Mexico Joins the US and Others in Implementing Capital Controls

by Jim Karger The Dollar Vigilante

Previously by Jim Karger: So, How Can I Make a Living in Mexico?

By 2014, the US Department of Homeland Security will be able to scan you at the molecular level from 164 feet, and you won't even know it. Starting 2013, the US Department of the Treasury will be able to scan every bank and brokerage account you have in the world, save a few possibilities. In both cases, if the government doesn't like what it sees, they can make short work of you and your money.

Unfortunately, while the US has become the world's most invasive police state, combining intent with technology, it is not the only state policing its citizens' financial transactions. Indeed, many other nations are following in its footsteps, limiting individual freedom as well as financial freedom. One of the most common examples of financial fascism today is currency controls, that is, limiting how much cash one can withdraw over a period of time, what can be purchased with cash, and requiring the reporting of purchases and sales above a certain amount with cash. In the US, for example, transactions above $10,000 must be reported by banks and certain vendors, and suspicious transactions (however defined) also reported. Spain recently banned cash transactions above 2,500 euros.

Regrettably, Mexico, too, has now hopped on the capital control bandwagon. In 2010, Mexico instituted strict limits on foreign exchange cash transactions to $1,500 per person per month which made it tough on tourists and resulted in many dollar exchanges closing their doors.

Now, under the auspices of shutting down a $60 billion drug trafficking business, Mexico has passed a law nominated the "Federal Law on the Prevention and Identification of Operations from Illicit Sources", due to take effect in July of 2013. This law will require the reporting of certain transactions involving cash while prohibiting others. The law is complex and much is left to be interpreted. With a broad brush, however, here are the requirements:

Reportable Transactions

Mexican Notarios (quasi-governmental officials who must close all real estate and many other types of transactions in Mexico), as well as brokers, lawyers, accountants and banks will be required to report to Hacienda (the Mexican IRS) a plethora of transactions, including the following:

  • sales of houses and other real estate, as well as mortgages and liens
  • secured loans
  • incorporations of businesses
  • creation or modifications of trusts
  • appraisals of properties more than $500,000 pesos (about $40,000 US)
  • charitable contributions more than $100,000 pesos (about $8,000 US)
  • importation of vehicles

Financial institutions will also be required to report monthly credit card balances in excess of $3,875 US. Also, by law these institutions will have to create customer activity profiles, track customer activity, assign a customer risk factor, and identify unusual activity. They will be required to report unusual activity, as well as report activities over a certain amount, operations in cash, travelers’ checks, or precious metal coins.

Hacienda will audit reporting entities for compliance, and these entities will report mostly because the penalties are so harsh for failing to do so, ranging from $1000 USD to $320,000 USD per violation. Indeed, a "Specialized Unit in Financial Analysis" operating within the Attorney General’s Office will be created to investigate financial operations "that are related to resources of unknown origin."

Prohibited Transactions

The new law will also prohibit using cash above the following amounts for these types of transactions:

  • real estate transactions with a value higher than 1 million Mexican pesos (about $77,519)
  • buying and selling of vehicles worth more than 200,000 pesos ($15,504 US)
  • in the case of jewelry, precious metals, watches, gemstones and works of art, cash payments are restricted to prices below 300,000 pesos (about $23,256 US)

There are significant fines for violations by purchasers and sellers and criminal penalties of two to eight years in prison for anyone providing an incorrect document or forged document to avoid the reporting requirements. Four to ten years in prison await those persons in government if they assist in any misstatement or fraud.

Practical Implications

Because all Notarios will be required to ask and record the source of funds for a purchase, and secure a tax ID number from the seller on any transaction that must be recorded, the days of most large, heretofore legal, cash transactions will soon be ended. Indeed, the days of showing up at a real estate closing with a Zero Halliburton attaché full of cash are a thing of the past.

It has been common in Mexico for buyers and sellers to record an amount on real estate deeds far below the actual amount paid for real estate, resulting in less taxation of that real estate going forward and often avoiding taxation on the capital gains of a real estate sale. Those days may be over, too.

Prohibition of precious metals transactions for cash above +/- $23,000 US may be material to those who want to stack their gold and silver here, although it is unclear whether one may ladder smaller transactions without running afoul of the new law.

Perhaps most significant is the requirement to have a Mexican income tax ID when closing any transaction that must be recorded in public records, which includes all real estate transactions. The Mexican government wants everyone, expats included, to be on their tax radar. It is important to remember that, while heretofore unenforced, all "residents" of Mexico are required to pay tax on their worldwide income here. (In a future article, I will discuss how Mexico will separate residents from non-residents under the new immigration law.)

Expats living in Mexico could simply keep all their financial assets elsewhere outside of Mexico and then live out of ATMs here, but I don’t know many people who want to live that way. Not having a bank account in the country of your residence makes financial life much more difficult. Also, as the new immigration law goes into effect, the Mexican government is shutting down the ability to renew the tourist visa while the visa-holder is in Mexico. More importantly, it is rumored that the Mexican government will soon begin denying back-to-back renewals of the tourist visa (a strategy that many expats use to remain in the country legally without taking on resident status), leaving the Mexican government one step from declaring many expats "residents" for Mexican income tax purposes. We will be consulting with some of the best lawyers in Mexico to insure that TDV subscribers are at the forefront of avoiding unwittingly becoming "residents" of Mexico for tax purposes. (You can become a subscriber by clicking here.)

Just The Beginning

Much still needs to be sorted out, no doubt in the form of regulations which should be issued between now and July, 2013. For now it is safe to say Mexico has joined the effort of many other first world countries to track all significant financial transactions within its borders, to capture every taxable peso and to gain access to the wealth of those banking or transacting business here. For sure, the cost of doing business in Mexico will rise. How significantly will depend on the how the law is interpreted and enforced. Only time will tell.

“Getting Your Gold Out of Dodge” is available here.  It is free to TDV and TDV Golden Trader subscribers or for a one-time price of $44.95 USD.  It may be the best use of your fiat Federal Reserve Notes you’ve ever spent. Reprinted with permission from The Dollar Vigilante.

Jim Karger is a lawyer, and frequent contributor to The Dollar Vigilante, who has represented American businesses against incursions by government and labor unions for 30 years. In 2001, he left Dallas and moved to San Miguel de Allende in the high desert of central Mexico where he sought and found a freer and simpler life for he and his wife, Kelly, and their 10 dogs. Karger’s website is