Mexican banks face cascading consequences following US sanctions

Key Points

• On June 25, the U.S. Treasury Department sanctioned CIBanco, Intercam Banco and Vector Casa de Bolsa, blocking transactions between those Mexican institutions and U.S. banks over alleged drug cartel money-laundering.
• In response, Mexico’s banking regulator temporarily took over CIBanco and Intercam to safeguard creditors, while President Sheinbaum criticized the U.S. for offering no evidence and pledged to protect depositors.
• Rating agencies delivered blows: Fitch downgraded the three entities and S&P withdrew CI Banco from its index, citing heightened anti-money-laundering risks.
• Visa abruptly cut off its international transaction platform for CIBanco, ignoring the 21-day grace period outlined in the U.S. sanctions.

MEXICO CITY (AP) — Three Mexican financial institutions sanctioned by the Trump administration last week have felt a cascade of economic consequences following the allegations that they helped launder millions of dollars for drug cartels.

The U.S. Treasury Department announced that it was blocking transactions between U.S. banks and Mexican branches of CIBanco and Intercam Banco, as well as the brokering firm Vector Casa de Bolsa. All three have fiercely rejected the claims.

Mexico's President Claudia Sheinbaum accused U.S. officials of providing no evidence to back their allegations, though the sanctions announcement made specific accusations on how money was transferred through the companies. It detailed how “mules” moved money through accounts in the U.S., as well as transactions carried out with Chinese companies that U.S. officials said provided materials to produce fentanyl.

Mexico’s banking authority has announced that it is temporarily taking over management of CIBanco and Intercam Banco to protect creditors.

Sheinbaum said Tuesday that the Mexican government is doing everything within its power to ensure that creditors aren’t affected, and said they were well “within their right” to pull their money from the banks.

The U.S. Treasury Department said that the sanctions would go into effect 21 days after the announcement.

Fitch Ratings has downgraded the three institutions and other affiliates, citing “anti-money laundering concerns” and saying the drop “reflects the imminent negative impact” that the sanctions could have.

“The new ratings reflect the significantly more vulnerable credit profile of these entities in response to the aforementioned warnings, given the potential impact on their ability to meet their financial obligations,” the credit rating agency wrote in a statement.

On Monday, CIBanco announced that Visa Inc. had announced to them with little warning that it had “unilaterally decided to disconnect its platform for all international transactions” through CIBanco. The bank accused Visa of not complying with the 21-day grace period laid out by the sanctions.

"We would like to reiterate that your funds are safe and can be reimbursed through our branch network," the bank wrote. “We reiterate to our customers that this was a decision beyond CIBanco’s control.”

S&P Ratings also withdrew CIBanco from its ratings index, saying that it was because it had terminated its contracts with the bank following the U.S. Treasury announcement.

____

Follow AP’s coverage of Latin America and the Caribbean at https://apnews.com/hub/latin-america