Opening a bank account for a new company in Mexico is more time consuming and requires more documentation than in the U.S.  The following is a list of the actions generally required to open a bank account in Mexico for a new company.  The requirements of each bank are often different so readers should check with their banks before relying on this list.

1. Original or copy of document issuing the tax identification number (Registro Federal de Contribuyentes – RFC) to the company.
2. Original of the registered public deed and bylaws (escritura constitutiva y estatutos sociales) of the company.  If the public deed is pending registration with the Public Registry of Commerce in the state of organization (e.g., the Federal District), then a letter from the notary public explaining this fact is generally accepted in lieu thereof.
3. Original of the registered public deed showing the powers of attorney (poderes) granted to the person opening the bank account on behalf of the company (this person is called the company’s representante legal or legal representative).  This legal representative must appear at the bank in person to open the bank account.  To the extent possible, the attorneys for the company should plan ahead when forming the company to make sure the powers of attorney for bank account management are granted to the appropriate people in the bylaws of the company upon its formation to avoid having to prepare separate powers of attorney after formation, which will add expense and time to the process.  The powers of attorney for bank account management can be drafted creatively to limit the legal representative’s authority to act on behalf of the company (e.g., to open and close bank accounts and to grant, sign, and negotiate credit instruments on behalf of the company up to the value of MX$100,000 acting alone or in unlimited amount if acting with Juan Valdez).
4. Original of the proof of the company’s tax domicile (domicilio fiscal).  Often this is a lease agreement or a utility bill issued to the company showing the tax domicile.
5. Original official identification of the legal representative.  If the legal representative is a foreign national, then he/she must have a valid FM-3 visa that shows the name of the company on behalf of which the bank account will been opened and that the foreign national is authorized to act on behalf of such company. 
6. Document proving place of residence of the legal representative.
7. Initial deposit to open the account (generally MX$5,000-MX$10,000).
8. List of the individuals who will be authorized to perform transactions under the account (i.e., additional legal representatives).  Each such individual must provide an original official identification and must meet the FM-3 visa requirements set forth in #5 above if they are foreign nationals.
9. Once all of the information above (and any additional information required by a particular bank) has been supplied, the bank will generally take three-five business days to open the account.

The legal representative should make at least one copy of all of the documents referenced above in case they are requested by the bank.

In the wake of TSD Loreto Partners, S. en C. por A. de C.V.’s June 6, 2009 announcement that it had suspended all operating and construction activities on the Loreto Bay project, I decided to perform an informal internet-based investigation on the companies involved in the development of the project.

At the top level appears to be The Trust for Sustainable Development, a Canadian non-profit corporation.  According to its website, the Trust first identifies and provides seed financing for sustainable projects.  It then creates a for-profit company to develop each project.  The Trust has developed (or commenced the development of) projects in Canada, the U.S., and, of course, Loreto Bay, Mexico.  We did not investigate the projects the website says were developed in connection with the Trust.

The Trust created several affiliated for-profit entities to develop the Loreto Bay project.  TSD Loreto Partners, S. en C. por A. de C.V., a Mexican partnership, is the principal Mexican development entity.

The Loreto Bay Company, an Arizona corporation, appears to have initially been the principal U.S. sales and marketing arm for the project.  Based on public records obtained from the Arizona Secretary of State, Mr. David Butterfield (who is discussed below) served as Chairman of the Board of the Loreto Bay Company, Mr. James Grogan served as Director and President & CEO, and Mr. David J. Shreene served as Senior Vice President and Secretary.

In January 2007, the Loreto Bay Company was merged into Baja Developments, LLC, a New York limited liability company, the Manager of which is The Trust for Sustainable Development.  Upon the merger, Baja Developments, LLC likely became the principal U.S. sales and marketing entity for the Loreto Bay project.

Another entity indirectly involved in the project was a British Columbia entity named Baja Developments Limited Partnership, which was probably Mr. Butterfield’s holding company for his investment in TSD Loreto Partners and/or Baja Developments, LLC.

One or more of Baja Developments, LLC, Baja Developments Limited Partnership, and the Loreto Bay Company likely controls a portion of TSD Loreto Partners, but there is no public document by which we could confirm the ownership structure of TSD.  The formation documents of TSD filed in the Public Registry of Commerce in Mexico located in its state of organization would show only the initial partners of TSD and not any subsequent changes in ownership structure (we have not sought to obtain copies of TSD’s Public Registry documents).

Based on the press release discussing the formation of a joint venture between the Loreto Bay Company and Citi Property Investors to develop the Loreto Bay project, we speculate that the remaining portion of TSD is owned by Citi and other persons.  However, we would have expected that Citi would have preferred to make its equity investment in the Loreto Bay project through a U.S. joint venture entity, such as Baja Developments, LLC, in order to avoid the difficulty of enforcing joint venture obligations under Mexican law.

The Trust for Sustainable Development is led by Mr. Butterfield, whose LinkedIn profile is available here.  The profile indicates that Mr. Butterfield is a Director at Arizona State University’s Global Institute of Sustainability and the President of ICC Power, Inc., which the profile says was formerly International Composting Corporation.  The Institute’s website no longer names Mr. Butterfield as a Director and ICC Power, Inc.’s website is under construction.  International Composting Corporation has a website, which may or may not be the same International Composting Corporation that Mr. Butterfield is referencing on his LinkedIn profile, but we did not find any mention of Mr. Butterfield on that site.  Mr. Butterfield probably has not recently updated his LinkedIn profile.

(Note: Loreto Bay’s developers have taken down the original project website, which may now be viewed via the Wayback Machine.)

Mexico’s National Banking and Securities Commission (Comision Nacional Bancaria y de Valores – CNBV) has commenced an investigation of Stanford International Bank Ltd.’s unit in Mexico, Stanford Fondos, S.A. de C.V., for possible violation of financial institution laws, according to the CNBV website.  The CNBV is looking into whether Stanford Fondos violated Mexican laws that forbid Mexican banks from encouraging clients to invest in unauthorized certificates of deposit abroad. 

Specifically, the laws prohibit “any person from requesting, offering or promoting the procurement of funds or resources of an undetermined person, or obtaining or soliciting funds or resources in a habitual or professional manner without having authorization from Mexican financial authorities”.  The CNBV has the authority to impose sanctions on violators of such laws.

The CNBV said it has not frozen any accounts at Stanford Fondos or otherwise interfered with the company’s operations and that its clients may request redemption of their funds at Stanford’s Mexico City offices.  A Sentido Comun report indicated that Stanford Fondos clients are being asked to complete a form and told that Stanford Fondos will process redemption requests during the week in which they are received.  Notwithstanding the report, it remains unclear whether Stanford Fondos is honoring such requests or whether the financial condition of SIB or its U.S. affiliates will affect Stanford Fondo’s ability to honor such requests.

Stanford Fondos is licensed to operate in Mexico as a distributor of investment funds, not as a full-fledged bank, according to FT.com.  It has operated in Mexico since 2005 and manages approximately US$50 million for 3,400 clients.  The whereabouts of Stanford’s founder, Sir Allen Stanford, are unknown.

Many Mexican and other Latin American investors invested significant amounts of money with the Mexican, Venezuelan, Panamanian, Peruvian and Ecuadorian affiliates of Antigua-based, Houston-headquarted, SIB hoping to escape financial instability in their home countries and on Stanford’s promise of high returns.  Bloomberg reports that in certain cases investors may have directed money to Stanford to avoid taxes in their home countries, which could affect their willingness to recoup their funds because it could attract attention from tax authorities.

Mexican and other Latin American investors who have invested money with SIB in Houston or its other U.S. affiliates, such as Stanford Capital Management and Stanford Financial Group, should consult their U.S. attorneys to determine the proper course of action and any remedies that may be available.

In January 2009, Venezuela-based financial analyst Alex Dalmady wrote a probing article in VenEconomy Monthly setting forth his arguments that the consistent market-beating investment returns posted by Sir Allen Stanford’s (pictured left with ladies) Antigua-based Stanford International Bank Ltd. (SIB) seemed to good to be true.  Business Week and FT.com Alphaville blog later raised additional questions.

In contrast to the deaf ears of the U.S. Securities and Exchange Commission (SEC) to analyst warnings as early as May 2001 about Madoff’s inflated returns, this time the SEC appears to have listened.

Yesterday, the SEC charged Sir Stanford, who was knighted by the Antiguan authorities rather than the Queen, and certain of his sundry affiliates with investment fraud.  The SEC complaint, a copy of which is available here, includes charges against SIB, Houston-based broker-dealer and investment advisor Stanford Capital Management (SCP), SIB chief financial officer James Davis, and Stanford Financial Group (SFG) chief investment officer Laura Pendergest-Holt. 

The complaint alleges, among other offenses, that the defendants misrepresented to purchasers of Certificates of Deposit (CDs) that their deposits were safe and falsely claimed that SIB re-invested client funds in “liquid” financial instruments.  At the SEC’s request, U.S. District Judge Reed O’Connor of the Northern District of Texas (Dallas) has entered a temporary restraining order, frozen the defendants’ assets, and appointed a receiver to marshal those assets.

That Mr. Dalmady first warned of SIB’s problems now seems prescient because of significant exposure to SIB instruments among Latin American investors, who today packed SIB affiliates in Venezuela, Panama, and Ecuador seeking to close their accounts, according to a Bloomberg report.

Bloomberg also reported that Mexico’s National Banking and Securities Commission (Comision Nacional Bancaria y de Valores – CNBV) said that Stanford’s unit in Mexico, Stanford Fondos, is only authorized to sell funds that operate in Mexico but the CNBV did not indicate whether it was investigating Stanford Fondos.

In a press release summarized in a Sentido Comun report, Stanford Fondos assured clients that their funds were not affected by the charges against SIB and other affiliates and that its clients should have “full confidence”.  That statement may or may not be true. 

Investors in SIB, Stanford Fondos and any other Stanford affiliate should immediately consult their attorneys to decide on a proper course of action.

BBVA’s Mexican subsidiary has commenced the seizure of assets of struggling Mexican supermarket operator Controladora Comercial Mexicana (CCM) (MXK: COMERCIUBC) valued at approximately US$100 million, according to a report in La Jornada.

After two failed attempts to obtain protection from its creditors in Mexican courts, Comercial Mexicana is now trying to negotiate an out-of-court settlement. Comercial Mexicana has not obtained a declaration of commercial competition by the relevant judicial body, so it must confront each of the creditors’ demands for payment.

As we discussed in a November post, JP Morgan Chase, Barclays Bank, and a few other major banks have filed lawsuits in New York state courts against Comercial Mexicana alleging breach of certain exchange-rate and other derivatives contracts. Those banks may also wish to investigate the Mexican remedies, if any, are that are available to them under those contracts because any U.S. judgment obtained against Comercial Mexicana would require enforcement in Mexican courts, which is a protracted process.

Whoops-a-daisy!  The U.S. government made a “mistake” buying troubled assets from banks, said Carlos Slim Helu, the world’s second richest man, at a conference on stock markets in Mexico City, as reported by Bloomberg.  Slim said that the assets are hard to manage.

He added that the recent global financial crisis began in the U.S., where “there was bad regulation and worse supervision” of derivatives instruments.

As we previously reported, in lieu of a government-sponsored automotive industry bailout, Slim has suggested that struggling U.S. automakers file for Chapter 11 bankruptcy protection and renegotiate uncompetitive labor union contracts in exchange for giving workers company shares.

If Slim is correct regarding U.S. government purchases of troubled bank assets and the auto industry bailout, which congress appears poised to enact tomorrow, the U.S. government may have racked up two whoops-a-daisies for taxpayers in the early stages of the financial crisis, a high score considering that each whoops-a-daisy is worth a few billion dollars.

The cover story in the December 22, 2008 issue of Forbes titled “The Next Disaster” offers a bleak view of the challenges facing Mexico amid rising social violence in the wake of Calderon’s crackdown on the drug trade and economic recession in the U.S., Mexico’s main trading partner. 

The title of the article, which is probably good for magazine sales, and its subject matter, contrasts sharply to comments in the same Forbes issue by Mexican billionaire Ricardo Salinas Pliego, who recently purchased a majority stake in ailing retailer Circuit City, Mexican Ambassador to the U.S., Arturo Sarukhan, and U.S. Ambassador to Mexico, Tony Garza Jr., all of whom were interviewed in adjacent columns. 

Salinas, having lived and profited through Mexico’s various crises, was not improbably sanguine about Mexico’s prospects, commenting: “I have been through so many crises.  This is just one.  And I’ve seen worse.”  Ambassador Sarukhan emphasized Mexico’s progress in rooting out corruption in government and the high demand for illicit drugs in the U.S.  Ambassador Garza said, “I am actually quite optimistic.  Long term, I think Mexico’s economic prospects are strong.”

The article includes a map illustrating the drug cartels that control various geographic regions of Mexico; cartel control over most of the country’s territory is disputed.  90% of the cocaine that enters the U.S. comes from Mexico, the article said.

Although Mexico’s economy will likely return to growth when the U.S. emerges from recession, until the U.S. can dramatically reduce black market demand (which appears to be inelastic) for illicit drugs, social violence will probably (and sadly) remain a major obstacle for Mexico’s long-term economic development.

Mexican billionaire Carlos Slim started buying Citigroup shares last week through his investment vehicle Inbursa, according to a CNBC report.  Inbursa has bought roughly 26 million shares of Citi.

Some analysts have speculated that Citigroup could decide to sell its Banamex bank in Mexico to raise capital for its U.S. operations.  If Banamex is put up for sale, Slim could be a buyer.

An unsourced business column in El Universal said that consumer voucher card business Prestaciones Universales is expected to be sold on November 26, 2008 (today), according to a Debtwire report.  The column said that Mexico-based brokerage house IXE is conducting the sale and noted speculation that Mexican retailers Gigante and Soriana are possible buyers.  The column also speculated that the sale had been “induced” and that IXE rejected participation by possible suitors Efectivale, Accor, and Arrosa.

An earlier Debtwire report said that Grupo Chapa was seeking to acquire all of Prestaciones Universales and that Grupo Chapa’s acquisition goals might contradict the plans of Mexico’s antitrust authorities to divest the monopoly represented by Prestaciones Universales’ current shareholders.  The business, according to Debtwire, is currently owned by a consortium, the members of which are also shareholders of Wal-Mart de Mexico, Soriana, Comercial Mexicana, Chedraui and 7-Eleven’s Mexico-based operation, a joint venture between Grupo Chapa and Dallas, Texas-based 7-Eleven, which has more than 810 stores.

The Bank of New York Mellon has received a license to operate as a bank in Mexico through a new affiliate entity, The Bank of New York Mellon, S.A., Institucion de Banca Multiple, according to a Sentido Comun report. 

The bank said that it will initially offer fiduciary services and custody services to companies that issue debt on Mexican capital markets.  The Bank of New York Mellon has operated a representative office in Mexico since 1995.