As part of the Council’s global philanthropy program, this members-only conference call on July 1, 2015 provided an overview on policy developments in Mexico that are impacting the flow of U.S. philanthropy into the country. On the call, expert speakers delved into the implications for funders of a new anti-money laundering law, changes to the Mexican tax code, and the consequences of the U.S.-Mexico trade agreement. Foundation leaders also explained how they navigate the changed regulatory environment and highlighted a range of new resources on grantmaking in Mexico.
Michael Layton from the Instituto Tecnológico Autónomo de México (ITAM) spoke to the state of civil society in Mexico, the legal and regulatory history and atmosphere for grantmaking in Mexico, and what grantmaking organizations are doing to adapt to recent challenges. Layton explained that Mexican civil society faces a number of challenges: it is underdeveloped, lacking infrastructure and visibility, and there is public distrust of the sector. These two factors have two consequences: informality in giving among Mexicans (80% of Mexicans would prefer to give directly to individuals, as opposed to 16% who would prefer to give to organizations) and government inexperience and limited knowledge with the philanthropic sector.
Fortunately, Mexico continues to democratize and a growing middle class has increased local expectations of accountability, which has led several accrediting agencies to issue “grades” to organizations. Thanks in part to the efforts of U.S. foundations such as Charles Stewart Mott and Inter-American Foundation, Layton expressed optimism that a growing number of community foundations are appearing in Mexico. Additionally, corporate philanthropy is increasing and a growing population of wealthy Mexican philanthropists are contributing to a positive institutionalization of philanthropy.
Marc Owens from Loeb & Loeb, discussed the reform of the Mexican Income Tax Law in 2010. Owens flagged concerns about the relationship between the tax law and a U.S.-Mexico Tax Treaty that allows U.S. grantmakers to fund Mexican Article 70-B charities as if they were 501(c)(3) organizations. The 2010 law shifted articles within the tax code and has created confusion over which Mexican charities may still be treated as equivalent to U.S. 501(c)(3) organizations for grantmaking purposes. He explained that the full implications of this law are still unclear and that many organizations are still struggling to comply.
Owens also discussed a 2013 anti-money laundering law designed to stem the amount of money laundered in Mexico. This law helped improve the score given to Mexico by the Financial Action Task Force (FATF), an intergovernmental organization tasked with reducing money laundering and terrorist funding worldwide. To align with FATF recommendations, Mexico included in the law strict oversight requirements for all “suspect” or “vulnerable” financial transactions. Recipients of “vulnerable” transactions, which include grants made to NGOs, must now regularly provide extensive documentation to the federal government, which includes some personal pieces of information that funders may not want to submit to a foreign government. The burden lies on the grantee to collect this information for the Ministry of Finance, which is challenging because non-compliance could result in fines that can easily cripple small nonprofits. It is also important that funders understand what is needed, in order to help their grantees comply with the new law. Earlier this year, the Council on Foundations reached out to the U.S. Treasury Department to offer to convene Treasury and Mexican Ministry of Finance officials to discuss solutions for these problems grantmakers face in Mexico (see pg. 5 & 6 here) and will continue to work with government officials to try and improve the situation.
Windy Lopez-Afflito from the American Express Foundation and Joshua Mintz and Sharon Bissell Sotelo from the MacArthur Foundation discussed the ways in which their organizations are navigating this complex regulatory landscape in Mexico.
The MacArthur Foundation is working with their grantees to comply with the law by providing the new information required under the anti-money laundering legislation. The foundation has also worked with other grantmakers, including the Ford Foundation, Open Society Foundations, Fund for Global Human Rights, William and Flora Hewlett Foundation and Sociedad Mexicana Pro Derechos de la Mujer (Semillas) over the last six months to produce a Guide that can help grantmakers continue to do philanthropic work in Mexico, as well as support grantees to better understand what is required of them by the law (see ** links below with guide in both English and Spanish). Less than a third of the organizations in the region supported by MacArthur have requested the required institutional information necessary for compliance with the law, so there continues to be concerns about whether Mexican CSOs are aware of the law and able to comply.
American Express has been funding overseas for more than 150 years, including in Mexico. In response to the new legislation, they are now using a grantmaking intermediary to facilitate their Mexican grantmaking and ensure they can continue to support a robust grantmaking program into Mexico. Windy explained the range of strategic decisions around selecting an intermediary, once AmEx decided that the new legislation meant they would no longer make grants directly into Mexico. They considered a range of questions including looking at past experience working in the region, intermediary's understanding of and effectiveness in Latin America, level of efficiency, and reputation. Other funders interested in working with an intermediary can see a list below of possible intermediaries who can help funders continue to work in Mexico, if they are unwilling or unable to comply with the new regulatory requirements.
- ** Guide for CSOs for Compliance with Anti-Money Laundering Law in Mexico (English)
- ** Guía para las Organizaciones de la Sociedad Civil sobre el cumplimiento de sus obligaciones en materia de prevención de lavado de dinero (Spanish)
- COF's Mexico Country Note
- Philanthropic Freedom Report: Mexico - by the Hudson Institute
- From Prosperity to Purpose: Perspectives on Philanthropy and Social Investment among Wealthy Individuals in Latin America – by the Hauser Institute and UBS
- NGO Law Monitor: Mexico – by the International Center for Not-for-profit Law
- Giving Securely in Mexico – an article by the Charities Aid Foundation of America
For more information about possible intermediaries working in Mexico, please reach out to the following COF members and partners: