High Intensity Drug Trafficking Areas (HIDTAs)

High Intensity Drug Trafficking Area (HIDTA) is a designation made by the United States government for areas of the country that experience a particularly high volume of drug trafficking. HIDTA programs are intended to help law enforcement agencies in the fight against drug crime but also serve to inform organizations, such as financial institutions, that must deal with associated criminal activities such as money laundering. 

Given the increased AML/CFT risk of doing business in HIDTAs, or with customers from HIDTAs, it is important that firms understand what the designation entails and how to implement a suitable AML response

What are HIDTAs?

The program currently designates 29 HIDTAs across all 50 states, the District of Columbia, Puerto Rico, and the US Virgin Islands. HIDTAs take in 19.6% of all US counties and 67% of the total population and are usually located around a major city or border crossing. 

In practice, the HIDTA program aims to ‘reduce drug trafficking and production’ by helping law enforcement agencies coordinate with each other. According to the ONDCP, this involves:

• Facilitating information sharing and coordinated enforcement activities. 
• Enhancing intelligence sharing between agencies.
• Providing suitable intelligence to law enforcement agencies for the development of effective law enforcement strategies.
• Providing support for coordinated law enforcement strategies 

To achieve those objectives, HIDTA provides funding for hundreds of law enforcement initiatives throughout the US that are dedicated to enforcement, investigation and prosecution, intelligence gathering and information sharing, and drug abuse prevention and treatment. 

HIDTA Risk Locations: While HIDTA programs are implemented across the US, some locations represent elevated levels of risk: 

• Southwest Border HIDTA: The US’ southwest border with Mexico experiences a high level of drug trafficking activity. The HIDTA program in the area focuses on a range of drug prevention activities such as specialized drug courts and children’s educational initiatives. 
• Northwest HIDTA: In Washington state, the HIDTA program has set up drug courts and public awareness campaigns, along with initiatives to reduce substance abuse. 
• Washington/Baltimore HIDTA: The US’ opioid crisis is particularly severe in West Virginia and surrounding regions. HIDTA law enforcement agencies in this region have committed to a 5- year plan to dismantle and disrupt drug trafficking infrastructure and related money laundering activities, and to provide drug treatment and prevention resources.  

HIDTA AML Red Flags

Following FATF recommendations, US financial regulations require banks, financial institutions, and other obligated entities to take a risk-based approach to AML/CFT compliance. With that in mind, the operation of a HIDTA program should inform the risk assessments that firms conduct as part of their AML/CFT obligations: customers with connections to HIDTAs present an elevated risk of involvement in money laundering activities that are related to drug offences and that risk should be reflected in the AML response. 

Accordingly, firms should be aware of certain red flag characteristics of drug related money laundering, these include: 

• Transaction patterns: Customers from HIDTAs may engage in unusual transaction patterns including high volumes or frequencies of transaction, or transactions involving another party located in a HIDTA. 
• Changes in behavior: Customers that are or become involved in drug related crime may display erratic financial behavior and have inconsistent sources of income. Changes in behavior and income, that do not match customer risk profiles, may indicate attempts to launder money. 
• Adverse media: Customers that are the subject of negative media stories that connect them to drug crimes often pose a greater AML risk. Negative stories may involve ancillary law enforcement activities, connections to violent crimes, and a range of money laundering predicate offences. 
• Structuring: Money launderers operating from HIDTAs may attempt to introduce illegal money into the financial system by engaging in structured transactions in which small amounts of money are deposited in amounts just below AML reporting thresholds. 
• Money mules: Money launderers from HIDTAs may attempt to avoid AML measures by using money mules to conduct transactions on their behalf. Firms should be alert for customers attempting to deposit amounts of money that do not match their risk profiles or that lack knowledge about the financial services in which they are engaged. 

HIDTA Penalties: The risk considerations of HIDTAs directly concern compliance with the Bank Secrecy Act (BSA). Under BSA regulations, firms must adjust their AML response in proportion to the level of AML risk they face: compliance failures may be punished by fines of up to $250,000 or prison sentences of up to 5 years, or both. 

How to Comply with HIDTA AML Requirements

Banks, financial institutions and other obligated entities must be able to develop and implement an AML program that takes HIDTA risk factors into account. Accordingly, an effective HIDTA-focused AML program should feature the following controls and measures:  

• Customer due diligence: Firms should establish and verify the identities of customers that may be resident within a HIDTA. Effective identity verification is crucial to building risk profiles and monitoring high risk customers. 
• Transaction monitoring: Firms must be able to spot suspicious HIDTA-related financial activities by implementing effective transaction monitoring processes. 
• Adverse media monitoring: Firms should screen customers for involvement in adverse media stories from screen, print, and online sources, that connect them to drug related criminal activities. 
• PEP screening: Customers that qualify as politically exposed persons (PEP) may be more vulnerable to money laundering risk in HIDTAs. Firms should screen for PEP status on an ongoing basis.

Smart technology: Capturing the risk data linked to HIDTAs involves the analysis of vast amounts of customer data. Since manual analysis of that risk data is unfeasible, and carries the possibility of costly human errors, firms should seek to integrate smart technology tools that add automated speed, efficiency and accuracy to the compliance process. 

Smart technology integration is particularly useful for HIDTA related AML risks because artificial intelligence and machine learning systems offer significant AML compliance advantages. Smart tools can be used to detect drug related red flag behaviors such as unusual transaction patterns or sudden changes in expected behaviors, and can also speed up the remediation process when suspicious activity is detected.

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