Mexico's new anti-money laundering reporting requirements for foreign crypto platforms
There has been much discussion about whether foreign cryptocurrency exchanges and other crypto platforms that facilitate transactions with crypto assets located abroad should comply with the Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin (the Anti-Money Laundering Law). According to this law, crypto platforms must register as an entity carrying out vulnerable activities with the Tax Administration Service (SAT). Crypto platforms must also report all client transactions that exceed the threshold of 645 units of measurement and update(1) (Ps57,804.9 in 2021).
Some believe that this obligation applies only to platforms operating from Mexico (as with anti-money laundering regulations in other jurisdictions). In contrast, others prefer to adopt a more conservative approach and recommend voluntary compliance with the Anti-Money Laundering Law, regardless of where platforms are located or regulated. This discrepancy has led to some foreign platforms reporting vulnerable activities relating to user transactions located in Mexico and other platforms not reporting such activities.
As a result, on 17 August 2021 the Ministry of Finance and Public Credit, through the Financial Intelligence Unit (UIF), released its interpretation criteria via a statement published on the money laundering prevention portal operated by the SAT.
In this statement, the UIF pointed out that the activities covered by section XVI(17) of the Anti-Money Laundering Law may be offered to users located in Mexican territory by technological infrastructures situated in other jurisdictions or companies incorporated in different countries.
Accordingly, the UIF established that all platforms which offer virtual asset services, as set out by section AVI(17) of the Anti-Money Laundering Law, must comply with the obligations outlined therein, regardless of their location or place of incorporation.
This criterion derives from the authority's desire to control activities carried out using crypto assets in Mexican territory. However, its validity and scope remain questionable, and the supervision of its application will be an operational challenge for the UIF and the SAT.
In addition to the above, the current regulation of virtual assets presents a challenge to applying the Anti-Money Laundering Law since the Central Bank of Mexico has not determined which crypto assets should be considered to be "virtual assets". Further, it could be concluded that none of the crypto assets currently operated by crypto exchanges fit the legal definition of a "virtual asset". For example, some authorities have publicly stated that crypto assets do not represent any value, which is one of the requisites of the legal definition of a "virtual asset". Crypto assets also do not match the concept of "virtual assets" in other ways – they are not a means of payment and they are not used for all types of legal transactions.
The prerequisite to consider the performance of vulnerable activities (and therefore to be subject to the obligations of the Anti-Money Laundering Law) is the use of virtual assets. However, the uncertainty about what can be regarded as a "virtual asset" leads to a lack of clarity that may make it a legal impossibility to comply with the objectives of the law and the UIF.
For the time being, according to the UIF, foreign platforms (including exchanges) will be subject to its supervision. Therefore, they must immediately comply with the obligations outlined in the Anti-Money Laundering Law, as well as in the secondary provisions, including:
- registration before the SAT as an entity carrying out a vulnerable activity;
- designation of a compliance officer;
- implementation of more thorough procedures to identify users;
- publication of monthly notices and the accumulation of operations;
- integration of files;
- safeguarding and protection of information; and
- possession of an anti-money laundering manual.
For further information on this topic please contact Diego A Ramos Castillo, Paulina Martínez Cháves, José Antonio Casas Vessi or Sofía Rojas Cuellár at Ramos, Ripoll & Schuster by telephone (+52 55 1518 0445) or email ([email protected], [email protected], [email protected] or [email protected]). The Ramos, Ripoll & Schuster website can be accessed at www.rrs.com.mx.