Giving Securely in Mexico
Understanding the New Anti-Money Laundering Law and its Effect on Charitable Organizations
Ted Hart, CEO – CAF America
On September 1, 2013 a new law entitled “The Federal Law for the Prevention and Identification of Operations with Illegally Acquired Funds” went into effect in Mexico. The law was largely enacted to protect the national economy of Mexico from the financial losses and illegal activities stemming from money laundering that had been escalating in the country since the drug wars started in 2004. But it stands to hurt some of Mexico’s most vulnerable – those in needs of philanthropic aid.
On its face, the law is truly state of the art, implementing the most advanced and stringent anti-money laundering standards found in the international community to weaken criminal organizations by cutting off sources of funding. With an estimated $10-45 billion pesos being laundered for Mexican drug cartels each year, the Mexican government felt its only option was to more rigorously oversee all institutions that engage in what they deem “vulnerable activities.” However, since these vulnerable activities include any financial transactions exceeding a particular monetary threshold, however, the restrictive nature of the law has negatively impacted many legitimate Mexican businesses, including charitable organizations in dire need of financial support. As a result, many global grantmakers have been deterred, seeking opportunities to support organizations in other countries so as to avoid the tedious vetting process required by the law – an unfortunate consequence of a law with good intentions. But it doesn’t have to be intimidating.
Under the law, vulnerable activities encompass a wide variety of financial transactions, including receipt of donations by NGO/ ONGs and other civil associations. As it currently stands, for instance, any gift made to a Mexican NGO/ONG that equals or surpasses $107,000 MXN or $7,100 USD is subject to the regulations in the law. Once such a gift is received, the charitable organization must provide detailed and specific documentation to the Mexican Ministry of Finance in order to avoid harsh financial penalties and potential imprisonment.
What does compliance with this new law look like? The short answer is that a great deal of both professional and personal information about the grantmaker must be provided to the beneficiary organization and Ministry of Finance, giving many grantmakers pause out of fear for potential identity theft or other breaches in financial security. The regulations, however, are in place to protect grantor, grantee and government. It may require more effort than before, but making safe, tax-effective gifts to Mexican charitable organizations is still possible.
Now, for the long answer.
According to the law, the beneficiary organization must collect a host of information from its donor in the form of an official letter, including company or donor name, domestic tax identification number, contact information, date of birth, passport number – the list goes on and on.
Then there’s the additional barrier of documents that prove the veracity of the information:
• Incorporation Documents – This serves to verify the name, nationality, mission, and ownership structure of the grantmaking institution.
• Proof of Address – A government issued tax form, like a W-9, or property tax payment information should be provided.
• Testimony of Authorized Representative – A statement or other documented proof identifying and defining the powers of the authorized representative of the grantmaking institution. The statement must be notarized and accompanied by copies of the authorized representative’s signed photo identification. Copies of passports are preferred.
• Proof of Tax Identification – Proof of registration with the local tax authority, such as a copy of 501(c)(3) or 509(a) registration.
• Certification of Awareness – This signed statement must demonstrate that the grantmaker is aware of the actual existence of the beneficiary organization and performed a review to verify its existence.
Even if gathering the necessary documentation may not sound overly burdensome, the sensitive nature of the information still stands to scare donors away.
But there’s an easy fix for those looking to support organizations in Mexico that circumvents the copious amounts of personal information: making a gift through a global grantmaking institution. These organizations specialize in maintaining strong relationships with charitable organizations through these periods of change by both facilitating direct grants and making grants on behalf of donors.
CAF America has accomplished this by working directly with Mexican charities to better understand the requirements of the law and best practices for compliance. Relying on the expertise of grantmaking professionals who have already shown an ability to navigate the complexities of this law can be invaluable to a donor’s philanthropic vision and peace of mind.
“Federal Law for the Prevention and Identification of Operations with Illegally Acquired Funds” is but one example of a global trend of governments worldwide taking steps to preempt organized criminal activity. While it is too soon to truly forecast the potential positive impact of the law in thwarting money laundering, the unintended negative consequences are already measurable.
The law, along with local financial instability and an increase in crime, has left many Mexican charities in dire need of help more than ever before. And for a country that ranking near the bottom in the World Giving Index1 , it is imperative that help comes from abroad both quickly and consistently.
The law may have amended the nature of making a gift in Mexico, but it did not make it impossible, or even imprudent. With the right information and proper advisement, supporting charitable organizations in Mexico can be as safe and tax-effective as they were prior to the enactment of this law.
1 World Giving Index 2012-2014
https://www.cafonline.org/PDF/WorldGivingIndex2012WEB.pdf https://www.cafonline.org/PDF/WorldGivingIndex2013_1374AWEB.pdf https://www.cafonline.org/pdf/CAF_WGI2014_Report_1555AWEBFinal.pdf
From 2012-2014, Mexico ranked 75th, 76th, and 85th, respectively, in the World Giving Index report. Mexico also ranked 93rd in donating money in 2014, a 16% decrease from 2012.
Ted Hart (@tedhart) is the CEO of Charities Aid Foundation of America (CAF America), a nonprofit organization offering global grantmaking & philanthropic advisory services to corporations, foundations, and individuals. Hart is also the editor and author of numerous books and articles, and hosts a weekly online radio show called Nonprofit Coach.