Banks Back Banxico in Foreign Cash Standoff

Commercial banks will support Banxico in facing down the proposed change to foreign currency collection proposed to the Senate, Bloomberg reported today.

Banxico Governor Alejandro Diaz de Leon spoke with the leaders of major commercial banks, including BBVA Mexico, Citibanamex and Santander, about the proposed changes that would effectively place Banxico in charge and responsible for the “purchase” of foreign cash collection from local banks, Bloomberg reported.

Last week, Banxico published a press release in which it outlined the potential dangers for the country’s central bank and, as a consequence, the rest of the country’s financial sector. As reported by MBN last week, the changes to Art. 24 and 30 of the Bank of Mexico Law would force Banxico to take charge of foreign currency via “purchases” from banks. A receipt system would be put in place to give the central bank added oversight on the source of the money. But Banxico expressed its fear of the likelihood that cash from illicit sources could find its way into the new system, which would pose a serious risk for the central bank when dealing with the international financial system.

“Cashflows from illicit activities are possible, which can represent a significant risk for the domestic financial sector in its interaction with the international financial system,” last week’s statement read.

Banxico would only be responsible for foreign cash if no other bank will accept it but this still creates risk considering the uncompromising anti-money laundering rules that US authorities enforce. Mexico has been the focus of several major money laundering cases in the last decade, including 2012’s historic HSBC scandal. The bank was found to have laundered cash from drug trafficking and sales and was fined a record US$1.9 billion.

The Association of Banks of Mexico (ABM) released a statement on Monday saying that it supported the social benefits that the reform could bring, including to the families of migrants sending remittances and those who work in the tourism industry. ABM, however, said these changes “should not affect in any way the autonomy of the Bank of Mexico.”