Mexican Firms Targeted by US for Laundering Get Reprieve | Company Business News-OxBig News Network

The US Treasury is granting a 45-day reprieve to three Mexican financial firms it moved to cut off from the US financial system, citing progress by the country’s government in addressing money laundering by drug trafficking cartels. 

The Treasury department’s ban on fund transfers with the designated firms will now take effect on Sept. 4, it said in a statement. The department’s Financial Crimes Enforcement Network slapped orders last month on CIBanco SA, Intercam Banco SA and brokerage Vector Casa de Bolsa SA prohibiting all transfers with them from late July.

“Treasury will continue to take every action necessary to protect the US financial system from abuse by illicit actors and target the financing of transnational criminal organizations and narcotics traffickers,” Andrea Gacki, FinCEN director, said in the statement. Gacki said the US and Mexico had coordinated “for months” to take the unprecedented steps. 

The move last month to identify the three firms as potentially involved in money laundering for drug cartels sparked chaos in Mexico, even though the Treasury said the impacts on the economy would minimal. The measures immediately prompted firms in both the US and Mexico to cut off business with the three affected institutions and cast a cloud over private equity and real estate trusts administered by the firms.

The Mexican government had pushed for ways to soften the blow, including a carve-out for such trusts, according to people familiar with the matter. The country’s Finance Ministry also sought more clarity on which companies and transactions were caught by the ban, including if it extended to local payments firms and payments within Mexico, the people said, asking not to be identified discussing private information.

The disruptions had pushed Mexico’s bank regulator to intervene the day after the US announcement. And earlier this month, Mexico’s Finance Ministry said it was temporarily transferring the trust businesses of CIBanco and Intercam to local development banking units, with plans to eventually spin them off. 

All three firms have rejected the Treasury department’s claims, and Mexican President Claudia Sheinbaum said the US had not provided proof of money laundering. The steps were the first time FinCEN has used the FEND Off Fentanyl Act, an anti-money laundering and sanctions law enacted last year. 

In winning the latest reprieve, Mexico had showed a commitment to addressing financial risks, particularly by assuming temporary control of the designated firms, the Treasury said in the statement. Any further extension would depend on the actions and cooperation of the Mexican government — which should be clear on the seriousness of President Donald Trump’s plan to stamp out cartels — according to another person familiar with the matter.

Fitch Ratings said Tuesday that the designated institutions’ relatively small market share as well as the swift regulatory response have limited the threat of broader market disruption. But it warned that money laundering risks will hang over Mexico’s financial system.

“Contagion risk can erode confidence in the broader financial system if not contained, which could pressure cross-border capital flows, increase compliance costs, and drive client outflows,” Fitch analysts including Alejandro Tapia wrote. 

Sheinbaum said during her daily media conference on Wednesday that the Finance Ministry has acted “very responsibly, precisely to prevent the contagion Fitch is talking about.” She added that the ministry’s handling of the trusts is a long and laborious process, but that it’s going well. 

“With the bank trusts, it’s a problem,” she said. “It’s an operational risk, but it’s not a credit risk or a counterparty risk.”

The banks’ roles as trustee for much of the country’s financial issuance caused a particular headache. Billions of dollars of real estate and private equity securities have been sold by investment firms in the past decade, mostly to Mexico’s pension funds, and CIBanco was a dominant player as trustee. The orders raised concerns over whether US-based funds would be able to receive money or make distributions. A series of Mexican REITs have already moved to replace CIBanco as trustee.

“The measures had a wider reach than expected,” said Mauricio Basila, a lawyer and former official and Mexico’s bank regulator. 

With assistance from Maya Averbuch.

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