I. Background

The phrase "money laundering" was officially coined by the US Government in the Money Laundering Control Act of 1986, which established it as a Federal crime. In 1988 the United States passed the Anti-Drug Abuse Act, introducing new restrictions and legislative support to prevent money laundering, including the obligation to maintain full information about and the identification of persons who acquire bearer documents or transfer amounts greater than three thousand dollars (3 000 USD).¹ International efforts to combat money laundering were strengthened with the Vienna Convention in December 988 and the Convention of the European Council in990. The former introduced the obligation to criminalize the laundering of money derived from drug trafficking, and instituted the first measures to promote international cooperation, while the latter mandated support for the investigation and confiscation of illicit money originating from any type of criminal activity.

The negative effects of money laundering on the integrity of the financial system and the operational and reputational risks it posed for banks increasingly worried regulators. At the end of 988, the Basel Committee issued its first statement against money laundering. In response to these growing concerns, the Group of Seven (G7), meeting at the Paris Summit in July 989, established the Financial Action Task Force (FATF).²

Throughout the 990s, Federal legislation in the United States was passed to fortify efforts in the fight against money laundering. The Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act, more commonly known as the USDA Patriot Act -passed in 200 after the attacks of September 11^th- further enhanced legislation against money laundering in the United States, and introduced the financing of terrorism as a Federal crime. It prohibited certain activities with "off-shore" banks without physical offices or affiliates in the USD, and significantly increased customer identification requirements. The Act also legislated for the possible expropriation of assets of illicit origin (United States Departament of the Treasury, Financial Crimes Enforcement Network, 206).

Today, most related laws across countries incorporate a significantly wider concept of money laundering to include all types of financial documents (insurance, mortgages, government securities, bonds, etc.), goods, real estate, as well as gold and precious stones. This broader definition has fortified non-financial professionals' role in the fight against money laundering. Thus, recommendations for risk assessment in real estate and the buying and selling of precious metals, as well as guidelines for professionals such as lawyers and auditors have been produced by the FATF and other international expert groups to address these themes.

After September 11^th, 200 most jurisdictions have also incorporated the crime of terrorist financing into their legislation. This is a more complex phenomenon to identify because the funds used in the financing of terrorism can come from assets of unlawful origin, but they may also be derived from assets of legal origin that have been channeled through various operations in the legal financial system. The latter carries a significantly higher risk for the financial system, given that the funds may come from perfectly legal operations or business, but be intended for terrorist activities.³

II. The integrity of capital markets and financial stability, and effects in the real sector

The process of money laundering comprises three phases: 1) the incorporation of products of illicit transactions, such as drug, human, and arms trafficking, kidnapping, tax evasion, corruption, etc. into the financial system; 2) as a second phase, a series of bank transactions and transfers are made to different accounts and jurisdictions in order to conceal the origin and location where the original infraction was committed, sending the transaction to another jurisdiction also makes it more difficult to monitor and later be retrieved by the relevant authorities, and 3) the third phase consists of the return of these resources which have been invested in business, real estate or assets of any nature, thus giving them the appearance of originating from legal operations. Money laundering and the financing of terrorism may adversely affect the overall health of the economy and its financial stability⁴ by introducing distortions in the allocation of resources in such a way that investment decisions depend less on factor prices and profit return calculations, and more on criminal or illicit pressures. Moreover, through financial institutions, it has a triple negative effect (^{Bartlett, 2002}):

There is yet a limited amount of literature on the direct effects of money laundering in the real sector of the economy. However, there is evidence that in addition to the indirect effects through the financial sector, money laundering may adversely affect productivity by generating perverse incentives that induce transactions not based on the normal market mechanisms for resource allocation via relative prices and profits (^{Bartlett, 2002}). The most common case is real estate investment, where the increase in demand by money launderers induces higher market prices, thus leading all buyers to overpay for property assets and potentially generating "crowding-out" effects.⁷

There is also evidence of a strong correlation between low levels of compliance with international anti-money laundering standards and low tax collection, as well as with high levels of corruption. In relatively small countries, or in countries highly dependent on financial flows including those positioned as "off-shore" centers, money laundering can lead to significant market distortions.

In some cases the search for more flexible regulations has led to a suboptimal situation, where the possibility of money laundering is facilitated, with consequent negative effects on the country and the international community. Previous experience shows that jurisdictions with relaxed regulatory systems attract illicit money and tend to, at some point, face reputational problems that result in low business turnover and strong fluctuations in their levels of economic activity and employment.⁸

The relevance of anti-money laundering targets and actions to combat the financing of terrorism for national and international security has increased in the light of the current state of global affairs, marked by the emergence of new terrorist threats such as the Islamic State of Iraq and Syria (ISIS), and the resurgence and strengthening of new factions of established terrorist groups including those connected to Al Qaida and Al Shabaab, among others. Preempting the flow of money (of licit or illicit origin) to terrorist groups, drug and human traffickers, and other criminal entities that pose a threat to national and international security is an ever increasing priority. Cooperation at the national and international levels is of the utmost urgency from both government and private sectors.

IV. Methods and trends of money laundering and the financing of terrorism

One of the essential tasks performed by FATF working groups, regional bodies similar to this one, the Egmont Group and Financial Intelligence Units (FIUS) of member countries is the identification of methods used by money launderers or those interested in financing terrorist operations. The main objective of identifying these methodologies is to create appropriate mechanisms to prevent them and alert financial institutions and regulators to the new and emerging trends of money launderers.

In 2005 the United States Government conducted the USD Money Laundering Threat Assessment (^{United States Departament of the Treasury, Money Laundering Threat Assessement Working Group, 2005}). This document later served as the basis for the USD 2007 National Money Laundering Strategy (^{United States of the Treasury, 2007}). The key points identified in the assessment are:

In Latin America and the Caribbean, the most important efforts in the identification of methodologies used by money launderers have been made by GAFISUD and the CFATF (^{Financial Action Task Force of South America, 2006}; ²⁰⁰⁸; ^{Caribbean Financial Action Task Force, 2008}). These collective efforts represent an important input into the definition of guidelines for the competent authorities in order to protect their respective jurisdictions from the possibility that their systems could be used for money laundering or the financing of terrorism.

V. The international community of the fight against money laundering and the financing of terrorism

In recent years, the mandates of several international organizations, as well as national and multilateral financial institutions have been extended to incorporate efforts to combat money laundering and the financing of terrorism. As Chart 1 illustrates, the international community, including the United Nations and other international organizations such as the World Bank (WB), the International Monetary Fund (IMF), and regional development banks, together with the FATF and subsidiary regional-style bodies, plays a key role in combating money laundering and in developing strategies and guidelines for monitoring national compliance. Coupled with private sector expert groups such as the Wolfsberg and Egmont Groups and national institutions including financial regulators, and legislative and judicial bodies, international efforts to prevent money laundering and the financing of terrorism require a complex and coordinated commitment from multiple actors.

Source: Author's own elaboration.

Chart 1 A Global Commitment in the Fight against Money Laundering and the Financing of Terrorism. 

1. Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) was created by the G7 in July 989 with the specific mandate to design and promote compliance with international standards for the prevention of money laundering. The FATF is composed of 34 jurisdictions and two regional organizations that together represent the majority of the world financial centers.¹³ Currently, in formal FATF meetings eight regional groups are involved as associate members, while 23 international organizations hold observer status.¹⁴ The Basel Committee formally joined as an observer in October 2008. The task force's fundamental work has focused on developing good practices against money laundering which have been incorporated into forty Recommendations, and recently updated with nine Regulations against the financing of terrorism (Chart 2). Of the (40 + 9) Recommendations, six have been designated Core Recommendations, with an additional ten highlighted as Key Recommendations.

Source: Author's elaboration based on ^{Financial Action Task Force (2004)}.

Chart 2 FATF Recommendations and Good Practices (40 + 9) Recommendations (2003 Recommendations and 2004 Amendments). 

In detail, the 40 Recommendations to prevent money laundering describe:

Moreover, the special recommendations with regard to the prevention of the financing of terrorism contain a commitment to: 1) ratify and implement the relevant United Nations instruments; 2) criminalize offenses related to the financing of terrorism, terrorist acts and organizations; 3) enact legislation to facilitate the freezing of assets that could be intended for terrorist activities; 4) establish procedures for reporting suspicious transactions; 5) ensure the possibility of international cooperation and extradition; 6) hold all alternative systems for transferring funds to FATF standards and recommendations, particularly the requirement of "know your client" policies; 7) establish clear policies for customer due diligence in bank transfers; 8) review the legal obligation of registration requirements for non-governmental organizations in order to prevent them from being used to divert resources to terrorist activities; and 9) establish control procedures for monitoring companies dedicated to the transport and movement of cash.

The United Nations Security Council recently issued a series of enhanced recommendations amid increased concerns for the financing of terrorist groups and the proliferation of weapons of mass destruction (^{United Nations Security Council, 2004}; ^2006a; ^2006b; ^2006c; ^2006d; ²⁰⁰⁷; ^2008a; ^2008b; ²⁰¹⁴). Resolution 1671 of the United Nations Security Council urges the international community to implement the (40 + 9) Recommendations to combat money laundering and the financing of terrorism without delay. The FATF reacted by preparing guidelines for implementing relevant resolutions in each of its member jurisdictions. During their session on September 24th, 2014, the Security Council unanimously adopted Resolution 2178 in an effort to further crack down on the financing of international terrorist threats. In addition, the Resolution criminalized the act of traveling abroad to fight for extremist organizations, as well as recruiting for or providing funding to such terrorist groups.

The (40 + 9) FATF Recommendations have been accepted by 180 jurisdictions and by the Boards of multilateral financial institutions such as the IMF, WB, the Asian Development Bank, and the African Development Bank. The Paris Declaration of 2002 played an important role in conferring sanctions on those countries identified as non-cooperative in the fight against money laundering by the FATF. Thereafter, a list of identified countries was established, and those countries were required to take appropriate measures and enact legislation in order to be removed from the list. The FATF remains willing to identify those countries that do not cooperate, and continuously reviews the progress of jurisdictions. In fact, in their meeting in October 2008 the FATF highlighted concerns about some countries, especially in terms of their commitment to support the fight against the financing of terrorism. The four main objectives of the FATF under its current mandate¹⁵ are to: 1) review and clarify international standards (40 + 9 Recommendations); 2) promote the implementation of the Recommendations; 3) identify and generate adequate responses to new threats of money laundering and the financing of terrorism; and 4) establish working relationships with other members of the international community (^{Financial Action Task Force, 2008}).

During the meeting of Ministers of the FATF in April 2012, the mandate was unanimously extended to 2020,¹⁶ focusing on the FATF's role as the international standard setting institution for efforts to combat money laundering, the financing of terrorism and the proliferation of weapons of mass destruction. The extended mandate reaffirms the close operational cooperation with the international community, and strengthens joint work with the FATF-style regional bodies. The most important task of the FATF is to assess compliance with international standards through a consistent process for each member jurisdiction. It continually develops methodological guidelines for evaluations to ensure each of the assessments follow a harmonized methodology. The evaluation process includes the preparation of questionnaires that are sent to the authorities of each country in advance so that evaluators are familiar with the established procedures prior to their Mutual Evaluation. During the country visit, consultations are conducted with national authorities, and also with relevant financial and non-financial private sector agencies and associated professionals.¹⁷ Once the visit has been concluded, the assessor group, with the support of the Technical Secretariat of the FATF, prepares a Mutual Evaluation report.¹⁸ The final document is submitted for discussion and approval in the FATF Assembly.

The FATF completed the third round of compliance assessments for each of its 34 member jurisdictions in 2011, though some members remain under a follow-up procedure.¹⁹ Identifying jurisdictions with deficiencies in their controls to preventing money laundering or the financing of terrorism, allows for support to be given to these countries to help mitigate these risks and protect the stability and security of the international community. In practice, the definition of a list of non-cooperating countries allowed more than twenty jurisdictions to receive FATF support and significantly improve their financial crime prevention schemes.

One of its important contributions has been the revision and adoption of a new set of Recommendations, which were approved in February 2012 following a joint process of consultation with the FATF-Style Regional Bodies and other international observers. The International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation (^{Financial Action Task Force, 2012}) synthesize the previous (40 + 9) Recommendations, seeking to tighten legislation and strengthen compliance. These new Recommendations place a special emphasis on creating transparency, preventing corruption and managing the risks of new and emerging threats to financial sector stability.

Of particular relevance given the current global state of affairs is the challenge of combating terrorist financing. Most anti-money laundering and counter-terrorist financing strategies have been mainstreamed throughout the new Recommendations, replacing the need for a set of Special Recommendations; however, Section c applies a specific focus to combat the financing of terrorism and the proliferation of weapons of mass destruction. The 2012 Recommendations (Chart 3) are set to be applied uniformly in the upcoming fourth round of Mutual Evaluations, that will be conducted in two jointly re-enforcing components: a Technical Compliance Assessment to measure the level of conformity with the revised standards, and an Effectiveness Assessment, which will rely on the judgment of the assessors, taking into account national context and the effective level of risk (^{Financial Action Task Force, 2013a}). The assessment of a country will result in two sets of ratings: "Technical Compliance" which ranges from Compliant to Non-Compliant, and "Effectiveness" from High to Low.²⁰ Such fourth round began in late 2013 with the assessments of Australia, Belgium, Norway and Spain to be finished by 2015.

^a this Recommendations have interpretative notes, which should be read in conjunction with the Recommendation.

Source: Author's elaboration based on ^{Financial Action Task Force (2012)}.

Chart 3 2012 Revised FATF Recommendations. 

VI. Current situation and new challenges for regulation and supervision in Latin America and the Caribbean

The most important task assigned to the FATF is the assessment of countries' compliance with the (40 + 9) Recommendations, through the use of a homogeneous methodology. In the case of Latin America and the Caribbean, evaluations are conducted by GAFISUD, the CFATF or the IMF. In the latter case, evaluations are then submitted for approval to the FATF or a FSRB to ensure their consistency. Assessments for Brazil, Argentina and Mexico are conducted directly by the FATF. In all cases three rounds of Mutual Evaluations have been completed with satisfactory progress, as most countries have made significant efforts to prevent the risk of money laundering and the financing of terrorism. Today no country in Latin America and the Caribbean remains on the FATF list of countries with a high risk of money laundering or terrorist financing. Globally, Iran and the Democratic People's Republic of Korea (North Korea) remain on this list, with particular concern for their failure to combat the financing of terrorism and money laundering, noting the serious threats these pose to international financial system security.

In its statement in June 2014, the FATF identified jurisdictions with strategic deficiencies in their compliance with anti-money laundering and counter-terrorist financing efforts and who have not made sufficient progress and/or have not committed to an action plan with the FATF (^{Financial Action Task Force, 2014a}).³¹ The FATF and GAFISUD note that Ecuador has taken steps towards improving its anti-money laundering and counter-terrorist financing regime, including by enacting a new criminal code, which includes provisions to adequately criminalize money laundering and terrorist financing. However, despite Ecuador's high-level political commitment to the FATF and GAFISUD, the country has not made sufficient progress in implementing its action plan, and certain strategic deficiencies remain, particularly with respect to procedures for identifying and freezing terrorist assets. This does not mean, however, that deficiencies do not still exist in some countries in their effective implementation of the Recommendations. Next, a summary of compliance with the (40 + 9) Recommendations in Latin America and the Caribbean is presented. This analysis is based on publicly available information from the websites of the FATF, the CFATF and GAFISUD, and is derived from countries' respective third Round Mutual Evaluation Reports.

Chart 4 shows that the majority of countries in the region still face shortcomings in their compliance with the (40 + 9) Recommendations. In fact, 33 of the 42 countries surveyed in the region, were rated Non-Compliant or Partially Compliant with more than 50% of FATF Recommendations. Of these, ten countries (Argentina, Bolivia, Dominica, Dominican Republic, Guyana, Haiti, St. Lucia, Suriname, Trinidad and Tobago, and Turks and Caicos) were rated Non-Compliant or Partially-Compliant with more than 80% of the Recommendations. Based on the results of their third Round Mutual Evaluations, these countries would require support in their efforts to combat money laundering and the financing of terrorism Guayana and Panama were also listed as jurisdictions with strategic deficiencies.

*c = Compliant, LC = Largely Cpmliant, PC = Partially Compliant, and NC = Not Compliant.

^a Core Recommendations include: R.1, R.5, R.10, R. 13, R.II and R.IV.

^b Key Recommendations include: R.3, R.4, R.23, R.26, R.35, R.36, R.40, R.I, R.III, and R.V.

Note: Ratings reflect compliance in each country's respective Third Round Mutual Evaluation Report (MER).

Source: Data compiled from ^{Financial Action Task Force (n.d.)}, ^{Caribbean Action Financial Action Task Force (n.d.)} and ^{Financial Action Task Force of South America (n.d.)}.

Chart 4 Latin America and the Caribbean: Compliance with FATF (40 + 9) Recommendations*. 

In order to fortify countries' efforts, particular attention should be applied to their compliance rates with Core and Key Recommendations. In Latin America and the Caribbean, nine countries were rated Non-Compliant wit all six Core Recommendations, among them: Antigua and Barbuda, Argentina, Belize, Dominican Republic, Guyana, St. Lucia, Suriname and Trinidad and Tobago and Turks and Caicos. In contrast only Panama and Peru were rated Complaint and/ or Largely Compliant with all six Core Recommendations. The real test for many countries will be in their upcoming fourth Round Mutual Evaluations, which will stress not only the existence of national laws and regulations, but also their application and effectiveness. That is to say, the majority of countries in the region face shortcomings in compliance with Core FATF regulations.

With regard to compliance with the ten Key Recommendations, overall, the region failed to perform better. With the exception of Anguilla, the British Virgin Islands, the Cayman Islands, Colombia, Jamaica and Panama, who had compliance rates of more than 80%, the majority of the region struggled to comply. Performance was again particularly troubling in Argentina, Guyana and St. Lucia (who failed to comply with any of the ten Key Recommendations) and Aruba, Belize, Bolivia, Dominica, Dominican Republic, Haiti, Honduras, Saint Maarten, St. Kitts and Nevis, Suriname, and Trinidad and Tobago (who rated Non-Compliant or Partially Compliant with more than 80% of the Key Recommendations).

The cases in which less than 40% of the Core and Key Recommendations are met require special attention. Based on the results of the third Round Mutual Evaluations, 50% of countries in the region had compliance levels below this threshold. This is particularly true when there are deficiencies in the implementation of Recommendations 5 and 23. With respect to Recommendation 5 on customer due diligence, only Panama and Peru were rated as Largely Compliant with the FATF Regulation, while more than one-third of all countries in the region were rated Non-Compliant with this critical recommendation.

In the case of Panama, this is the result of an agreed working plan to leave the gray list of non-compliant countries. When viewed together, compliance with Recommendations 5 and 23, serve as central pillars of a country's financial system and strategy to combat money laundering and the financing of terrorism. Here the Caribbean nations faced serious issues in fulfilling the FATF regulations, with Aruba, Bermuda, Dominica, Haiti, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, as well as Honduras rating Non-Compliant on both Recommendations 5 and 23.

Given the typologies of money laundering found in the region, it can be concluded that while countries have made significant progress in the implementation of the (40 + 9) FATF Recommendations, there is still a gap in Latin America and the Caribbean with respect to international norms. Additionally, the emergence of new forms of money laundering and the financing of terrorism requires that policies and countries' regulatory frameworks be periodically reviewed in order to reflect recent developments. One of the biggest regional challenges is the emergence of new forms of money laundering that rely on advanced technological platforms or innovations, including remittance payments by cell phones, and the proliferation of web-based international financial services, the use of pre-paid credit cards, and the proliferation of non-banking correspondents. Moreover, in countries that lack adequate regulation, there is a risk that non-governmental organizations and trusts are used for money laundering. It is also noteworthy that there are still some Latin American and Caribbean countries that do not meet most of the Key and Special Recommendations to counter the financing of terrorism and weapons of mass destruction. Emerging threats in this regard often stem from the operations of transnational organized crime groups, including drug trafficking networks. Advances in online technology also pose new risks for the financing of terrorist organizations, rogue criminal regimes and breakaway nations.

As highlighted previously, notwithstanding certain advances, such as the success of Panama in being removed from the gray list in February 2016, there remains significant room for improvement with regard to legal compliance and implementation. The Panama Papers prove that the next challenge for the region in terms of anti-money laundering and counter-terrorist financing efforts will be during the upcoming fourth Round Mutual Evaluations, which will measure countries' continued application of international norms, as well as their performance with respect to the revised FATF Regulations adopted in 2012 that underline effectiveness of the approved legislation. With the emergence of new international issues and threats to financial system stability, Latin America and the Caribbean countries together as a region will have to strengthen multi-lateral cooperation and improve their capacities to jointly address these risks.

VII. Mexico's compliance with the FAFT (40 + 9) Recommendations

Mexico, the second largest economy in Latin America and the Caribbean, is a member of both the FATF and the CFATF. Given the country's importance in the region, as well as its integration into the global economic system through trade relationships and economic cooperation, Mexico provides a particularly relevant case study of a country's efforts to combat money laundering and the financing of terrorism. In 2008, Mexico underwent its third Mutual Evaluation, and was rated Partially Compliant or Non-Compliant with 25 Recommendations, or put in another way, 5% of the Recommendations (Chart 5). Of particular concern was Mexico's performance with respect to the Core and Key Recommendations, where the country was rated Partially Compliant or Non-Compliant with nine of the sixteen Recommendations. For Mexico, five Core Recommendations were rated Partially Compliant, among them: R.1, R.5, R.3, SR.II and SR.IV, while no Core Recommendations were rated Non-Compliant. Notably, Mexico was identified as having strategic deficiencies in national approaches to the criminalization of money laundering and in practices and regulations, with respect to "know-your-client" customer due diligence principles. As for the Key Recommendations, three were rated Partially Compliant: R.23, SR.I and SR.V, while one was rated Non-Compliant (SR.III, which refers to targeted financial sanctions related to the financing of terrorism). Given these important deficits in Mexico's strategy against money laundering and the financing of terrorism, the FATF Plenary decided in October 2008, that the country should be placed under the regular follow-up procedure, with periodic monitoring reports to be produced by national authorities outlining recent reforms and efforts to address the identified shortcoming in compliance.

Source: Author's elaboration based on financial Action Task Force, ^{Financial Action Task Force of South America and International Monetary Fund (2008)}.

Chart 5 Compliance Results of Mexico's 2008 Mutual Evaluation. 

Since the results of the 2008 Mutual Evaluation, Mexico has focused on building a comprehensive legal and institutional anti-money laundering and counter-terrorist financing framework. The country has issued or amended several laws and regulations aimed at criminalizing money laundering and the financing of terrorism. Efforts have also been made to improve the prevention of money laundering in the country, through enhanced coordination among national authorities, including law enforcement and judicial officials, as well as with international expert groups and international organizations. The regulatory framework for financial institutions was reformed in line with the (40 + 9) Recommendations and integrated all the necessary financial supervisory and customer due diligence requirements. In addition, all designated non-financial businesses and professions (DNFBPS) and other risky businesses and professions were incorporated by law into the anti-money laundering and counter-terrorism financing regime. Efforts to combat terrorist financing were also strengthened through the establishment of an asset freezing regime for known or suspected terrorists. Coupled with programs to enhance the judicial process and expedite investigations, prosecutions and convictions, Mexico has adopted an integrated approach in order to protect the long-term stability of the financial system.

As Chart 6 illustrates, Mexico enacted a multi-dimensional national plan to overcome shortcomings in its anti-money laundering and counter-terrorist financing strategy. The national strategy rests on four pillars: 1) information and organization; 2) enhancing the regulatory framework; 3) risk-based supervision and effective banking procedures; and 4) transparency and accountability, which combined serve to enhance national efforts to comply with the FATF Recommendations. Concrete lines of action for various institutional partners, as well as the banking sector have also been identified to public-private cooperation efforts.

Source: ^{Financial Action Task Force (2012b)}.

Chart 6 Summary of the National Strategy to Combat Money Laundering and the Financing of Terrorism. 

Mexico's first follow-up report to the FATF was issued in October 2010, with the second and third issued in October 2012, and 2013, respectively. The Fourth Follow-up Report, issued in February 2013, illustrated concrete progress in some areas of compliance, but the country was deemed to have shown insufficient progress with regard to some Key Recommendations. At this phase, Mexico entered into a process of Targeted Enhanced Follow-up. Subsequent Follow-up Reports were issued in June 2013 (Fifth Follow-up Report) and October 2013 (Sixth Follow-up Report). In February 2014, Mexico submitted its 7^th Follow-up Report to the FATF, as well as its application for removal from the Follow-Up procedure, having identified sufficient progress in addressing the gaps in national compliance, particularly with respect to the Core and Key Recommendations that had been rated Partially Compliant in the third Round Mutual Evaluation (Chart 7).

Source: ^{Financial Action Task Force (2014b)}.

Chart 7 Mexico: 7^th Follow-Up Compliance Report with FATF Regulations and Progress Achieved since the Third Round Mutual Evaluation. 

As this chart illustrates, Mexico has managed to make strides in addressing the shortcomings of national anti-money laundering and counter-terrorist financing programs. All Core and Key Recommendations are now rated Largely Compliant, and the country has shown progress in meeting FATF standards with respect to other Recommendations. One of Mexico's major successes in compliance is its improved performance with respect to Recommendation 1, focusing on the criminalization of money laundering. The Federal Criminal Code was amended to address technical shortcomings in the definition and operation of money laundering. In addition, long-term measures were enacted to raise the effectiveness and efficiency of the national criminal system. The country has recently focused on pursuing the prosecution of high-profile money laundering cases, thus raising the effectiveness of the new legislation.

As Chart 8 illustrates, the amount of money seized in recent years in money laundering cases in Mexico has increased rapidly, both in terms of national currency seizures and those in foreign dollar transactions. From 2009 to 2013, monetary seizures in Mexican pesos increased 231%, while seizures in us dollars increased by more than 600% as a result of heightened efforts to monitor, detect and capture flows of illicit money.

While the trend in monetary seizures has increased on average over the last five years, the largest gains have been realized since 2012. As Graph 1 indicates, in terms of both us dollars and Mexican pesos seized, the levels dropped significantly following the 2009 financial crisis. However, in 2013, detection of illicit flows of both currencies increased dramatically. It is expected that due to heightened national efforts to monitor transactions, and increased cooperation among both national and international entities, the amounts of illicit funds seized by Mexican authorities could continue to increase in coming years. The country has adopted an enhanced risk-based approach, which is aligned with the National Strategy to Combat Money Laundering and the Financing of Terrorism, and will be utilized to supervise the financial system and address emerging threats.

Source:^{Financial Action Task Force (2014b)}.

Graph 1 Significant Increases in Monetary Seizures through Money Laundering Cases, 2009-2013. 

At the Federal level, the number of prosecutions for money laundering cases have also increased, indicating the country's commitment to investigation, and the improved coordination of activities throughout the banking and judicial system. This also reflects increased cooperation with law enforcement agencies and FIUS. Despite the sustained increase in the prosecution rate in Mexico over the last eight years, the conviction rate overall has tapered (Chart 9). From 2006 to 2013, in just over seven years, the number of prosecutions increased by 133%, though the conviction rate dropped from nearly 60% to less than 20% over this same time period.

In summary, since the 2008 Mutual Evaluation, Mexico has made some notable progress in national efforts to combat money laundering and the financing of terrorism. Following the successful review of its 7^th Follow-up Report in February 2014, Mexico was removed from the formal Follow-up procedure by the FATF, reflecting the country's improved performance with respect to Key and Core Recommendations. However, despite this progress, Mexico still has ongoing work in preventing money laundering and the financing of terrorism. A key factor is the country's ability to demonstrate continued compliance and cooperation with the existing Recommendations in future evaluations. In addition, some non-Core and Key Recommendations still need to be addressed for the country to come into full compliance with the full battery of FATF Recommendations. Emerging national and international security threats, as well as the sheer magnitude and complexity of the financial structure in Mexico may weigh on the country's future compliance. Worrisomely, with the erosion of the rule of law in some Mexican states, corruption remains a serious threat to the operations of FIUS, and undermines the effectiveness of the judicial system. An overarching limitation in compliance, as well as in the prosecution and conviction of money laundering and terrorist financing violations, is the weak fiscal capacity of the State. This fiscal precariousness is exacerbated by the extremely low level of tax collection in Mexico, in part due to rampant tax evasion and elusion, as well as deficiencies in the judicial system that have led to few convictions and incarcerations for tax fraud.