On October 28, 2024, Senator Javier Corral Jurado, a member of the Morena parliamentary group, filed an initiative before the Senate of the Honorable Congress of the Union to reform and add various provisions to the Federal Law for the Prevention and Identification of Operations with Illicitly Sourced Funds (hereinafter referred to as the “LFPIORPI” or the “Law”), as well as Articles 11 Bis and 400 Bis of the Federal Criminal Code. According to the Statement of Purpose of this initiative, it seeks to ensure the stability of the financial system and the health of the national economy, as well as to strengthen the efforts of the Mexican State in the fight against crime.

It is important to mention that the proposed reform revisits several initiatives filed by Morena in 2019, which had been previously reviewed by Senate Committees in the past legislature.

In addition, the proposed reform aims to comply with the recommended actions issued by the Financial Action Task Force (hereinafter “FATF”) to Mexico in its Mutual Evaluation Report published in January 2018, which identified various technical and effectiveness deficiencies in the implementation of the mentioned recommendations within our country's legal and institutional framework, which this reform initiative seeks to address.

The content of the reform initiative to the LFPIORPI is based on the following central themes:

I. FINANCING OF TERRORISM (FT)

Firstly, it is recognized that while there are no expressions of domestic terrorism in Mexico, there is a risk of terrorism stemming from external dynamics (geographical position, porous borders, and corruption), making it necessary to implement a FT prevention regime applicable especially to non-profit associations and entities whose primary purpose is to receive donations or allocate funds for charitable, religious, cultural, educational, social, or any philanthropic purposes.

In this regard, the scope of FT is expanded to include the possibility of collecting information as contemplated in Article 45 of the LFPIORPI.

II. POLITICALLY EXPOSED PERSONS

On the other hand, considering FATF's interest in identifying politically exposed persons (“PEPs”), i.e., individuals who hold or have held prominent public functions in a foreign country or domestically, a new obligation is established to identify and monitor transactions conducted with such persons.

III. SHCP AUTHORITIES

The Ministry of Finance and Public Credit (SHCP) is empowered to interpret, within the administrative sphere, the LFPIORPI, its Regulations, and general rules, as well as to coordinate its functions with those of the National Guard to fulfill the purposes of the LFPIORPI.

Additionally, Article 22 Bis is added to establish that the supervision, verification, and monitoring of compliance with the obligations applicable to those conducting Vulnerable Activities (“VA”) under Article 17 of the LFPIORPI will be carried out by the SHCP through the Tax Administration Service.

IV. RISK-BASED APPROACH

In line with FATF Recommendation 1, the definition of “Risk” is added, and a new obligation is proposed for those conducting VAs to carry out an assessment that allows them to identify, analyze, and understand their inherent Risk level and that of their Clients or Users.

V. CONTROLLING BENEFICIARY

Highlighting FATF's recommendation to identify the natural person conducting acts or operations through legal structures, the initiative modifies the concept of Controlling Beneficiaries and includes a new Chapter IV Bis “Of the Controlling Beneficiary,” regulating the process for all legal entities, regardless of whether they conduct a VA, to identify and register the person or group of persons meeting the new definition.

For these purposes, it is established that when the transfer of ownership or the establishment of rights of any nature over the representative titles of corporate shares or actions of commercial legal entities occurs, they must submit a notice regarding the registration in the company's registry book through the electronic system operated by the Ministry of Economy, and also register in said system the necessary information to identify the person or group of persons meeting the criteria to be considered as Controlling Beneficiary, according to the guidelines issued by the Ministry of Economy.

Among other modifications, the reform initiative provides that, in the case of legal entities, the SHCP will promote the implementation of the same measure before the competent authorities of the federal entities; and it further specifies that, in the case of legal entities, the Controlling Beneficiary will be the one who, among other criteria, holds ownership of more than 25% of the share capital, replacing the 50% stipulated in the current LFPIORPI.

Finally, Article 33 Bis is added, indicating that commercial companies must comply with the requirements made by the competent authorities to clearly determine who their controlling beneficiary is and retain the supporting information.

VI. REPORTS OF SUSPICIOUS TRANSACTIONS

The initiative proposes that in cases of suspicion or having information based on facts or indications that the resources related to acts or operations could originate from or be intended for the commission of crimes involving operations with illicitly sourced funds or FT, a Notice must be submitted within 24 hours after becoming aware of such information or generating the suspicion, even if the act or operation did not take place, considering the guidelines issued by the Financial Intelligence Unit (UIF).

VII. OTHER OBLIGATIONS

The following obligations are added for persons conducting Vulnerable Activities:

  • Develop annual training programs for their directors, officers, and employees who have direct contact with clients or users, as well as for the person responsible for acting as the compliance representative.
  • Have automated systems allowing the monitoring of (i) the acts or operations conducted with their clients or users to identify those that do not fall within their transactional profile, or that must be aggregated, and finally, to allow intensified monitoring of clients considered PEPs or high-risk.
  • Have an internal audit review, or alternatively, an independent external auditor when the Risk of the person conducting the VA is high, to evaluate the effectiveness of compliance with the obligations set forth in the Law and its secondary regulations.

Furthermore, the initiative amends various provisions of the Law to facilitate its implementation and compliance, such as clarifications in the definitions of the Law, the substitution of references to Minimum Wages with Units of Measure and Update (UMA), the inclusion of the General Law of Credit Instruments and Operations as supplementary law, as well as the following aspects:

A. Additions and/or modifications to the list of Vulnerable Activities

Regarding VAs, the initiative adds the receipt of resources intended for carrying out a Real Estate Development, defined as a project for the construction of buildings or subdivision of lots intended for sale or rent.

B. Non-profit Organizations (NPOs) vulnerable to misuse for terrorism financing

In accordance with FATF Recommendation 8, it is proposed to delimit the concept of NPOs in Article 3, Section I Bis, to define non-profit associations and entities according to the regulations that already govern them.

C. Vulnerable Activities through Trusts

An important change consists of adding those acting through a trust as obligated parties to comply with the law, also stating that if a compliance representative is not designated or the designation is not accepted, the fiduciary entity will be responsible for fulfilling these obligations. Furthermore, it establishes the obligation to collect documents or other means of identification with official recognition to identify the Controlling Beneficiary of those acting through trusts or other legal figures.

D. Compliance Representative

It is specified that persons designated by legal entities and those acting through trusts conducting vulnerable activities must have a general power of attorney for acts of administration and receive annual training for better compliance with the provisions of the LFPIORPI.

E. Crimes and Penalties

Regarding the crimes regulated by the current Law, the “willful” conduct of subjects committing the criminal offenses is eliminated.

As for the Federal Penal Code, Section I of Part A of Article 11 Bis and the third paragraph of Article 400 Bis are amended to include the crime of terrorism financing, as provided in Articles 139 Quáter and 139 Quinquies of the aforementioned regulation. Additionally, Article 400 Bis, Section II, is amended to require the prior complaint of the SHCP, through the Financial Intelligence Unit, which will have the status of victim and offended party, to proceed criminally in those criminal conducts involving the use of services of institutions that are part of the financial system. This, except in cases where the Public Prosecutor's Office observes the possible commission of a crime involving operations with illicitly sourced funds.

Our Tax and Legal professionals through KPMG's Legal Services Practice in Mexico, specifically the Corporate Legal area, are at your disposal to assist in analyzing the potential implications arising from this initiative of amendment and, if necessary, to provide you the corresponding support.

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