Changes to Foreign Currency Collection a Risk, Says BanxicoBy MBN Staff | Mon, 11/30/2020 - 13:16
Changes to laws in the collection of foreign currency will not eliminate the risk of illicit funds entering Mexico and could put Banxico at risk, the country’s central bank warned today.
Changes to Art. 24 and 30 of the Bank of Mexico Law are intended to improve a range of scenarios involved in the collection of foreign currency cash inflow with Banxico “purchasing” the foreign currency and therefore having increased oversight on its origins. The added oversight comes from a receipt system that will be applied to all financial institutions and third parties, giving Banxico information on the origins of the money and the clients that received it. The changes are intended to improve the economic outlook for the many millions of families that rely on remittances from abroad or those working in tourism.
However, Banxico today released a statement that warned that despite the changes, it is unlikely that all foreign currency cash inflow can be stopped from entering the country. The new responsibility that Banxico will have on foreign cash poses a threat to the country’s central bank and therefore the entire financial system when interacting with international systems. “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,” said the statement.
As Banxico will be responsible for detailing the origins and nature of foreign currency cash once it has been “purchased” by the central bank, the institution itself could face potential danger, the statement explained. “The initiative implies that the risks described above are transferred to Banxico by imposing on it the obligation to receive such resources in cash. The above could result in precautionary actions and sanctions by authorities from abroad which include, among others, the impossibility of carrying out transactions in foreign currencies in their jurisdictions and the freezing of accounts and resources or even their confiscation.” Banxico said that the risk to the country’s central financial institution would put Mexico as whole at risk. The bank will be working with authorities to find a solution, it said.
Mexican financial institutions have been watched closely since HSBC was given historic fines for allowing its services to be used by cartels to move and launder money. US authorities in particular have voiced concerns around the origins of certain foreign inflow into Mexico.