Thawing Accounts in Mexico and Updating CDD in New Zealand

September 25, 2020 3 minute read

We’ve taken a look at how US sanctions are doing in Mexico’s courts and the updates to New Zealand’s CDD guidelines.

We share our financial regulatory highlights from the week of 21 September 2020.

Mexican Company’s Accounts Unfrozen Despite US Sanctions

A Mexican court ruled that bank accounts associated with a local company sanctioned by the US should be unfrozen, the country’s anti-money laundering unit confirmed on 22 September 2020.

Despite US sanctions targeting Venezuela’s PDVSA, Mexico-based Libre Abordo and its affiliate, Schlager Business Group, struck a deal in 2019 to trade water and corn for crude oil, which they intended to resell to Asia. The deal was originally portrayed as a humanitarian arrangement, and the companies maintain that it didn’t violate any US sanctions imposed on Venezuela’s state-run oil company.

About 500 water trucks made it to Venezuela. But the 210,000 tons of corn that were originally part of the deal did not, due in part to declining oil prices. That and pressure from the US contributed to a loss of $90 million for Libre Abordo, which declared bankruptcy in May 2020. The deal, therefore, fell through.

Nevertheless, the US sanctioned both in June — a move designed to punish those seen as helping the Maduro regime evade sanctions and to serve as a warning to others considering the same. Mexico’s Financial Intelligence Unit (UIF), cooperating with OFAC, froze all bank accounts connected to Libre Abordo and Schlager Business Group when the news broke.

Both the US and the UIF had been investigating the companies’ connections to Venezuela, and the UIF confirmed it would seek to appeal the court’s ruling to unfreeze the accounts.

Updates to New Zealand’s CDD Guidelines

New Zealand’s Department of Internal Affairs issued updated AML/CFT guidelines on 18 September 2020, specifically with respect to enhanced customer due diligence (EDD).

These updates seek to provide clarity around when regulated entities must verify a customer’s source of wealth or funds as part of the EDD process — which, under the new guidelines, is required in most cases where EDD would be warranted.

Those cases include any that feature politically exposed persons (PEPs) — particularly of note against the backdrop of the current global public health crisis, which provides ample opportunities for those seeking to exploit their positions and misuse public funds for personal gain. Business dealings involving trusts and companies with nominee shareholders or bearer shares, as well as other circumstances that might be considered high-risk, also fall within these new guidelines.

However, source of wealth or funds verification isn’t yet mandatory for all cases where EDD is, including for “wire transfers, correspondent banking relationships or those involving new or developing technologies, or new or developing products that might favour anonymity.”

It’s worth noting that these requirements affect financial institutions as well as designated non-financial businesses and professions (DNFPs) such as lawyers, accountants, real estate professionals, and dealers in high-value goods. Starting in 2018, New Zealand began to expand its regulatory umbrella to include these high-risk professions to further strengthen the country’s AML/CFT framework; this serves as one more step in that direction.