Samuel Rubenfeld and
Mexican President Enrique Pena Nieto speaks during the inaugural session of the World Cancer Leaders Summit in Mexico City on Nov. 14, 2017.Photo: Rebecca Blackwell/Associated Press
The Mexican government, while having pursued some high-profile cases, fails to take a systematic approach to addressing money laundering, focusing instead on other associated crimes, according to an evaluation released Wednesday by the Financial Action Task Force.
Mexico has a “mature” anti-money-laundering and counter-terrorism financing legal regime, and it has significantly improved its work since 2008, but the country “faces a significant risk” of money laundering, stemming mostly from activities linked to organized crime such as drug trafficking, extortion, corruption and tax evasion, according to the FATF report.
While the Mexican financial sector “demonstrates a good understanding” of the primary money laundering threats from organized crime groups, non-financial businesses have a “limited” appreciation of the risk, stated the report.
“[Money laundering] is not investigated and prosecuted in a proactive and systematic fashion, but rather on a reactive, case-by-case basis, notwithstanding the fact that some high-profile investigations have recently been conducted,” stated the report.
The Paris-based FATF sets global standards for addressing money laundering and terrorism financing. Countries that fail to implement its standards run the risk of being labeled as high-risk or uncooperative jurisdiction.
Mexico’s Finance Ministry and Attorney General’s Office said in a joint statement the FATF evaluation acknowledged Mexico has a mature scheme in place for money-laundering prevention and fighting the financing of terrorism, but that it needs to work on some aspects, especially against money laundering.
“The report indicates that the country faces risks mainly related to money laundering and should therefore strengthen actions such as giving priority to investigations, the seizure of illicit goods, the supervision of vulnerable non-financial activities and the identification of the end beneficiaries of assets and companies,” said the statement.
Authorities, the FATF said, place a higher priority on the associated crimes of organized crime groups rather than on money laundering, causing the number of prosecutions and convictions to be “very low.”
The report identified “significant shortcomings” in the way in which money-laundering cases are investigated, finding they are “seldom” prosecuted as a standalone offense and are “very rarely” handled parallel to an existing probe. Corruption in law enforcement agencies, particularly at the state level, undermines their ability to prosecute, stated the report.
Typically, the FATF said, methods of money laundering in Mexico include the use of shell or front companies to conceal beneficial ownership; the purchase and sale of real estate and high-value goods and cash smuggling along the border. Beneficial ownership concealment is of particular concern, the report said, because they’re only identified “to a limited extent,” hindering financial and non-financial companies in their efforts to properly assess for the risk of money laundering and terrorism financing.
Largely because of shortcomings in the legal framework, the FATF said, financial institutions seek to identify beneficial owners “in only limited circumstances,” and when they do, they rely on customer self-declaration. Non-financial companies don’t believe it’s their role to identify beneficial owners, said the report.
Despite the significant risks across the economy, most key authorities have a good understanding of it and there is good policy coordination, said FATF. A national strategy to address money laundering is being developed based on the findings of a national risk assessment, which was finalized in June 2016, it said.
“The success of these measures will depend on their proper implementation,” stated the report.
The government statement noted the FATF report calls for increased training for relevant authorities. Mexico said the government has made progress in improving the identification of beneficiaries in the financial sector since the FATF evaluation team visited Mexico in March 2017.
“The authorities express their commitment to strengthening the areas where opportunities [for improvement] were detected, but above all to continue safeguarding the national financial system and supervising vulnerable activities in order to maintain a solid economy that continues to comply with the best international practices on the subject,” said the government statement.
Write to Samuel Rubenfeld at Samuel.Rubenfeld@wsj.com and Anthony Harrup at Anthony.Harrup@wsj.com