The Banco de Méx­ico deals in dol­lars to foil the car­tels

▶ The cen­tral bank is set­ting up its own sys­tem for trans­fer­ring cash ▶ A start—but not “a sil­ver bul­let in the heart of the drug car­tels”

Bloomberg Businessweek (North America) - - Contents - Ben Bain and Alan Katz Edited by Pat Regnier

In Tu­lum , Mex­ico, you can pay for just about ev­ery­thing with dol­lars. That makes it easy for Amer­i­cans flock­ing to white sand beaches to es­cape the win­ter cold, but it can also be a headache for lo­cal mer­chants in this Caribbean strip about an hour and a half south of Cancún.

At Ziggy Beach Tu­lum, a bou­tique ho­tel com­plex that hosts wed­dings, about 80 per­cent of rev­enue comes in dol­lars, some of which is used to pay, in turn, lo­cal ven­dors from DJS to florists. To pay in dol­lars, the ho­tel’s bank may trans­fer money to a ven­dor’s bank. “Some­times it’s a bit com­pli­cated,” says Roberto Ol­guin, the head of sales and spe­cial events at Ziggy. “It seems to me like it’s as if you were mak­ing an in­ter­na­tional trans­fer, but in­side the same coun­try.”

Small trans­ac­tions are com­plex enough. Sev­eral for­eign banks, un­der pres­sure to pre­vent money laun­der­ing, have re­duced their ties with some Mex­i­can coun­ter­parts in re­cent years. Now the coun­try’s cen­tral bank, Banco de Méx­ico, is set­ting up a dol­lar trans­fer sys­tem, says Banco de Méx­ico spokesman Ri­cardo Me­d­ina. The idea is to sim­plify com­pli­ance for U. S. banks.

It’s one re­sponse to the way even rou­tine trans­ac­tions have been af­fected by the car­tel prob­lem and the added scru­tiny that’s come from U.S. au­thor­i­ties. Banco de Méx­ico’s new elec­tronic trans­fer net­work will let busi­nesses send dol­lars through a clear­ing­house over­seen by the cen­tral bank, via a U.s.-based bank, says an of­fi­cial fa­mil­iar with the pro­gram, which is set to be in­tro­duced in April. In turn, the cen­tral bank will de­mand that banks us­ing the sys­tem do more to vet cus­tomers.ust

The il­licit cit drug­dru trade in the U.S. gen­er­ates $64 bil­lionon a ye year, ac­cord­ing to an es­ti­mate by the U.S.. De­part Depart­ment of the Trea­sury. But il­licit drug rev­enue pales in com­par­i­son with the $531 bil­lion in le­gal trade be­tween the two coun­tries. “You don’t want to wipe out that fi­nan­cial flow—you want trans­parency,” says Robert Mcbrien, a for­mer as­so­ciate di­rec­tor at Trea­sury’s Of­fice of For­eign As­sets Con­trol.

Bank trans­fers in dol­lars that be­gin in Mex­ico, go through U.S. banks, and then re­turn to Mex­ico ac­count for about one-third of the funds mov­ing be­tween the two coun­tries. Busi­nesses in Mex­ico have paid high fees for such trans­ac­tions, which are of­ten slowed by ex­tra over­sight. At the same time, laun­der­ing is a source of risk for for­eign banks do­ing busi­ness in Mex­ico. In 2012, HSBC agreed to pay the U. S. a then-record $1.9 bil­lion fine for is­sues in­clud­ing Mex­i­can money-laun­der­ing lapses.

The next year, Jpmor­gan Chase re­stricted some trans­ac­tions tied to

a Mex­i­can bank, ac­cord­ing to peo­ple fa­mil­iar with the de­ci­sion. Banco de Méx­ico Gov­er­nor Agustín Carstens, in a meet­ing later that year with Jpmor­gan CEO Jamie Di­mon, called the move a threat to Mex­ico’s fi­nan­cial sys­tem, ac­cord­ing to two peo­ple with knowl­edge of the meet­ing. Jpmor­gan and the cen­tral bank de­clined to com­ment on the meet­ing.

The Mex­i­can govern­ment’s mea­sures aren’t “a sil­ver bul­let in the heart of the drug car­tels,” says Daniel Glaser, the U.S. Trea­sury’s as­sis­tant sec­re­tary for ter­ror­ist fi­nanc­ing. “But it com­ple­ments other steps we’re tak­ing to un­der­mine car­tel fi­nances.”

The bot­tom line Money laun­der­ing gm makes for­eign banks anx­ious about do­ing busi­nes­su­sine in Mex­ico and com­pli­cates life for le­git­i­mate­m­ate busi­nesses.

P a c i fi c O c e a nUSAMex­icoLaredo, Texas ●ico ex M f o lf u G

Tu­lum, Mex­ico●

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