National Domain Extinction Law

The publication of the Ley Nacional de Extinción de Dominio (LNED) (National Domain Extinction Law) created a stir among the representatives of the private initiative a few months ago; however, this legal mechanism already existed in Mexican legislation. This new law replaces the Federal Domain Extinction Law and the 32 local laws that existed on the matter.

The scope of this new law is stricter and more precise than the previous versions, as it is a legal resource with which the government plans to combat organized crime and its various cells more efficiently. To learn what it is and the implications it entails, we visited Débora Espinosa, an independent bilingual lawyer graduated from the University of Guadalajara with a master’s degree in Tax Analysis who works in the fiscal, administrative, real estate and immigration fields.

Origin of the National Domain Extinction Law

“This law arises following a request made by the United States through the United Nations (UN). As the general development of Latin America is sought, they proposed that all Latin countries adopt this model law in their legal systems. On the other hand, since 2008, important reforms in Mexico have been very significant, as our old inquisitorial criminal system has changed to an accusatory and adversarial one, where more parties intervene with the objective of combating corruption and compensating the victims,” she explains.

What is Domain Extinction?

“It is the legal instrument with which a person can lose the right to own property of illicit origin and/or used to commit illegal acts. The assets pass to the power of the State, after the sentence of a judicial authority, without any type of compensation or consideration for its owner or whomever for any circumstance possesses said property. With the sale of these assets, the government seeks to compensate and/or repair the damage to the victims.”

This mechanism was introduced in Mexico in 2008 through the reform of Article 22 of the Constitution.

Rules for Domain Extinction

1. It shall be judicial and autonomous.
2. It shall proceed in cases involving organized crime, crimes against health, kidnapping, hydrocarbon crimes, vehicle theft, human trafficking and illicit enrichment with respect to the following assets:

• Those that are an instrument, object or product of the crime, even when the sentence that determines criminal responsibility has not been issued, but there are sufficient elements to determine that the illicit act occurred;
• Those that are not an instrument, object or product of the crime, but that have been used or destined to hide or mix property or products of the crime, as long as the aforementioned points are met;
• Those that are being used to commit crimes by a third party, if their owner knew about it and did not notify the authorities or do something to prevent it; and
• Those that are titled in the name of a third party, but there are sufficient elements to determine that they are the product of property crimes or organized crime, and the accused for these crimes acts as the owner.

3. Any person deemed affected may bring the respective appeals to prove the lawful origin of the assets and that he acted in good faith, as well as that he was prevented from knowing the use of the assets.

Assets Where Domain Extinction Proceeds

The extinction of ownership will proceed on those assets of a patrimonial nature whose legitimate origin cannot be proven, in particular assets that are an instrument, object or product of illegal acts, without prejudice to the place of their realization, such as

• Assets resulting from the partial or total physical or legal transformation or conversion of the product, as well as instruments or material objects of unlawful acts;
• Assets of lawful origin used to conceal assets of illicit origin;
• Assets for which the holder cannot prove legal origin;
• Goods of legal origin whose value is equivalent to any of the goods described in the previous points (when it is not possible to locate, identify, seize, secure or physically confiscate them);
• Assets used for the commission of illegal acts by a third party (if the owner had knowledge of it and did not notify the authorities by any means or did nothing to prevent it); or
• Assets that constitute income, revenue, products, yields, fruits, accessories, profits and other benefits derived from the assets referred to in the previous sections.

Good Faith in the Acquisition and Destination of Assets

“Good faith is a fundamental principle in law that implies acting with honesty and rectitude to perform actions with good intentions, without altering or damaging the rights of another,” explains our expert. In order to enjoy the good faith of the destination and acquisition of the goods, the defendant and/or affected persons must sufficiently prove the following:

• That the document is dated and prior to the occurrence of the illicit act, in accordance with the applicable regulations;
• That the taxes and contributions caused by the legal acts on which their good faith or fair title is based were paid in a timely manner;
• That the assets subject to the action for extinction of ownership was acquired in a lawful manner and, in the case of possession, that the right to which it refers has been exercised in a continuous, public and peaceful manner;
• The authenticity of the contract with which he intends to prove his just title, with the appropriate, pertinent and sufficient means of proof to arrive at a full determination of the legal act and its lawfulness;
• The genuine impediment he had to know that the property involved the action of extinction of dominion;
• If he has learned of the unlawful use of the property owned by him, he has prevented such use or given timely notice to the competent authority; and
• Any other similar circumstance, in accordance with the applicable regulations.

In our next issue, we will address the second part of this valuable interview with Débora Espinosa, who will provide us with the details and implications for real estate agents with respect to the Ley Antilavado de Dinero (Anti-Money Laundering Law), which has as its main objectives the protection of the financial system and the national economy, as well as the establishment of measures and procedures to prevent and detect acts or operations with resources of illicit origin.