These are the penalties for failing to comply with identity validation

From fines to prison sentences for companies that fail to comply with regulations when validating their customers' identities.

In 2016, a scandal was revealed with the information provided by the International Consortium of Investigative Journalists in the case known as Panama PapersBusinesspeople from around the world hired Mossack Fonseca, a law firm dedicated to establishing companies in tax havens where taxes are low or non-existent and concealing the identities of its clients.

One of the topics that was most discussed after that incident was the need to strengthen policies KYC around the world to prevent illicit activities and impose harsher legal sanctions on companies that fail to comply. In this regard, Mexico has implemented increasingly strict regulations; banks, currency exchange houses, brokerage firms, sellers of expensive goods such as jewelry, cars, artwork, and many other businesses are required to validate their customers' identities.

Why do Mexican laws require you to validate your customers' identities?         

Money laundering, tax evasion and fraud have become serious problems for our economy.In the past, some people They took advantage of the fact that banks were not required to reveal their clients' information to the authorities to carry out these illicit acts, sometimes related to other much more serious ones. such as financing criminal activities or drug trafficking. Currently, there is legislation on this subject, for example, the one known as Lanti-money laundering hey, requires banks to report any suspicious user activity.

Another problem has to do with the accelerated growth of digital services, which has resulted in an alarming increase in crimes related to identity theft. According to the CONDUSEFIn 2011, cyber fraud accounted for 81% of total fraud, and by 2018, it had grown to 59% of total fraud. To curb this problem, Mexican regulations require financial institutions and other companies to validate their customers' identities.

What laws contemplate identity validation in Mexico?

Our country has solid regulations on the matter; in 2012 the Federal Law for the Prevention and Identification of Operations with Illicit Proceeds (LPIORPI); this law requires not only banks to validate their customers' identities, but also car dealerships, jewelry stores, notaries public, art dealers, real estate agents, and other businesses. 

In response to the accelerated process of digital transformation, the Fintech Law (Law to Regulate Financial Technology Institutions) which regulates companies that develop new business models through digital means to provide financial servicesFor example, when you decide to use the services of a digital bank that doesn't have physical branches, it must carry out an identity validation process.

Another provision is the one made by the National Banking and Securities Commission, who issued the General Provisions Applicable to Credit Institutionsor, where the obligations for institutions such as Banobras, Banjercito, commercial banks, savings societies, among others, are contemplated, which oblige them to establish identity validation policies with its clientsFor example, commercial banks must establish biometric identification parameters for account opening to prevent identity theft.

What penalties apply if identity validation is not completed?

Companies obliged by the LPIORPI Those who do not comply with the duty to validate the identity of their clients will have to pay a fine ranging from 200 to 2000 UMA (from 16,898.00 to 168,980.00 pesos in 2020).

In the case of companies that provide financial services through digital means, that is, those regulated by the Fintech Law, that do not comply with their identity validation obligations must pay a fine that may range from ten to one hundred thousand times the value of the UMA (between 868.00 and 8,688,000.00 pesos in 2020)

When companies fail to properly implement KYC policies, some of their employees or managers may be charged with serious crimes, such as operations with illicit proceeds, which carries a sentence of 5 to 15 years in prison, or terrorist financing, which carries a sentence of 15 to 40 years in prison.

Avoid any type of sanction

The penalties stipulated by Mexican regulations regarding identity validation are severe. We know that complying with legal requirements can be overwhelming, but Tu identidad helps you do it easily and supports you throughout the process from start to finish, providing you with various modules:

• Official identification
• Proof of life and facial identification
• Fingerprint biometrics
• Proof of address with geolocation
• Digital signature
• Background check on blacklists

Validating your customers' identity will not only allow you to comply with regulations and avoid sanctions, but it will also help you mitigate fraud. develop new business opportunities to continue growing in the digital world. 

If you want to know more about our services, do not hesitate to contact us. contact us and schedule a demo.