulated money exchange houses 
would shift cash flows to less regulated institutions, and 
they have seen a few cases of terrorism financing.  The 
participants expressed a desire to work more closely with 
U.S. authorities.  End Summary. 
 
------------ 
Introduction 
------------ 
 
¶2. (SBU) Embassy Mexico City held two roundtable discussions 
with bank compliance officers from several major banks in 
recent months to discuss their institutions' anti-money 
laundering (AML) and combating terrorism financing (CTF) 
efforts.  ECON, FinCEN, NAS, ICE, IRS, OFAC, and DEA were 
represented.  The Finance Secretariat's Financial 
Intelligence Unit (FIU) and Banking and Savings Unit also 
participated.  (Note:  Due to pressure from GOM authorities, 
the compliance officers would not meet with us unless we 
invited GOM representatives.  End Note.) 
 
------------------------------------------ 
An International Perspective on Compliance 
------------------------------------------ 
 
¶3. (SBU) The bank compliance officers cast a positive light 
on their internal controls against money laundering and TF. 
The representatives -- all of whom were from banks that are 
subsidiaries of major foreign-based international banks -- 
said their institutions base their AML/CTF standards and 
practices on international standards and receive guidance 
from their global parent organizations.  Several participants 
emphasized their thorough due diligence regarding clients 
they deem to be high risk.  HSBC highlighted how it takes a 
"special look" at such entities as car vendors and jewelry 
stores.  Banamex remarked that Casablanca had a huge effect 
on Mexican financial institutions, prompting them and the 
government to improve AML policies and procedures.  (Note: 
Operation Casablanca was a U.S. Customs-led investigation 
that targeted and caught dozens of money launderers, 
including three Mexican banks, in the late 1990s.  End Note.) 
 
¶4. (SBU) Under Mexican law, banks have 30 days to report 
suspicious transactions to the authorities, a timeframe that 
is shortened to 24 hours if the bank compliance officer deems 
it particularly important or if the names of the individuals 
in question have appeared in the news.  Banamex said it sees 
these 24-hour reports often, and that these reports are 
discussed during a monthly meeting of bank compliance 
officers. 
 
 
MEXICO 00001779  002 OF 005 
 
 
---------------------------- 
Improved Information Sharing 
---------------------------- 
 
¶5. (SBU) An official from the Finance Secretariat's Banking 
and Savings Unit said the GOM is changing AML/CTF regulations 
to allow Mexican banks to share information with each other 
regarding suspicious activity -- something that was not 
allowed previously because of bank secrecy laws. 
Implementing regulations are required to specify what kind of 
information can be shared.  Banamex remarked that banks are 
not sure what the new information sharing rules will look 
like, but they will likely include a database where banks can 
post information. 
 
¶6. (SBU) Bank compliance officers in the Mexican Banking 
Association (ABM) meet once a month to share experiences, 
discuss best practices, and talk about the regulatory 
environment.  They are prohibited, however, from discussing 
individual cases.  One participant, who was the head of the 
ABM's Compliance Committee, remarked that the ABM plays a key 
role in strengthening relations between private banks and the 
government.  He added that banks talk regularly with GOM 
authorities about ways to avoid defensive reporting, 
regulations in the pipeline, etc. 
 
¶7. (SBU) All participants indicated they would like to share 
more information with their parent organizations.  Banamex 
noted that it can access transaction information on customers 
from its parent company (Citigroup), but it can only 
reciprocate on specific transactions with permission from the 
GOM because of Mexican privacy rules.  In Banamex's case, 
they can see Citigroup's negative and black lists of clients, 
but not the actual suspicious activity reports.  Santander 
indicated that its situation is similar.  Another participant 
remarked that auditors from its parent company can see 
information if they sign a confidentiality agreement, but 
they cannot take copies of records with them. 
 
---------------- 
KYC is Essential 
---------------- 
 
¶8. (SBU) The bankers stressed the importance of "know your 
customer" (KYC) policies.  One of the participants 
highlighted the need to know about the provider of the funds. 
 That is, if a housewife or student wants to open an account, 
the bank needs information about who provided the individual 
with the funds.  The participants lamented that this can 
hinder their ability to bank the unbanked.  A FIU official 
said the GOM will issue new regulations that will follow 
Basil II methodology for low-risk accounts, meaning that 
banks would not have to collect as much information if the 
client is determined to be low risk under preset criteria. 
 
¶9. (SBU) Banks are seeing increased public awareness about 
KYC.  For example, if someone sells their house, they are 
more likely to bring a deed to confirm the transaction, while 
in the past they were more likely to protest that the bank 
had no right to such personal information. 
 
---------------------------------------- 
Challenges to Combating Money Laundering 
---------------------------------------- 
 
¶10. (SBU) The bankers highlighted several obstacles they face 
in combating illicit transactions.  They noted how 
transactions can be routed through any number of legitimate 
businesses, and how it is difficult to find public 
 
MEXICO 00001779  003 OF 005 
 
 
information that helps them verify a firm's legitimacy. 
Banks regularly see the smurfing of cash deposits at 
different branches.  (Note: Smurfing is jargon used to 
describe the act of splitting a large financial transaction 
into smaller ones to avoid deposit-reporting requirements. 
End Note.)  The trend now is for cash to move to gatekeepers 
such as car dealers and commercial entities.  BBVA Bancomer 
said the cash is still flowing -- if you close one account, 
the money simply finds another way into the system. 
 
¶11. (SBU) Myriad informal economic agents and the fact that 
Mexico is a cash intensive society make banks' task even more 
difficult.  Pervasive tax evasion also presents a problem 
since, as one banker stated, it would be impossible to refuse 
to do business with those who evade taxes.  This 
representative added that his compliance department tries to 
focus on serious crimes (e.g. drug trafficking and 
kidnapping) instead of tax evasion. 
 
¶12. (SBU) Banamex remarked how the lack of a single 
identification number in Mexico (like the U.S. Social 
Security number) and the ease with which people can get a 
fake identification make it more difficult to follow an 
individual's activity.  HSBC stressed the importance of 
assigning all customers a number, rather than simply 
assigning account numbers.  This makes it easier to track the 
transactions of clients who have multiple accounts. 
 
--------------------------- 
Widespread Use of U.S. Cash 
--------------------------- 
 
¶13. (SBU) The movement of U.S. cash is prevalent in Mexico. 
To address this issue, banks have developed a registry to 
keep a record of cash intensive clients; created a policy 
that requires senior management approval for large U.S. cash 
transactions; and taken additional steps to help manage risk. 
 For example, some banks will not accept cash when settling 
on a home purchase. 
 
¶14. (SBU) When asked if the amount of U.S. cash in Mexico 
that cannot be accounted for by legitimate means is roughly 
USD 1 billion per month, the Banamex representative replied 
that the figure was too high.  He said this figure may have 
been accurate in the first quarter of 2007, but banks have 
taken steps to reduce these flows.  Some of the large U.S. 
cash transactions come from legal businesses that are U.S. 
cash intensive.  It can be difficult to distinguish between 
licit and illicit transactions because Mexico is a cash 
intensive society.  One representative remarked that the vast 
majority of money is smuggled in the form of physical U.S. 
dollars.  The bankers have not seen an increase in euros. 
 
------------------------------ 
Cost of Compliance Significant 
------------------------------ 
 
¶15. (SBU) The Finance Secretariat official acknowledged that 
complying with AML/CTF regulations is costly for financial 
institutions, and remarked that new regulations might make it 
even more expensive.  (Note: Later this year the Banking and 
Securities Commission will gain the power to fine banks that 
fail to comply with regulations.  The GOM also plans to 
harmonize due diligence rules among banks and regulated and 
unregulated exchange houses.  End Note.) 
 
¶16. (SBU) Banks have found the following regulations to be 
particularly costly:  1.) Identifying and reporting on wire 
transactions greater than $3,000; 2.) Identifying the 
 
MEXICO 00001779  004 OF 005 
 
 
provider of funds; 3.) Updating customer profiles (because of 
the lack of a universal identification card); and 4.) 
Verifying a firm's legitimacy (because of a lack of publicly 
available information on companies).  That said, the Banamex 
representative remarked that "the only way to be careful" is 
to invest in controls.  He added that while niche banks that 
are not heavily involved in these activities need solid 
compliance programs, they do not need "an army of people" 
like the larger financial institutions. 
 
---------------- 
Some Signs of TF 
---------------- 
 
¶17. (SBU) While he did not provide details, one of the 
participants said his bank has seen a few cases of terrorism 
financing.  He admitted that his bank is more reactive than 
preventative on this issue.  He added that OFAC's Specially 
Designated Nationals and Blocked Persons list is standard for 
the industry, but people with common names like "Jose Garcia" 
make their job more difficult.  The bankers said they report 
these cases to the Mexican authorities immediately. 
 
----------------------------------------- 
Money Exchange Houses a Source of Concern 
----------------------------------------- 
 
¶18. (SBU) The bankers expressed concern about events 
involving regulated money exchange houses called "casas de 
cambio" (CCs) 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.)  One representative posited that there will be 
only four or five regulated CCs by yearend because reciprocal 
banks in the U.S. are ending relationships with Mexican CCs. 
Several participants remarked that as CCs close, cash flows 
will shift to less regulated institutions such as centros 
cambiarios (unregulated money exchange houses). 
 
¶19. (SBU) One of the participants stressed the importance of 
distinguishing between CCs and centros cambiarios.  Most 
large banks do not deal with centros cambiarios if they know 
it is a centro -- something that can be difficult to 
determine because the centros do not always advertise 
themselves as such.  Mexico's Tax Administration Service 
(SAT) has 2,400 registered centros cambiarios, but industry 
representatives say they have 8,000-10,000 points of sale. 
Centros cambiarios are supposed to report large transactions 
to the SAT, but one banker noted that "they largely do as 
they please."  That said, another participant acknowledged 
that the regulatory framework for CCs needs work -- adding 
that some CCs deal directly with centros cambiarios. 
 
¶20. (SBU) Overall the banks have seen a tightening in the 
market since the Casa de Cambio Puebla case.  They remarked 
that Mexican banks are being less tolerant of large U.S. cash 
transactions.  Moreover, new regulations require banks to 
maintain a registry of cash intensive customers; banks have 
increased efforts to only accept cash from entities that can 
prove sources; and banks have become more adverse to large 
cash transactions with CCs. 
 
------------------------------------------ 
Eager for Closer Cooperation With the U.S. 
------------------------------------------ 
 
¶21. (SBU) The participants expressed a desire to work more 
closely with U.S. authorities.  They want to build channels 
of communication so they are not taken by surprise when U.S. 
 
MEXICO 00001779  005 OF 005 
 
 
organizations issue advisories or warnings about certain 
institutions or regions.  One representative remarked that 
bankers see what has occurred in the casa de cambio industry 
and do not want their institutions to become an "example" in 
the news. 
 
------- 
Comment 
------- 
 
¶22. (SBU) The meetings with compliance officers show that 
Mexico is taking concrete steps to tighten its AML/CTF 
regime.  It was heartening to see some of the measures banks 
have implemented to fight ML and the increased cooperation 
between banks and GOM authorities.  Nonetheless, serious 
shortcomings remain, as significant amounts of money (usually 
narcotics-related) are still smuggled across the border. 
Additional work is needed to examine bank secrecy laws so 
they do not hinder Mexico's AML/CTF system, improve the 
system for reporting suspicious transactions, increase 
efforts to control bulk cash smuggling, improve Mexico's 
ability to prosecute and convict money launderers, better 
control the situation at money exchange houses, and fight 
corruption. 
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 / 
GARZA