Mexico’s president has sent new reforms to Congress aimed at cracking down on money laundering, but the measures’ potential impact on organized crime is uncertain.
As reported by the Associated Press, last week President Enrique Peña Nieto sent a proposal to a judicial subcommittee in Mexico’s lower house of Congress, which would give authorities more leeway to investigate and prosecute those who manage assets on behalf of members of organized crime. Should the bill become law, such individuals, often referred to as “prestanombres” or “testaferros” in Spanish, would be eligible for prosecution under money laundering statutes.
Furthermore, on June 17, as Vanguardia reported, a stronger anti-laundering law came on the books, which gives the Finance Ministry greater resources in monitoring the entry of foreign currencies into the Mexican financial system. Such transfers are vital for transnational drug shipments, for which US dollars are the typical medium of exchange.
Prior to Peña Nieto’s inauguration in December, Presidente Felipe Calderon pursued a handful of different measures seeking to limit the ability of organized crime groups to introduce illicit profits into the legitimate financial system. In 2010, his government imposed new restrictions on the amount of cash that could be moved through currency exchanges, and implemented new due diligence requirements for financial institutions with regard to their customers. Calderon’s government also enacted a new asset seizure law in 2009 that was designed to make it easier for authorities to confiscate goods purchased with the proceeds of illegal activities.
[See InSight Crime's complete coverage of money laundering in Latin America]
InSight Crime Analysis
Peña Nieto’s bill addresses a perceived flaw in Mexico’s recent approach to organized crime, one that many critics have touched: the absence of a serious plan to combat gangs' finances. Reversing the lack of interest in the criminals’ financial networks is one idea that enjoys widespread support in the political system, with virtually all of the candidates in last year’s presidential election voicing support for ideas like those proposed by Peña Nieto.
Unfortunately, it is often easier to pass such laws than it turns out to be to prosecute money laundering cases against members of organized crime. As InSight Crime reported last week, authorities have launched prosecutions based on the asset seizure law on just 29 occasions in the three years since it has been enacted. And while this may be a particularly pronounced problem in Mexico, it is an issue everywhere.
The US government has become infamous for its unwillingness or inability to regularly prosecute banks that violate laundering regulations, even while it goes after the criminals who use those banks. Other countries in the region, such as Argentina, have also shown that prosecuting money launderers is not easy or politically popular.
While difficulty should not be an excuse for inaction, the persistent obstacles to an effective anti-money laundering regime throughout the hemisphere reflects the inevitable shortcomings of this approach to organized crime and represents the top reason why this new law is not a game-changer. In essence, there is simply not the will to carry out these laws, especially as they relate to the prosecution of the world's top financial institutions. The cases brought against HSBC in the United States and Argentina are perfect illustrations of this unwillingness.
Furthermore, the advocates of using money laundering statutes to attack groups like the Sinaloa Cartel and the Zetas rarely flesh out exactly how it would help. Money laundering laws are extremely useful for exposing dirty politicians with hidden offshore funds, such as those of Augusto Pinochet in Riggs Bank, or for breaking down terrorist financing networks, as was the case with Al Qaeda after 9-11.
However, organized crime groups present fundamentally different targets than either of the above. For politicians, tracking their dirty money can expose them as criminals, allowing voter outcry to run them out of public life. In this sense, depriving them of their ill-gotten wealth is a secondary benefit, with depriving them of a public post being the principal gain. But Mexican drug traffickers are already exposed as criminals, which is why they live underground. Identifying a laundering network at the service of Joaquin "El Chapo" Guzman tells us little that we didn’t already know about him.
For terrorists, the financial network exists to facilitate violence, so cracking down on the money limits their ability to kill civilians. For drug traffickers, the calculus is reversed: the violence is commited to facilitate the profits. As a result, making it significantly harder for them to launder money would not limit their ability to perpetrate acts of violence (at least, not in the short term). In fact, reducing gangsters' access to laundered money could have the perverse effect of encouraging them to compensate for their smaller effective profit margins with a greater volume of activity: more trafficking, more extortion, more kidnapping, and more robbery. In other words, a stronger focus on gangs’ financial networks -- even putting aside the difficulty in implementing such a strategy -- would not necessarily lead to a public security benefit.
Nonetheless, measures like those pursued by the Peña Nieto and Calderon governments remain popular, and we will likely see more of them. In and of itself, there is nothing wrong with this, but such changes are unlikely to be the leading edge of a more effective violence reduction strategy.