The Reform Proposal increases the regulatory burden on individuals and entities already conducting activities considered vulnerable under the LFPIORPI and broadens the scope of these activities with respect to their vulnerability to money laundering and terrorism financing. This change will significantly impact key sectors of the Mexican economy, such as the real estate sector and unregulated financial services, by imposing stricter controls and compliance obligations. 

At Ritch Mueller, we consider essential that our clients understand the real impact and practical implications of this Reform Proposal. Below, we provide a detailed analysis of the key aspects of the Reform Proposal, its potential implications, and a series of practical recommendations aimed at mitigating the legal, financial, and reputational risks that may arise in this potential new regulatory environment.

The initiative aims to expand the spectrum of obligated entities, incorporating additional sectors such as certain professional services, commercial activities, and financial services that were not previously subject to anti-money laundering and anti-terrorism financing regulations. Additionally, the Reform Proposal suggests significantly stricter penalties for those who fail to comply with the established obligations, including increased prison sentences, higher fines, and the imposition of direct criminal liability on directors and legal representatives. 

This strengthening of the regulatory framework makes strict regulatory compliance indispensable, requires the implementation of robust and efficient internal compliance policies, and fosters a corporate culture aligned with transparency and the prevention of regulatory risks, ensuring that each level of the organization takes an active role in complying with applicable legal provisions.

A. Expansion of Obligated Entities

The Reform Proposal significantly broadens the range of activities and professions that will be considered “in-scope entities” and therefore subject to reporting and other anti-money laundering obligations. Below are some of the new obligated entities according to the Reform Proposal:

(i) Real Estate Development Financing: All individuals and entities receiving funds for real estate development activities, with the purpose of selling and/or renting such developments, will be subject to the obligations established in the LFPIORPI. This provision broadens the scope of the LFPIORPI to cover the vast majority of activities related to real estate development. 

(ii) Corporate and Business Strategy Consultants: Companies and independent consultants offering services in strategic planning, mergers and acquisitions, and any advisory related to corporate reorganization will be required to monitor and report transactions that may suggest the entry of illicit funds. In this regard, the reform envisions consultants who assist in structuring large transactions to be alert to potentially suspicious operations.

(iii) Accountants and Auditors: Professionals and accounting firms providing financial auditing and accounting services for high-net-worth individuals and companies will be considered in-scope entities due to their access to detailed financial information and their ability to detect unusual movements in their clients’ finances. 

(iv) Alternative Financial Service Providers: This category includes platforms and entities offering financial services that are not necessarily banking institutions, such as digital payment services that are not financial institutions, peer-to-peer loans, and other alternatives to the traditional financial system. The reform seeks to include these activities due to their growing popularity and the risk that they may be used to transfer illicit funds in a less regulated manner. 

(v) Real Estate Agents and Brokers: Although the LFPIORPI already regulated real estate activities to some extent, the reform extends this oversight to all agents and brokers involved in property sales, regardless of the amount or client profile. Real estate brokers will need to implement customer identification processes and record transactions that could be related to money laundering. 

(vi) Providers of Services Related to Virtual Assets (Cryptocurrencies): The Reform Proposal aims to increase supervision and obligations for cryptocurrency and other virtual asset service providers due to the elevated risk of anonymous transactions.

B. New Reporting and Documentation Obligations

The Reform Proposal introduces new thresholds for transaction reporting and requires companies and professionals subject to the law to implement stricter controls. These new obligations aim to ensure that a greater number of transactions are monitored and reported to authorities to prevent money laundering. Below are some of the changes and new obligations that may be imposed if the reform is approved:

(i) Lower Reporting Thresholds for Financial Transactions: The Reform Proposal suggests lowering the monetary thresholds that trigger the reporting obligation. For instance, financial transactions that were previously considered low-risk and did not require reporting will now be subject to strict supervision. This affects all obligated entities, such as real estate brokers, insurance agents, and notaries, who will now need to record and report transactions exceeding these reduced thresholds more frequently. By lowering the amounts that trigger mandatory reporting, the authorities aim to increase visibility over financial transactions, even at smaller scales, that may be linked to illicit activities.

(ii) New Prohibitions on Cash Use: The prohibition on conducting operations in cash, foreign currency, and precious metals has been expanded to include restrictions on carrying out these transactions through financial entities. This means that certain types of operations, such as (i) establishing or transferring real property rights on assets valued at or above the equivalent of MXN $871,274.25, (ii) transferring ownership or establishing rights over new or used vehicles valued at or above the equivalent of MXN $348,509.70, (iii) transferring ownership of watches, jewelry, precious metals, and stones valued at or above the equivalent of MXN $348,509.70, and (iv) transferring ownership or establishing rights of any nature over the representative titles of corporate shares or stock valued at or above MXN $348,509.70, among others, may not be conducted in cash under any circumstances, including through bank deposits. Transactions must be carried out exclusively through electronic means, such as debit and credit cards or electronic transfers, which could complicate and limit the regular development of certain economic activities. 

(iii) Mandatory Reporting of Cash Transactions and International Transfers: The Reform Proposal mandates the reporting of cash transactions that exceed certain amounts, such as the receipt of funds for real estate development intended for sale or lease with a value at or above the equivalent of MXN $871,274.25, and transactions involving virtual assets with amounts equal to or exceeding the equivalent of MXN $22,799.70, among others, as well as international fund transfers. Previously, only transactions of substantial amounts or those deemed suspicious were subject to the provisions of the LFPIORPI, but now all cash transactions and international transfers exceeding relatively low thresholds would be under scrutiny. This applies to cash-intensive sectors and those conducting international transfers, such as real estate agencies, car dealerships, art auction houses, and companies dealing in luxury items.

(iv) Documentation of the Source of Funds: The Reform Proposal requires in-scope entities not only to record transactions but also to document in detail the source of funds used in the transactions. This means that the in-scope entity must conduct a thorough verification of the origin of the resources, requiring clients to provide proof of income, tax returns, financial statements, or other documentation that substantiates the legality of the funds, similar to the client identification files required by financial institutions. This measure especially affects wealth advisors, legal advisors, accountants, and notaries, who will need to request additional evidence from their clients to support the legitimacy of the funds. 

(v) Client Knowledge and Enhanced Identity Verification: The Reform Proposal introduces new obligations to verify the identity and risk profile of clients. Obligated entities will need to collect detailed information about each client, including their economic activity, transaction history, and other verifications that allow the financial profile of the client to be understood. This Know Your Customer (KYC) process will be an obligation for each obligated entity before initiating any relevant transaction. For example, in the case of real estate agents, attorneys, and accountants, this requirement entails conducting a prior risk analysis and documenting the history of each client before providing any services. 

Additionally, the Reform Proposal mandates that in-scope entities identify and treat all politically exposed persons as higher-risk clients. This means that, if a politically exposed person is in any way involved with an obligated entity, they must be handled with special procedures according to their high-risk profile.

(vi) Continuous Monitoring of Transactions and Reporting of Suspicious Activities: Under the Reform Proposal, companies and obligated entities will be required to implement automated continuous monitoring systems for transactions, especially those that may be considered high risk. These monitoring systems must be regularly updated to detect unusual behavioral patterns and report them to the Financial Intelligence Unit (Unidad de Inteligencia Financiera). Continuous monitoring includes not only the analysis of individual operations but also the identification of unusual patterns in client transactions, such as repetitive movements of large sums of money or cash transactions that exceed the usual limits for that profile. Again, this automated system resembles those that financial institutions are obligated to implement. 

(vii) New Regulatory Obligations in Corporate Matters: The Reform Proposal establishes that, upon the transfer of ownership or establishment of rights over titles representing shares or corporate interests, registration in the corresponding corporate book within the system managed by the Ministry of Economy will be mandatory. Furthermore, shareholder or partner registries must include all necessary information to identify the ultimate beneficiaries of commercial companies. This requirement implies that both board members and shareholders must be trained to comply with these obligations, which requires adequate knowledge of the LFPIORPI provisions. 

(viii) New Compliance Burden: The Reform Proposal imposes a higher burden of proof on in-scope entities, who must demonstrate adequate compliance with the provisions of the LFPIORPI. This means that each obligated entity must be prepared to provide evidence of their compliance efforts in the event of an authority review. For example, if a wealth advisor or accountant is questioned regarding their management of a client, they will need to provide detailed documentation of each relevant transaction and the identity and source of funds verifications they conducted. The burden of proof includes the obligation to justify any exceptions or unusual transactions that were not reported, explaining in detail why they were considered low risk.

C. Increase in Penalties and Risk of Direct Criminal Liability

The Reform Proposal introduces a significantly stricter penalty regime to reinforce the responsibility and commitment of obligated entities in preventing money laundering. The proposed penalties range from substantial fines to prison sentences for directors and key compliance personnel in cases of serious omissions, marking a significant shift in Mexican legislation. Below are some implications of these new penalties and how they could affect companies and their executives:

(i) Direct Criminal Liability for Legal Representatives and Directors: One of the most significant changes is the extension of direct criminal liability to legal representatives, board members, directors, and employees responsible for LFPIORPI compliance. This means that in the event of noncompliance with reporting obligations, file integration, documentation, or verification of fund origins, authorities can investigate not only the company but also specific individuals in positions of responsibility. Criminal penalties may include prison sentences for these individuals if it is determined that there was negligence, omissions, or a lack of due diligence in implementing necessary controls. 

(ii) Temporary Suspension or Prohibition on Conducting Operations: The Reform Proposal would allow authorities to temporarily suspend the activities, acts, or operations that obligated entities carry out with certain individuals while the relevant procedure is ongoing. Given that judicial processes in Mexico are undergoing substantial changes, it is unclear how long such suspensions might last. If the affected client is significant to the obligated entity, this measure could threaten its financial viability. 

(iii) Increase in Fines and Economic Sanctions: The Reform Proposal establishes a significant increase in economic sanctions for companies and obligated entities that fail to meet LFPIORPI requirements. Fines for omissions or noncompliance could exceed current amounts and severely impact the financial stability of a company. These fines are intended to deter lax practices in regulatory compliance and compel companies to prioritize investment in compliance, control, and monitoring systems. For companies that are repeat offenders or that incur serious omissions, fines could be substantial enough to endanger the financial viability of the organization. It is important to note that fines are applied for each individual infraction. This means that if an obligated entity fails to verify the origin of resources for two or more clients, a separate fine will be imposed for each specific infraction. 

(iv) Prison Sentences for Serious Omissions: The Reform Proposal includes prison sentences for directors and compliance employees when omissions are serious, and it is proven that noncompliance contributed to the facilitation of money laundering and/or terrorism financing. Serious omissions are understood as cases where negligence, oversight, or failure to implement basic controls allows the flow of illicit funds. In such cases, the authority can impose penalties of varying durations depending on the magnitude of the omission and the impact of the unreported operation. This measure places significant individual responsibility on the organization’s senior management and compliance personnel, heightening the need for effective and continuous preventive measures and training that meet applicable regulations.

(v) Disqualification from Professional Activities: In addition to fines and prison sentences, the Reform Proposal envisions the possibility of disqualifying directors and legal representatives in cases of serious and repeated noncompliance. Disqualification implies that affected individuals would be barred from holding management or representation roles within any entity regulated by the LFPIORPI for a period, which could impact their career and professional reputation. This sanction seeks to hold leaders directly accountable and reinforces the importance of implementing strong compliance policies within companies.

(vi) Joint Liability of the Company and Directors: The Reform Proposal introduces the concept of joint liability, meaning that both the company and its directors may be held responsible in cases of noncompliance. This approach emphasizes the need for a collective commitment throughout the organization to adhere to regulations, from the executive to the operational level.

(vii) Increased Risk of Investigation and Audit for Companies with a History of Noncompliance: Companies that have shown a pattern of noncompliance or that face repeated sanctions will be subject to greater scrutiny by authorities. This could result in frequent unannounced audits, where the company must demonstrate the implementation of controls and compliance documentation for each relevant transaction. The risk of additional investigations also increases the exposure of directors and compliance personnel, as any lack of documentation or disorganization could be interpreted as an omission, with penal consequences.

D) Broad Supervisory and Audit Powers 

The Reform Proposal grants authorities, specifically the Financial Intelligence Unit (Unidad de Inteligencia Financiera), broad powers to conduct audits without prior notice and to request compliance documentation immediately, thereby strengthening real-time oversight of the financial operations of obligated entities. These audits include a comprehensive review of records and reports related to anti-money laundering compliance, from client identity verification to the source of funds. Additionally, any delay or disorganization in the submission of documents can be interpreted as noncompliance, highlighting the necessity for companies to keep all records organized and readily available at all times. 

If irregularities are detected, authorities will be empowered to impose corrective measures and require a remediation plan, which could include changes to internal policies, investment in technology, and additional training for personnel. The Reform Proposal also allows for increased inspection frequency for companies with a history of noncompliance, placing them on a priority watchlist. This underscores the importance of implementing an effective monitoring system, using advanced technological tools that meet the required reporting standards, and maintaining documented evidence of compliance training for all employees to reduce the risk of sanctions and additional audits.

II. Practical Recommendations for Clients 

 

Given the magnitude of the proposed changes and the tightening of regulations, we recommend that our clients conduct a comprehensive diagnosis of their compliance systems, aiming to update them to respond directly to the provisions of the Reform Proposal, should it be adopted. 

Firstly, it is crucial to carry out a preventive compliance audit to identify potential deficiencies in current customer data collection, significant transaction documentation, and reporting management procedures. This audit should consider the new reporting thresholds, as the Reform Proposal may require companies to record and document a broader range of transactions that were not previously subject to monitoring. Reviewing these processes in detail will allow companies to adjust their current protocols to align with the specific requirements of the Reform Proposal.

Secondly, it will be essential to update internal compliance policies and procedures to ensure they reflect the criteria established in the new regulations. With the proposed changes, it is necessary to define reporting thresholds precisely and establish clear guidelines for documenting and monitoring transactions that exceed these thresholds. Companies should outline internal alert procedures for suspicious operations and document specific risk criteria, available to personnel responsible for monitoring transactions, with periodic reviews to ensure their adequacy. 

Thirdly, strengthening the technological monitoring system is a priority response to the new demands of the Reform Proposal, as constant supervision and the ability to report transactions automatically become critical. Companies should assess whether the current technological infrastructure is sufficient to identify risk patterns or if it is necessary to implement advanced systems for more precise monitoring. Monitoring systems should be configured to immediately alert the compliance team if transactions that may violate the requirements are detected, reducing the risk of human error and enabling a timely response in case of an inspection. 

Fourthly, staff training in compliance matters will also be fundamental to ensure effective adherence to the new regulations. The Reform Proposal requires that personnel be fully informed of their responsibilities under the new provisions, so companies will need to implement training programs tailored to the specific functions of each employee, from operational staff to senior management. This will ensure that each level of the organization has a clear understanding of how to respond to potential money laundering risks and how to comply with the Reform Proposal’s provisions. 

Finally, it is advisable to establish internal reporting and whistleblowing channels so employees can safely identify and report any suspicious activity that could pose a risk. These channels will allow companies to detect irregularities and take corrective actions before authorities require it, thereby aligning with the strengthened preventive measures demanded by the reform. Besides reducing the risk of sanctions, these channels will foster a proactive organizational culture oriented towards transparency.  

In Ritch Mueller, we have solid experience in implementing compliance programs, audits, and strengthening anti-money laundering prevention systems, positioning us as an ideal strategic ally in the Mexican regulatory environment. Our team is trained to conduct a comprehensive evaluation of your organization’s policies, internal controls, and compliance programs to verify their alignment with current legislation and analyze specific risks associated with your activities. We also offer training for senior executives and employees and provide compliance opinions. 

Our methodology includes a detailed review of all critical processes, from client identification and transaction monitoring to reporting and alert systems, to offer a robust and customized compliance strategy suited to meet the challenges of an increasingly demanding regulatory environment. 

In the context of the Reform Proposal, we also provide a thorough analysis of these elements in light of the anticipated regulatory changes. Our team includes attorneys with specialized certifications, such as Independent External Auditor and Compliance Officer, issued by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) in anti-money laundering and anti-terrorism financing. These certifications allow us to offer comprehensive and technical advice on implementing improvements and adopting preventive measures that ensure compliance with both current legislation and the requirements established in the Reform Proposal.