Many individuals and companies in Mexico use management trusts to protect assets and isolate risks. The rationale is straightforward: assets are transferred to a trustee institution and are placed outside the reach of creditors and corporate disputes. However, they are not outside the reach of the Financial Intelligence Unit (UIF). The Supreme Court of Justice of Mexico confirmed this in its June 3 decision.
In the case, an individual created an irrevocable management trust. Assets and funds were contributed to a financial institution to be managed as trustee, in accordance with the settlor’s instructions. The trustee also held custody of the assets.
In 2020, the UIF included the settlor in the list of persons allegedly linked to illicit funds. As a result, it instructed the trustee institution to refrain from carrying out any transactions with the settlor.
The trustee reacted immediately. It revoked the powers of attorney for acts of administration granted to the settlor and retained only powers for litigation and collection.
Subsequently, the financial institution sought judicial authorization to suspend the remaining representation powers. The settlor filed a claim against the trustee. She argued that the trustee had acted without the care and diligence required by law. At first instance, she prevailed: the trustee was ordered to pay one billion pesos in damages and an additional one hundred million pesos in punitive damages.
The case reached the Supreme Court. The outcome changed.
The Court held that the trustee acted with objective diligence. It did not make a discretionary decision. It complied with an instruction from a competent authority: the UIF. In that context, revoking the powers of attorney was a necessary measure.
The applicable standard is that of a “prudent administrator” (buen padre de familia). This standard requires prudence, loyalty, care, and professionalism in managing trust assets. For the Court, the trustee’s conduct was consistent with that standard.
The decision aligns with a recent precedent. On April 6, the Court upheld the UIF’s authority under Article 116 Bis 2 of the Law of Credit Institutions. This provision allows the UIF to include individuals and companies in the blocked persons list when there are sufficient indications of links to terrorism financing or transactions involving illicit funds. The consequence is immediate: bank accounts are frozen without prior judicial authorization or a request from a foreign authority.
The scope is broad. It is not limited to traditional bank accounts. Trust structures are also exposed.
The Federal Law for the Prevention and Identification of Transactions with Illicit Funds (Anti-Money Laundering Law) is clear. Persons acting through trusts who carry out vulnerable activities must still comply with that law. The legal vehicle does not change the compliance obligation.
In the case at hand, the settlor retained certain contractual rights. However, the revocation of her management powers left him without operational capacity. The UIF’s instruction prevailed.
The Court concluded that the trustee acted lawfully in revoking the management powers and in subsequently seeking the suspension of the remaining powers. This conduct complied with Article 391 of the General Negotiable Instruments and Credit Operations Law [1] (LGTOC). Therefore, the settlor cannot hold the trustee liable for complying with UIF instructions.
What does this mean in practice?
Constitutional trial (Amparo Directo) 9/2024 establishes a clear rule: the UIF may act based on sufficient indications with respect to any individual or company, regardless of the legal structure used. A trust is not a shield against this type of regulatory action.
If the settlor carries out activities that qualify as vulnerable, compliance with the Anti-Money Laundering Law is mandatory. Diversifying across multiple trusts does not mitigate the risk. The blocking measure applies to the person, not to the vehicle.
The case also highlights the importance of having a robust compliance program. An Anti-Money Laundering compliance manual must be properly designed, documented, and implemented by the directors. It does not prevent a UIF investigation. However, it provides evidence of adequate internal controls and diligent risk management.
The trust remains a useful tool for structuring business in Mexico. It allows asset segregation, operational efficiency, and legal certainty. But its implementation must be adjusted.
Two measures are critical. First, adopting compliance controls aligned with the Anti-Money Laundering Law. Second, contractually addressing blocking or suspension scenarios resulting from UIF instructions.
These measures do not prevent UIF action. Nor do they require the trustee to disregard regulatory orders. However, they may create additional contractual avenues to claim liability, beyond the standard set in Article 391 of the LGTOC.
Without these measures, the risk shifts to the directors. In corporate structures, directors and officers may face personal liability toward shareholders, the company, creditors, or even the authorities.
The Court’s reasoning is consistent. Once the UIF has sufficient indications, the legal instrument used is irrelevant. Exposure remains. Compliance measures do not eliminate risk, but they mitigate it.
If your company operates through a management trust or is considering establishing one, it is advisable to review two points: (i) whether the trust agreement addresses blocking or suspension scenarios and (ii) whether there is a compliance program aligned with the Anti-Money Laundering Law. The absence of these elements is not neutral. It is an exposure. At CEG Legal we can help you identify those exposures before they become a problem. Feel free to send us an email at info@ceglegal.com
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[1] This provision imposes on the trustee the obligation not to excuse itself or resign its appointment except for serious cause as determined by a competent court and to act at all times as a prudent administrator, being liable for damages caused.