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FinCEN Advisory
This Advisory is of special interest to banks at which Mexican institutions maintain correspondent accounts. However, the Advisory is being distributed to all banks.
Mexican bank drafts have long been used to facilitate trade and commerce
within the United States/Mexican border region. These drafts are
issued in U.S. dollars by Mexican banks and are payable from correspondent
accounts held at U.S. banks. The promise of payment by a U.S. bank makes
them easy to sell or deposit.
Correspondent banking relationships are a vital part of the banking
system, both domestically and internationally. However, like other aspects of
the system, they are vulnerable to manipulation and misuse by money launderers.
In this case, Mexican bank drafts have provided excellent tools for
the facilitation of money laundering activities.
Banks and other financial institutions should give enhanced scrutiny to
deposits or the presentation for collection of U.S. dollar-denominated bank
checks or other drafts drawn by Mexican banks on their dollar accounts in
U.S. banks. Enhanced scrutiny should also be given to the presentation for
collection at U.S. banks by Mexican currency exchange and other businesses
of multiple third party checks or drafts endorsed to the order of the
business presenting the checks for payment.
Recycling Funds
A crucial part of the money laundering cycle is the re-entry into the United States of funds derived from criminal activity; the smuggling of those funds out of the country is intended to "launder" them for re-entry with an
apparently foreign origin. Cross-border commerce between the United States and Mexico provides an especially attractive cover for attempts to reintegrate criminally-derived funds into the U.S. economy.
Two techniques for recycling funds along the border have been identified
by law enforcement officials.
Mexican Bank Drafts
A crucial part of the money One technique is the use of smuggled currency in Mexico to purchase a
"Mexican bank draft," that is, a dollar-denominated draft drawn by the
Mexican bank to the order of the bank draft's purchaser, on that own bank's
dollar account with a correspondent bank in the United States. The draft
is then carried into the United States and negotiated, or perhaps endorsed
to a third party who negotiates the draft at the United States correspondent
institution. It may also be endorsed to a third party in Colombia, Panama, or
elsewhere, as part of a more complicated scheme to purchase goods for
conversion ultimately to laundered funds; in any event the draft ultimately
finds its way back to the U.S. banks on which it's drawn.
Factored Third Party Checks
A crucial part of the money One The second technique involves what might be called the "factoring" by
currency exchange houses and other financial intermediaries of bank checks
drawn on a single U.S. institution; the currency exchange house or other
middleman buys the checks from smaller Mexican banks. The purchase price
is paid with smuggled currency, and the bundled "factored" checks are sent by
the purchaser to the U.S. bank for collection; the funds delivered upon collection
are then rerouted to the launderers.
***
Although the use of dollar-denominated bank drafts by Mexican institutions
and the factoring of bank checks can serve legitimate commercial
purposes, increased indications that the instruments are being used to move
criminally-derived funds necessarily raise questions about the purposes of
unusual transactions involving such instruments. Banks and other institutions
subject to the United States Bank Secrecy Act should examine available facts
relating to any transactions that involve persons with no apparent business
basis for presenting such drafts, or bundled groups of third-party checks, for
payment or deposit, especially in the case of persons not known to engage in
substantial commerce with Mexico, persons who have no fixed address or
persons who have no separate business address.
Particular attention should also be paid to periodic surges in the numbers
and dollar volume of instruments of these sorts sought to be presented for
payment. Finally, particular attention should be paid to accounts that are
apparently used to concentrate cash generated by the deposit of such instruments
prior to the wiring of funds to other parts of the United States or to
locations outside of the United States (especially to narcotics source or
transit countries).
Factored Third Party Checks
Unless examination of the facts underlying such transactions, in each case, reveals that the transactions possess an independent lawful business purpose and are the sort in which the customer involved would normally be
expected to engage, institutions subject to the suspicious activity reporting
rules (31 CFR 103.21) should report such transactions as provided in those
rules. Institutions subject to the Bank Secrecy Act, but not yet subject to
specific suspicious activity reporting rules, should consider their obligations
to report such transactions either under other applicable law or on a voluntary
basis.
The Treasury Department will consider any report relating to a transaction
described above to constitute a report of a suspicious transaction that may not
be disclosed by the reporting institution to the parties involved, and to which
the statutory protections against liability for reporting apply. The prohibition
against disclosure and the protection against liability for reporting are contained,
respectively, in 31 U.S.C. 5318(g)(2) and (g)(3).
Stanley E. Morris
Director
FinCEN Advisory is a product of the Financial Crimes Enforcement Network, Department of the Treasury, Post Office Box 39, Vienna, Virginia 22183. For more information about FinCEN’s programs, visit the FinCEN web site at http://www.fincen.gov. General questions or comments regarding FinCEN publications should be addressed to the Office of Communications, FinCEN, (703) 905-3773. Information may also be faxed to (703) 905-3885.