Mexico proposes new limits on cash sales in pesos to fight drug cartels’ money laundering

By Mark Stevenson, AP
Thursday, August 26, 2010

Mexico may get anti-laundering limit on cash sales

MEXICO CITY — Mexico’s president proposed tough new anti-money laundering rules Thursday to bar cash purchases of any real estate in pesos and cash purchases of cars, planes and other goods for amounts exceeding 100,000 pesos ($7,700).

Prodded by concerns that drug traffickers launder as much as $10 billion each year through banks, exchange houses, businesses and purchases of luxury goods, the government in June imposed its strictest limits ever on transactions in U.S. dollars.

The package of laws that President Felipe Calderon announced he will send to Congress proposes similar limits on cash peso transactions, a large part of the economy in a country where many people work under the table and don’t use banks.

“The criminals, the killers, the kidnappers, those who traffic people and drugs, pass themselves off as prosperous businessmen,” Calderon said at a ceremony announcing the proposal. “They buy mansions and luxury vehicles; they set up businesses or buy them to serve as front companies.”

Calderon’s challenge is to target the larger, suspicious peso transactions while not choking off legitimate activity in Mexico’s still-recovering economy. Many companies on the border have complained that the limits on dollar exchanges has hurt the flow of business from Americans and others who buy medicines and other goods in border cities.

Ignacio Deschamps, president of the Association of Mexican Banks, said there had been a 35 percent drop in cash dollar deposits by businesses in recent months as a result of the rules announced by the government in June.

Calderon acknowledged that the limits “will force us to change many of our own habits, and our way of looking at and acting in the economic life of the country.”

Studies estimate as many as 40 percent of Mexicans work off-the-books as street vendors, artisans or domestic employees.

But the proposals are focused to limit large cash transactions on goods most Mexicans probably could not afford: big houses, new cars, airplanes, boats, expensive jewelry and large lots of lottery tickets.

At present, many Mexican business shun large cash purchases as suspicious, but they are still technically legal. The country’s real estate and auto dealers associations say cash transactions represent a tiny percentage of their business.

Calderon has been under pressure to come up with new ways to fight the drug cartels, whose bloody turf battles have resulted in the deaths of more than 28,000 people since his administration launched a military-led offensive in late 2006.

The opposition-dominated Congress must approve the package.

Raul Benitez, a professor at the National Autonomous University of Mexico who studies the drug trade, called the measure “an important step, but now the issue is how the banks receive deposits, and how they receive cash deposits.”

Mexico already imposes a 2 percent tax on cash deposits in an effort to regulate such transactions, but drug cartels are often willing to spend much more than that to launder money.

Benitez said the cartels may turn more to businessmen whose companies have large cash flows as a way to launder drug money.

“They are going to broaden their support network through businessmen and store owners, because they have bank accounts,” Benitez noted. “Of course they will have to pay them a percentage, but they are going to try to get around it that way.”

The new rules would also require betting parlors, debit card issuers, automotive bulletproofing shops, lawyers, accountants and jewelers to report suspicious transactions. The package also proposes jail sentences for transactions carried out in violation of the rules.

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