Poof! Civil Confiscations in Mexico

Last month, Mexico enacted a law strengthening civil forfeiture powers, part of the administration’s efforts to combat corruption. This is the “Ley Nacional de Extinción de Dominio”.
Civil forfeiture is a process through which the Ministerio Público, the prosecutor, can take away assets belonging to a business entity or individual. It is important to note the civil aspect– apart from any criminal process. No crime needs to be charged. Forfeitures could be intertwined with criminal investigations—even if those lead nowhere.
Civil forfeiture also exists in the United States. It has been controversial there because of allegedly uneven, biased application. Stories abound of legitimate money seized, and lengthy periods before its return.
In Mexico, forfeiture can be triggered by one of a wide “catalog of crimes”; human trafficking, money laundering, public corruption, drug crimes, extortion, car theft, petroleum product crimes and organized crime, among others. There is a new proposal that includes tax fraud within the “organized crime” definition. In turn, a new redefinition tax fraud includes not just the typical false return– but also some understatements of tax or possibly, even overstated deductions.
So what happens then? It would be up to you to show the legal origin of the asset in question and its lack of connection to any of the “catalogued” activities, including any “commingling” with “bad” assets. If you can’t prove up, your legal interest in the asset is “extinguished” in favor of the government, seized and can be sold away. This is quite tough. In some instances, there is no statute of limitations for these seizures.
I don’t have data on how the original law was implemented, but I can certainly share that the Mexican tax bar is very concerned about how the “catalog” is becoming so expanded, in that so many types of conduct are eligible—particularly the tax crimes. Obviously these enactments are responsive to big, high level criminal endeavors, but it is important to see how even “more innocent/less culpable” behavior can get caught in the dragnets, even if unwittingly. There’s a reward for “extinción” whistleblowers too…
Because of the way this law was written, its scope is significant. As in any new law, the government may be eager to deploy to make examples. For now, we just have to wait and see. Other commentators expect this law to be challenged in the courts, but in any event it is well worth knowing it is out there.

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Orlando Gotay
Lawyer
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.
His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico. He can be reached at tax@orlandogotay.com, online radio at mixlr.com/orlandogotay