Bloomberg Businessweek (North America)
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”
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.