Banking and Finance Law/Published on April 16, 2018.
The regulations in Anti-Money Laundering and Terrorism Financing matters in Mexico set forth some obligations by which the Compliance Officers providing services to financial entities are bounded. In the particular case of Multiple Purpose Financial Institutions, Non-Regulated Entities (hereinafter, the “Entity”), such obligations are established in provision 39 of the general provisions referred to in the Credit Institutions Act, Article 115 concerning the Law of Credit Organizations and Auxiliary Activities, Article 87-D and 95-Bis (hereinafter, the “Provision”), which apply to multiple purpose financial institutions:
Provision 39. The board of directors, the sole administrator, or the Committee of each Entity will appoint an officer from the members of such Committee who will be named the “Compliance Officer”.
Suppose the Entity does not have a Committee because it has less than 25 (twenty-five) employees. In that case, the Compliance Officer will be appointed by the board of directors or the sole administrator, who must comply with the Committee’s requirements.
In any case, the Compliance Officer must be an officer having a position within the three immediate lower hierarchies to the chief executive officer of the relevant Entity. In addition, such Compliance Officer will have the following roles and obligations:
I. To make and submit for consideration of the Committee the AML Manual containing the identification and know-your-client and user policies, as well as the criteria, measures, and proceedings that must be adopted to comply with the Provisions;
Comments: the Compliance Officer must comply with the Guidelines, which show the minimal criteria and proceedings the National Banking and Securities Commission (hereinafter, the “CNBV”) requires to authorize the Technical Decision. In addition, it will be mandatory to inform of the amendments made to the AML Manual of the Entity.
II. To present to the Committee the methodology made and implemented to undertake the risk assessment referred to in the Provisions, Chapter II Bis, as well as the results of its implementation;
Comments: the Compliance Officer may consider the Guide issued by the International Financial Action Group, which contains the minimal criteria that may be considered for better compliance with the risk-based approach. The foregoing will allow the Entity to know the risks it is exposed to from an internal point of view (processes) and an external point of view (products and services offered).
III. To verify the correct execution of the measures adopted by the Communication and Control Committee (hereinafter, the “Committee”);
Comments: if the Entity has less than 25 (twenty-five) employees, the Compliance Officer must inform of such case through the SITI-PLD portal. Suppose the Entity has more than 25 (twenty-five) employees. In that case, it also must be informed through the SITI-PLD portal, including the name of the members who will actively participate in the referred Committee.
IV. To inform the Committee of behaviors, activities, or conducts made by the directors, officials, employees, or attorneys-in-fact of the Entity that cause the Entity to incur a breach of the Law of Credit Organizations and Auxiliary Activities or the Provisions, as well as to inform when such directors, officials, employees, or attorneys-in-fact violate the provisions of the AML Manual so that the relevant disciplinary measures are applied;
Comments: if any official makes any behavior or conduct of the Entity who may be partially or fully associated with Money Laundering matters, the Compliance Officer must send an alarming internal operation report through the SITI-PLD portal.
V. To inform the Committee of the execution of agreements which characteristics might represent a high risk for the Entity itself;
VI. To coordinate the operation tracking activities and the investigations that must be made at an institutional level so that the Committee has the elements necessary to rule on them as Unusual Operations or Alarming Internal Operations, if applicable.
For the purposes established in the paragraph above, the department under the charge of the Compliance Officer of each Entity or the personnel designated by the Compliance Officer, if applicable, will verify that the relevant alerts have been analyzed and the relevant investigations have been recorded;
VII. To send the Unusual Operation reports to the Ministry through the Supervisor, as well as those deemed urgent, and inform the Committee in their next meeting;
Comments: There are two modalities regarding unusual operations, the first one consists in reporting the unusual behavior in the modus operandi of the client, such as irregular payments to a credit; cash payments; early liquidation of a debt; expenses over the payment capacity declared by the client; among others. If any unusual activity is detected, the Compliance Officer will have a period of 60 (sixty) calendar days from when the alert is presented through the automatized system to issue the report through the SITI-PLD portal. The second modality consists in reporting the findings of the Entity regarding the client appearing in the black lists, whether there is information based on evidence or facts indicating Money Laundering or the certainty that any client intends to operate with illegally-obtained funds; in which case the Compliance Officer may deliver the Unusual Operation report in a “24 hours” modality through the SITI-PLD portal, considering the official format approved by Banks, Multiple Purpose Financial Institutions (SOFOMES), Brokerage Firms and Investment Advisors.
VIII. To act as consultation instance within the Entity regarding the application of these Provisions, as well as the AML Manual of the Entity;
IX. To define the characteristics, content, and scope of the training programs of the personnel of the Entity;
Comments: the Compliance Officer must ensure that the training courses are being taught in the Entity at least once a year, for which the Compliance Officer must consider the official format.
X. To receive and verify that the Entity answers, under the terms of the applicable legal provisions, to the information and documentation requirements, as well as the assurance or unlocking orders of Operations made by the competent authorities through the Supervisor regarding the prevention, investigation, prosecution, and sanctioning of behaviors that may cause the events set forth in the Federal Criminal Code, Articles 139 Quáter or 400 Bis. Similarly, to verify that the Entity has the proper procedures to ensure that there are proceedings to report their clients appearing in the blocked person list.
XI. To act as a link between the Committee, the Ministry, and the Supervisor for the matters regarding the application of the Provisions; and
XII. To ensure that the department under its charge receives directly and follows up the notices issued by the employees and officials of the Entity regarding facts and actions that may be deemed Unusual Operations or Alarming Internal Operations.
Similarly, the appointment of the Compliance Officer must be made by an official independent from the Entity units responsible for promoting or managing the products or financial services offered by the Entity to its clients or users. The appointment of the Compliance Officer of an Entity may never be made by a person having internal auditing functions within the Entity.
The Compliance Officer of an Entity part of a financial group may be the same Compliance Officer from other entities comprising the relevant financial group under the terms of the Law to Regulate Financial Groups, provided that the applicable Entity complies with this Provision.
Each Entity must express in its AML Manual the proceedings according to which the Compliance Officer will perform its functions and obligations established in the Provisions.
Provision 57. In order to apply penalties due to breaches of the Provisions, all cases where the Entities present incomplete, illegible, or incorrect information will be deemed a breach, as well in those cases where the electronic media does not comply with the technical specifications indicated by the Ministry or the Supervisor, as applicable.
It is essential to mention that the Federal Criminal Code established as crimes those related to operations with illegally-obtained funds and/or terrorism financing, including the Compliance Officers acting on the furtherance of the commitment of such crimes:
a) Terrorism Financing: Federal Criminal Code, Article 139 Quáter:
“The same sentence established in this Code, Article 139 will be imposed without any prejudice of the sentences corresponding to other resulting crimes, to which it contributes or raises money or any other resource—through any means and in a direct or indirect manner—knowing that their purpose will be support or finance activities from individuals or terrorist organizations; or be used or intend to be used—whether in a direct or indirect manner, fully or partially— for the commission of any crime set forth in the following legal regulations, whether the crime occurs within national territory or abroad:
I. The following crimes are established in the Federal Criminal Code:
1) Terrorism, which is set forth in Articles 139, 139 Bis, and 139 Ter;
2) Sabotage, which is set forth in Article 140;
3) International Terrorism, which is set forth in articles 148 Bis, 148 Ter, and 148 Quáter;
4) Attacks to communication means, which are set forth in Articles 167, Section IX, and 170, first, second, and third paragraphs; and
5) Theft, which is set forth in Article 368 Quinquies.
II. The crimes set forth in Articles 10 and 13 of the Law Declaring Uranium and Thorium Deposits, and any other Substance from which Splittable Isotopes may be obtained, which produce Nuclear Energy, as Mining Reserves.”
b) Operations with illegally-obtained funds: Federal Criminal Code, Article 400 Bis:
“A penalty from 5 (five) to 15 (fifteen) years of imprisonment and from 1,000 (one thousand) to 5,000 (five thousand) day fine will be imposed to the person who, by themselves or through third parties, commits any of the following actions:
I. Acquires; sells; manages; guards; owns; changes; exchanges; deposits; withdraws; gives; or receives for any reason; invests; trespasses; transports; or transfers—within the national territory, outside the country, or into the country—any resources, rights, or goods when knowing that these resources, rights, or goods come from or represent an illegal act; or
II. Hides, covers up; or intends to hide or cover up the nature, origin, location, purpose, movement, property or ownership of resources, rights, or goods when knowing that these come from or represent an illegal act.
For the purposes of this Chapter, it will be understood that the resources, rights, or assets of any nature are the product of an illegal act when there is well-founded evidence or certainty that they come from, directly or indirectly, or represent the profits derived from the commission of a crime and its legitimate origin cannot be proven.
Regarding the conducts set forth in this Chapter, in which the services of institutions comprising the financial system are used, a prior lawsuit from the Ministry of Finance and Public Credit will be required to proceed criminally.
Suppose the Ministry of Finance and Public Credit finds elements that allow presuming the commission of the crimes referred to in this Chapter in the exercise of its inspection powers. In that case, it must exercise the powers of verification conferred by the laws and report facts that are likely to constitute such offense.”
CNBV and the National Commission for the Protection and Defense of Users of Financial Services (hereinafter, the “CONDUSEF”) are the competent authorities for imposing penalties to the Entities due to breaches of the Provisions derived from the Law of Credit Organizations and Auxiliary Activities, which Article 88 includes the following characteristics:
a) The payment must be made within the 15 (fifteen) business days following the notice date.
b) The fines paid within the 15 (fifteen) business days following the notice date will have a right for a 20% (twenty percent) discount, provided that there were no defense means.
c) The offender will have the right to be heard within a period of 10 (ten) business counted from the following business day to the day in which the relevant notice takes effect. In addition, the offender may express in writing whatever may be in their best interest. The imputed breaches will be accredited if the breaching party does not enforce the right to be heard.
The authorities will consider the following for the penalty imposition:
a) The impact on third parties or on the financial system that the breach has produced or may produce;
b) The recidivism, the causes that originated it, and, where appropriate, the corrective actions applied by the alleged offender. Anyone who has incurred an offense that has been sanctioned and, in addition to that, who commits the same offense, within the two years immediately following the date on which the relevant resolution has become final, will be considered a repeat offender. In the case of recidivism, the penalty may be double the originally planned;
c) The amount of the operation;
d) The economic condition of the offender;
e) The nature of the offense committed;
The authorities will consider the following for the imposition of severe penalties:
a) The amount of the loss or patrimonial damage caused;
b) The profit obtained;
c) The lack of repute from the offender;
d) The inexcusable negligence or fraud committed;
e) That the offending conduct referred to in the administrative process may constitute a crime; or
f) The other circumstances deemed applicable by the National Banking and Securities Commission.
Similarly, the CNBV Law is entitled to supervise and regulate individuals linked to the financial system.
In all cases, the Entity will be responsible for the proper compliance with the provisions in Anti-Money Laundering matters. According to the applicable laws and their Provision, the Compliance Officer will only be responsible under administrative regulations for the breaches. In addition, the Compliance Officer will be accountable under criminal laws when they cooperate on committing the crimes set forth where operations with illegally-obtained funds and terrorism financing are involved.
Suppose a Compliance Officer cooperated in the commission of another type of crime. In that case, they may not act as Compliance Officer within a Financial Entity and must abstain from occupying any position or performing any task in terms of Provision 49.
For more information regarding this subject, please contact any of the following BGBG members:
Miguel Gallardo Guerra