MEXICO TARGETS CARTELS' FINANCES

MEXICO CITY-The Mexican government, under fire for not doing enough to
starve powerful drug dealers of billions in cash, said Tuesday it
would limit cash transactions in U.S. dollars as a way to fight money
laundering that helps to feed Mexico's spiraling violence.

Mexico's Finance Minister Ernesto Cordero said new rules, to be
published Wednesday, will limit dollar bank deposits, the payment of
loans and services as well as well as foreign-exchange transactions in
cash to between $1,500 and $7,000 a month.

The tightening of banking rules comes as Mexico's government finds
itself in an increasingly bloody struggle with the country's powerful
and ever more daring drug lords who exert control over large parts of
the country. Violence escalated Tuesday as 15 gunmen were killed in a
battle with Mexican soldiers in Taxco, a popular tourist town that has
become a battleground for rival gangs, and where authorities last
month discovered a mass grave in an abandoned silver mine.

On Monday, twelve federal police were killed in an ambush by suspected
drug traffickers in the western state of Michoacan who blocked the
highway with buses to stop help from reaching the embattled policemen.
More than 23,000 people have been killed in drug-related violence
since President Felipe Calderon ordered the military and federal
police to battle drug traffickers shortly after assuming the
presidency in December of 2006. Since then, Mr. Calderon has come
under increasing fire from critics who say his military approach
hasn't worked, and should be supplemented by more measures to strip
drug traffickers of their financial assets. "We are protecting our
banking system from dollars that might be from illegal sources," Mr.
Cordero said at a news conference. "The measures are designed so they
don't affect formal, legal economic activity." Mexican banks receive
more than $10 billion a year in suspicious dollar flows in cash that
can't be explained by legitimate economic activity, Mr. Cordero said.
U.S. analysts say the amount of drug-related cash coming into Mexico
from the U.S. could be as high as $29 billion. Some analysts welcomed
the measures as a necessary first step, but others said they were not
enough.

Edgardo Buscaglia, who teaches law and economics at Mexico City's ITAM
University, said the measures would increase costs to bank clients
while doing little to fight money laundering.

He urged the Mexican government to conduct audits on thousands of
companies that the U.S. and the European Union have identified as
having connections to organized crime.

Under the new rules, individuals can make deposits or payments for up
to $4,000 a month through their bank, while those same transactions
are limited to $1,500 in the case of foreigners and Mexicans who don't
have bank accounts. Cash dollar deposits and payments by businesses
will be restricted to those operating in tourist and northern border
areas, and limited to $7,000 a month.

Banks will be allowed to continue to sell dollars to the public, Mr.
Cordero said. In recent months, a number of banks have restricted or
stopped providing cash dollar transactions, including the sale of
dollars to the public. The government said it does not expect the new
measures to disrupt Mexico's second and third most important sources
of foreign currency-remittances and international tourism, Mr. Cordero
said. Mr. Cordero said the rules affecting businesses will take effect
after 90 days. The government also plans to eventually restrict and
regulate local currency transactions related to the purchase and sale
of real estate and other goods and services in Mexico as part of a
broad push against money laundering, Mr. Cordero said.

"Until real-estate purchases are channeled through the financial
system, Mexican drug dealers will continue to launder money as was
done in Miami during the 1980s," said Alberto Islas, president of Risk
Evaluation Ltd., a Mexico City security consulting firm. Mr. Islas
said that about 45% of real estate transactions in Mexico are done in
cash. "The measures taken are timid." Douglas Farah, senior fellow at
the Washington-based International Assessment and Strategy Center said
the Mexican measures would likely be difficult to enforce. "I think it
will add a temporary layer of difficulty to attempts to launder
dollars in Mexico, but one that will soon likely be circumvented by
corruption or narco adaptation," Mr. Farah said. Mr. Cordero said that
Mexico's banks have agreed to expand the number of ATMs in Mexico by
12% this year and provide more credit card and debit card terminals to
retail concerns operating in tourism and border areas, reducing the
need for cash transactions. Hotels and other retailers will also have
to obtain authorization to operate as banking agents to provide
foreign exchange services, Mr. Cordero said.

Banking agents are third parties hired by a bank to perform basic
financial transactions.