VZCZCXRO2929
RR RUEHCD RUEHGD RUEHHO RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHMC #0137/01 0981905
ZNR UUUUU ZZH
R 081905Z APR 09
FM AMCONSUL MONTERREY
TO RUEHC/SECSTATE WASHDC 3634
INFO RUEHME/AMEMBASSY MEXICO 4690
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RHMFIUU/HQ USNORTHCOM
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEHMC/AMCONSUL MONTERREY 9206

UNCLAS SECTION 01 OF 03 MONTERREY 000137 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND EINV ETRD PGOV MX
SUBJECT: MONTERREY:  MONEY LAUNDERING MOVES FROM BANKS TO CASH 
BUSINESSES 
 
REF: MEXICO 0982 
 
MONTERREY 00000137  001.2 OF 003 
 
 
¶1.  (SBU) Summary.  Monterrey is a major destination for illegal 
bulk money transfers and money laundering from the United 
States.  Although Mexico only intermittently prosecutes money 
launderers, our industry contacts believe that due to corporate 
self regulation and Mexican laws, money laundering is no longer 
concentrated in banks and money exchange houses but instead 
occurs in businesses specializing in cash transactions 
(commercial real estate , car dealerships, gas stations, 
commodities, agriculture, casinos, and jewelry).  The Mexican 
Senate has approved a new asset forfeiture law to allow for the 
seizure of assets from third parties prior to a conviction, and 
that legislation is currently before the House of Deputies. 
Strong asset forfeiture laws are welcomed by the private sector 
in Monterrey as business leaders believe they will help spur the 
development of industry standards for legitimate companies. 
However, our private sector contacts think that still more 
changes are needed to prevent money laundering, especially in 
commercial real estate and high volume cash businesses.  The 
most important ingredient to preventing money laundering is also 
the most difficult:  the political will to aggressively enforce 
the law.  End Summary. 
 
 
 
Few Prosecutions as Drug Money Flows into Monterrey 
 
 
 
¶2.  (SBU) According to the U.S. Treasury's 2008 Mexico Bulk 
Currency Study, the Monterrey area is one of the three principal 
zones in Mexico where drug trafficking organizations (DTO's) 
aggregate bulk shipments of currency from the United States. 
Monterrey is a popular transit point because of its proximity to 
the United States and excellent transportation infrastructure. 
The relative wealth of the city also makes it easier for 
high-living drug cartel leaders to mix in with the general 
population.  (In just the past month, the Mexican Army has 
detained a first tier member of the Sinaloa Cartel, Hector 
Huerta Rios, aka "La Burra," and a leader of the Zeta 
organization, Sigifredo Najera Talamantes, aka "el Canicon," in 
the Monterrey area.)   After the money is aggregated, it is then 
used to purchase drugs from South American sources, used for 
operational expenses, stored for emergency use, or laundered 
into the legitimate economy.  The U.S. 2008 National Drug 
Control Study estimates that 15 to 20 billion dollars are 
smuggled to Mexico annually in bulk cash transfers and this 
figure is growing annually.  U.S. Treasury research and 
reporting from financial institutions show similar results. 
However, studies also indicate that currently only 1% of money 
laundering is caught through current procedures. 
 
 
 
¶3.  (SBU) The profile of money laundering has changed as DTO's 
increasingly wash money through cash businesses instead of the 
banking system or large corporations.   DTO's conduct many of 
their transactions in US dollars; often using dollars to pay 
suppliers, couriers and other operational expenses so only a 
small percentage of the cash directly enters the financial 
system.  In the past, DTO's used banks, money exchange houses 
(casas de cambios) or foreign exchange centers (centros 
cambiarios) to launder their money.  (Note:  Centros Cambiarios 
are similar to casas de cambio but are not allowed to transfer 
money internationally and are less regulated by financial 
agencies).   However, regulatory reforms and several large high 
profile money laundering busts of casas de cambio in the states 
of Puebla and Quintana Roo have forced DTO's to exploit the lack 
of regulation of non financial businesses.  A knowledgeable 
business consultant told us that major Monterrey corporations, 
such as the founding Group of 10, have steered clear of 
involvement in potential money laundering activities. 
 
 
 
¶4.  (SBU) Our private sector contacts believe that money 
laundering is now concentrated in cash businesses such as 
commercial real estate , car dealerships, gas stations, 
commodities (mainly steel), agriculture, casinos, and jewelry. 
There are indications that the number of drug related real 
estate transactions is large.  David Robillard, the Mexican 
General Manager for Kroll Inc., a U.S. based security company, 
investigates real estate transactions and other deals for 
 
MONTERREY 00000137  002.2 OF 003 
 
 
clients.   According to Robillard, in 25% of the cases where 
Kroll investigates a company they come up with some derogatory 
information linking them to a drug trafficker.   Of the 
companies with derogatory information, about half contain 
sufficient derogatory information to stop a deal. 
 
 
 
Increasing Mexican Regulations to Control Money Laundering 
 
 
 
¶5.  (SBU) In recent years anti money laundering regulations have 
become stricter in Mexico.  The Mexican government controls 
money laundering under the 1990 Article 115-bis of the Fiscal 
Code and the 1996 Article 400-bis of the federal penal code. 
Punishment can include a prison term of up to 15 years.  Updates 
to the law in the subsequent years and changes as recently as 
2008 by President Calderon included strong provisions such as 
preventive detentions, asset forfeiture and prison terms up to 
40 years in certain cases.  On April 2, 2009, the Mexican 
Federal Senate approved a new law ("extinction de domino") 
proposed by President Calderon expanding Mexico's asset 
forfeiture laws (See Reftel).  Most importantly, under the 
proposed law assets controlled by third parties or front 
companies could be seized by the federal prosecutors prior to a 
conviction.  The legislation still must be approved by the lower 
house but approval is expected. 
 
 
 
¶6.  (SBU) Nuevo Leon Governor Jose Gonzalez Paras has stated 
that he will take on money laundering in Nuevo Leon.  Press 
reports indicate that his government has proposed a law to give 
state prosecutors the independent ability to go after anyone 
that "acquires transfers, administers, holds, changes, deposits, 
guarantees, invests or transports resources, rights or goods 
with the knowledge that it proceeds from an illicit activity." 
Penalties include prison terms up to 15 years, fines and asset 
forfeitures.  However, local business consultants and financial 
experts do not think that any state legislation will make much 
difference, noting that in the end only federal legislation will 
matter.  When econoff contacted a close associate of the 
Governor to request a meeting with a state expert on money 
laundering, he was told that Nuevo Leon was not involved as this 
was a federal issue. 
 
 
 
¶7.  (SBU) Miguel Martinez, CEO of the financial services firm 
Base Capital, told econoffs that financial firms in Monterrey 
are protecting themselves well against money laundering and 
already exceed legal requirements.  Not only are financial 
companies regulated by the Mexican government, they are also 
scrutinized by international credit rating agencies.   (Base 
Capital, which specializes in corporate transfers, has a policy 
of not accepting cash deposits so as to avoid involvement in 
potential money laundering.)   However, Martinez agrees many 
other industries have not done enough to prevent money 
laundering.  He said that the new extinction de domino powers 
will be helpful in fighting money laundering but added  the 
Mexican government will still need to do more,  i.e., greater 
enforcement of existing laws, increased regulation of public 
notaries (who are responsible for real estate transactions), and 
heightened reporting requirements for cash-based businesses. 
 
 
 
Know Your Client: The Importance of Self Regulation 
 
 
 
¶8.  (SBU) A key problem is that current laws and voluntary 
regulatory standards only apply to the financial industry, not 
to cash businesses.  Professor Luis de Garate, a finance 
professor at Monterrey Tec University, told econoffs that 
outside of the financial industry, there are no standard 
operating procedures, little regulation of money laundering, and 
no proactive detection of illicit funds.  This lack of oversight 
creates the risk that legitimate companies that err may end up 
with mobsters on their doorstep, possibly exposing their 
executives to kidnap. Also worrisome is that during difficult 
economic times, such as the current economic crisis, companies 
 
MONTERREY 00000137  003.2 OF 003 
 
 
are even more lax with whom they do business even though all the 
risks remain. 
 
 
 
¶9.  (SBU) But perhaps the biggest risk to non-financial 
companies is the potential damage to their corporate image. 
Many companies in Monterrey are either foreign owned or export 
oriented.  These firms generally have strong ties to other 
companies in U.S. border-states that are sensitive to issues 
such as money laundering and have stringent requirements that 
protect their supply chains.  De Garate recommends that firms go 
beyond the basic premise of "know your client" and include the 
hiring of compliance officers and completion of background 
checks on all investors, suppliers, and employees.  Companies 
must have a clear policy on what level of risk they are willing 
to accept when it comes to working with other firms and must 
also initiate robust fraud detection mechanisms.   Different 
organizations will have different risk tolerances  depending on 
the circumstances.  Robillard noted that traditionally foreign 
investment funds and pension funds have been more risk averse 
than other types of firms but that everyone should be more 
cautious. 
 
 
 
Comment: New Laws Help; Will to Enforce Them is Crucial 
 
 
 
¶10.  (SBU) Comment.  Our industry contacts all agree that, 
outside of fringe banks and financial companies, the regulated 
financial sector in Monterrey is working to keep money 
laundering out of their businesses.  Illicit money, however, 
continues to flow freely into the economy by other means.  The 
asset forfeiture law will be helpful in deterring legitimate 
companies from dealing with dubious firms but additional changes 
such as the passage new statutes governing the purchase and sale 
of real estate and the regulation of high volume cash industries 
still need to take place. 
 
 
 
¶11.  (SBU) Comment continued.  Although the proposed asset 
forfeiture law would help, the key issue is whether Mexico has 
the political will to enforce money laundering laws.  A business 
consultant with substantial experience in the banking industry 
commented that the Mexican laws were 90% adequate but the 
problem is that they were not enforced or impeded by government 
corruption.  For example, while many banks submit suspicious 
activity reports, there is little indication that these reports 
are ever pursued by the competent authorities.  End Comment. 
WILLIAMSON