The operation and application of the Law represents an advance in Mexican legislation, but at the same time it could become a workload for companies or individuals with business activities that carry out acts that are stipulated as vulnerable activities mentioned on article 17 of the Law; as of entry and effect of such law such sectors shall comply with the imposed obligations.
The main objective of the Law is to establish measures and procedures to prevent acts and operation with illicit resources, and with this to access the information of the companies and their clients so that it can facilitate and prevent the commission of crimes.
For the administrative authority, there are non-financial activities that must be classified as vulnerable and must comply with the obligation to collect the client’s information, as well as to give notice of the operations in accordance with the amounts stipulated by law. Such activities are Gaming, Sweepstakes and Lotteries, the purchase of real estate, as well as vehicles (air, sea and land), jewelry, works of art and prepaid cards, Construction and sale of real estate, armoring services, in addition to certain operations performed by professional service providers.
The law stipulates two essential obligations that the obligated parties must comply with it and these are the identification of the clients with whom vulnerable activities are carried out and the obligation to notify the Tax Administration Service of the vulnerable activities when they surpass the amount mentioned in the Law.
In order to carry out a favorable application of the law, we recommend to follow the following points and to comply with the obligations stipulated by law in order to avoid administrative sanctions which amounts are high and could cause a prejudice in the operation of companies.
I. Identify whether your commercial activity or the principal commercial object is within the vulnerable activities stipulated in article 17 of the Law;
II. Create records of clients or subjects with whom you carry out vulnerable operations so that you keep the detailed information of the operation and avoid administrative penalties by not submitting complete information when requested by the authority;
III. Review all commercial transactions carried out in cash, since the Law establishes cash transaction limits for vulnerable activities;
IV. Maintain trained and certified the personnel involved with the law and the vulnerable activity operations, by always updating their information with the guidelines and obligations established by the law in order to avoid administrative sanctions; and
V. Perform external audits of the vulnerable operations in order to detect anomalies within the information and with this prevent administrative sanctions.
Mexico is not particularly known for its intensive use of its Stock Exchange; generally, this is looked as taboo by a big number of companies. This situation is stemmed by the perception of complexity and staunch regulations concerning the transactions., which creates a sense of a high entry barrier to have Access to the benefits of financing and investment that the Bolsa Mexicana de Valores (“BMV”) offers to its participants.
Furthermore, the family business model is not that attractive to private investors or several financial institutions. To offer greater certainty to concerning their activities, these types of companies are asked to offer higher transparency in their operations, which is not always achieved; allowing the families to keep control of the Company is not always a risk that investors are willing to take. Due to this, and with the purpose of creating a larger and more Dynamic market, Nacional Financiera S.N.C. (“NAFIN”), created a program which goal is to institutionalize these companies, thus incorporating new players to the market.
The Alternative Corporate Debt Institutional Market – Mercado Institucional de Deuda Alternativa Societaria (“Midas”) in Spanish – tries to define and guide the structuring and financing of projects that contribute to environmental sustainability, focuses in creating employment, generates value chains where they are established and those that require high investments on the long term.
How does it work? The first step is to identify the type and size of the company. This program focuses in industrial, commercial and service companies (except those in the financial area), medium or large, that are seeking to change their family company structure to something more institutional.
Once the project is identified, NAFIN, in some cases in participation with other financial institutions, grants financing to these companies with the purpose of redefining its corporate structure, thus establishing certain limits, also acquiring resources to buy assets that will help in the growth of the company and refinance their debt.
The endgame of the MIDAS program is to establish corporate governance policies and improve the financial situation of the Company, so that in a term of 5 years, it would be in the position of issuing debt or equity certificates, through the BMV, thus finding new ways to finance their operations and/or new projects.
In a broad sense, we can see that some of the incentives that this program offers are decreasing the interest rates of the financing, and providing counsel during the institutionalization process.
At Gloria Ponce de León y Hernández, we strive for our clients to have Access to these types of programs through the review and restructure of their corporate schemes, in such a way that they Will become in safer and attractive investment objectives, or, in some cases, have access to alternative financing options, such as the MIDAS program, thus the companies will have the resources to be more successful.
In the same way, our Firm is capable of acting as a bridge between the client’s Project and those willing to invest in it, or the financial institution, providing legal certainty y surpassing the expected results of the involved parties, being results and trust, two of our three core values.