March 4, 2025, 10AM ET
Panelists
I. Overview
On March 4th, panelists covered a range of critical topics related to drug cartels, specifically the impact of designating a number of Drug Cartels as (Foreign Terrorist Organizations FTOs) and some of the ground truth facts that are driving the prioritization of this issue.
Some top-level facts include:
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Fentanyl is the leading cause of death for Americans aged 18-45;
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Over $28 billion is repatriated to Mexico annually from drug cartel activities in the U.S.;
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According to the DEA, cartels operate in all 50 states and more than 49 countries;
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The current Administration’s stated policy objective is the elimination of named drug cartels in the United States, along with dismantling their ability to threaten national security.
For an in-depth primer on these threats, see the DEA 2024 National Drug Threat Assessment here.
II. From a US strategy perspective, organizations should know:
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As set forth in the executive order on January 20, 2025, the Trump Administration has found that international drug cartels “constitute a national-security threat beyond that posed by traditional organized crime,” and that their “activities threaten the safety of the American people, the security of the United States, and the stability of the international order in the Western Hemisphere.”
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On February 20, 2025, the U.S. State Department designated eight international criminal organizations as Foreign Terrorist Organizations (FTOs), including several entities operating primarily from Mexico. Further details can be found here: https://www.state.gov/designation-of-international-cartels/.
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Transactions with FTOS can carry significant regulatory, criminal and civil penalties under U.S. law, which go beyond normal penalties that apply to dealings with specially-designated nationals (SDNs).
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Companies operating in jurisdictions where the designated FTOs operate should assess their exposure to such entities and ensure they have appropriate controls in place to comply with the the executive order and appropriately manage risk.
For further insights, see Crowell’s full client alert here.
The panelists also discussed the nexus between drug cartels, Chinese money laundering, the PRC and precursor chemical suppliers in China.
The panelists highlighted that known money laundering techniques such as trade based money laundering and the black market peso exchange are very much in use. In addition to these techniques, crypto currencies as well as Chinese Money Laundering Organizations (CMLOs) are also used and should be considered in due diligence and risk analysis.
More information on CMLOs can be found here.
III. Reviewing known typologies and emergent risks:
Common red flags include, but are not limited to:
- Companies or phone numbers associated with pharmaceutical companies
- Customer/counterparty has previous drug-related convictions or media reporting
- Mexican based company importing precursor chemicals and manufacturing
- Companies importing precursor chemicals who are not in an industry that matches this behavior
- Mexican company transacts primarily with chemical/pharma companies in Hong Kong/China
- Use of shell companies to conduct international wires
- Use of third parties to shield sanctioned persons or entities
- Legitimate business with unusually high activity compared to peers
- Use of intermediaries, agents and mules
For additional guidance on red flags and other typologies, see the following resources:
IV. Anticipated next steps from the current Administration:
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The United States will increasingly take a whole-of-government approach to combatting drug cartels, to include further use of military assets and other assets to boost intelligence gathering, interdiction and enforcement cases.
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Significant work and cooperation with Mexico will be needed, particularly given how intertwined drug cartels are with components of the formal Mexican government (see link below regarding corruption).
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Looking at next steps, it is likely that the Administration will review approaches and outcomes of Plan Colombia which was centered on countering the FARC.
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Countering drug cartels will be a major enforcement priority for the United States in the months and years to come.
Additional information on likely next steps can be found in reviewing the following resources:
V. Steps financial institutions and corporates can and should take to help manage drug cartel-related risk:
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Financial institutions and businesses should review their customers, operations, and potential exposures (directly or indirectly) to drug cartels and their activities holistically.
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Traditional sanction screening content and associated screening engines will not detect the vast majority of risks associated with FTOs (Note: FTOS will not send or receive money or goods in their name).
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Financial institutions should consider risk based screening for association risk including an integrated approach to screening. Such screening should include OFAC, FTO-related adverse media and the association of individuals and entities to FTOs together with local data sources including corporate registry and ownership data.
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GenAI based tools, like HyperScan, can help identify potential risks in unstructured data that are commonly missed by traditional screening software. HyperScan is free to try here: https://www.sigma360.com/hyperscan and demonstrates results that are not found using any typical financial crime compliance content.
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Financial institutions should also consider network centric transaction monitoring which integrates adverse media and corporate registry data specifically related to cartel activity.
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Given the extra-territorial nature of sanctions and FTOs designations, the use of the US dollar, the extensive global operations of cartels including shell companies and legitimate business as well as the association with China, financial institutions should not limit their risk management programs to Mexico but should take a global and more holistic approach including correspondent bank monitoring, payment processing and virtual currencies.
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To the aforementioned points, specific access points may include, but are not limited to the following:
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- Capital markets (e.g., cartels parking wealth with asset managers, etc.)
V. Additional Background and Information Links
Note: To add to this or make suggestions, please email info@sigma360.com
How can Sigma360 help me stay ahead?
Using Sigma360's risk decisioning software platform, organizations can not only get ahead of risk, but leverage unstructured data - like the screening examples highlighted in this article. Sigma360's drug cartel-centric screening capabilities, coupled with deep subject matter expertise helps organization's proactively manage risk and document a more forward leaning posture in response to current policy priorities.
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