The recent appointment of the Mexican drug cartels as foreign terrorist organizations (FTOs) by the president of the United States, Donald Trump, will have implications for the Mexican financial systemespecially for banking, specialists agree.
The main implications for banks and other institutions are related to assuming a greater regulatory burden, with the costs that this implies, in addition to greater international scrutiny.
“The issue of declaring cartels as FTOcould have implications for the financial system, because greater control could be released over the Prevention of Money Laundering and Financing of Terrorism (PLD-FT),” mentioned an analysis by Intercam.
Meanwhile, another from Banamex explained that the designation implies considering those thus designated as enemies in combat.
The institution explained that, unlike the designation of the head of a foreign drug trafficking organization (FNK), whose limited implication is to deny access to these people and their support networks to the North American financial system, that of FTO, enables multiple actions.
The two most important areas, he pointed out, are the financial and the military.
And he argued that the financial institutions linked to the United Statesare prevented from providing any service or product to the organizations, and if they find themselves managing their resources, they will be obliged to seize them and report them to the Office of Foreign Assets Control of the Department of the Treasury.
However, Banamex clarified that these control mechanisms already exist in the Mexican financial system, so it does not foresee significant effects. “The Mexican financial system seems ready to adapt,” he stressed.
Involves complex legal process
For Dafne Martínez, commercial director at YG Consultores, the designation of Mexican cartels as terrorist organizations will have significant implications and consequences for the Mexican financial system, especially for banking.
“The above, due to the legal complexity of designating these groups as terrorist organizations, implies a complex legal process and requires compliance with specific criteria established in international treaties,” he stated.
He added that the above will lead to the increase in “Know Your Customer” and “Anti-Money Laundering” measures, where financial institutions will face greater international scrutiny, forcing them to implement more rigorous measures, which will bring more spending and regulations. additional.
“One impact that we have to monitor in the future due to this issue is when sending and receiving remittances, and if they have any difficulties due to new regulations or greater scrutiny,” he added.
They already meet requirements; additional would come
The specialist highlighted that today banks already comply with a series of AML-FT requirements, but it is likely that this year will see how they must adopt additional measures to face new challenges.
“These measures may include investment in technology to be more up-to-date on blacklists, modifications to their manuals, changes to their risk matrix, and collaboration with other institutions,” he noted.
He added that banks that have a presence in both countries (Mexico and the United States) have mixed policies on these issues, which can help them initially with these changes.
“I believe it will bring greater scrutiny for the institutions, more work with the list of blocked people, blacklists and process changes. Classifying cartels as terrorist organizations would require specific legislative reforms, which include the modification of the Federal Penal Code and other related laws,” he explained.
An analysis by the firm Asimetrics Abogados indicates that some of the possible impacts of the measure for the financial sector are: contamination of operations and increased reputational risks, since financial intermediaries inadvertently associated with these organizations will face public scrutiny and government, which can result in the loss of trust of customers and investors, in addition to an increase in compliance costs, by investing more resources in technology and training to comply with new regulatory standards.
Other repercussions
In a document circulating among players in the union, it is highlighted that the designation of cartels as terrorist organizations has important implications for the Mexican financial system, and would lead to significant changes in supervision mechanisms, compliance and AML practices, affecting both to financial institutions and to the economy in general.
It is noted there that pressure would increase to strengthen monitoring and detection systems for suspicious operations, so entities would have to invest in technology and trained personnel; and comply with stricter regulations, which would include greater collaboration with national and international authorities.
Likewise, it is mentioned that the designation would force the Mexican government to carry out a new Risk Assessment, since previous evaluations concluded that Mexico did not have financing for terrorism, but this scenario could change significantly.
Likewise, it would have international and reputational repercussions, since the designation would also have a negative impact on the perception of the Mexican financial system at an international level, and therefore correspondent banks, essential to facilitate foreign trade and remittances, would reduce their relationships with Mexican financial institutions.
“While this could strengthen PLD efforts, it would also increase costs and complexity for financial institutions. Additionally, it would generate repercussions in key sectors of the economy, and the bilateral relationship with the United States,” it reads.
In this sense, it is mentioned that a coordinated position between authorities and the banking sector will be essential to mitigate risks and safeguard the stability of the financial system.
