A Guide to Anti-Money Laundering for Crypto Firms

US Sanctions Mexican Cartel CJNG Over Alleged Drug Trafficking

Financial Crime Knowledge & Training

The US Office of Foreign Assets Control (OFAC) has sanctioned four Mexican nationals, accusing them of trafficking fentanyl and other illegal substances into the US on behalf of one of Mexico’s most dangerous criminal organizations.

Aldrin Miguel Jarquin Jarquin, Jose Jesus Jarquin Jarquin and Cesar Enrique Diaz De Leon Sauceda are all senior members of the Cartel de Jalisco Nueva Generacion (CJNG). Their Mexican bank accounts have been blocked by the Mexican financial crimes agency (UIF) – who worked with OFAC on these sanctions – since June 2020. They, along with subordinate Fernando Zagal Anton, have been charged under the Foreign Narcotics Kingpin Designation Act.

OFAC says that the four help coordinate CJNG’s drug trafficking operations through the port of Manzanillo and maintain contact with cocaine sources in Colombia. As a result of the sanctions, they will be unable to access any assets in the US. 

According to the US Treasury, CJNG was responsible for the June 2020 murder of a Mexican federal judge in Colima. US prosecutors have also linked CJNG to an incident involving the destruction of a Mexican military helicopter by a rocket-propelled grenade, according to ABC News.

The Kingpin Act

This is the 15th action against CJNG under the Kingpin Act. The Act targets significant foreign drug traffickers, their organizations and agents, to prevent them from accessing the US financial system, and stop all trade and transactions between the traffickers and US companies and individuals.

Since June 2000, more than 2,200 entities and individuals have been sanctioned under the Kingpin Act for their role in international drug trafficking. Penalties range from up to $1.5m for civil infractions to up to 30 years in prison and fines of up to $5m for criminal offenses.

The use of trade-based money laundering (TBML) is common practice for drug cartels. A Financial Action Task Force (FATF) and Egmont Group report from December 2020 states: “Threats like Mexican and European transnational criminal organizations (TCOs) and their associated drug trafficking activity, employ TBML schemes because their sophistication makes it difficult for authorities to detect. Vulnerabilities, such as the US financial and trade sectors, are being exploited for TBML purposes.”

The report highlights the Black Market Peso Exchange (BPSE) as a key example of TBML practices used by drug cartels: “One of the drivers behind this scheme is currency restrictions, limiting the ability of legitimate companies to purchase goods from external suppliers. Due to these limitations, businesses have to rely on complicit money traders to exchange legitimate local currency for US dollars. Drug cartels use this chain to move illicit US dollars from one jurisdiction to another.”

Geopolitically, there are challenges for the prosecution of drug trafficking and Kingpin cases. Senior government figures have been involved with the traffickers their administration is trying to stop.  

Evidence and accusations are mounting against Mexico’s former top security official Genaro García Luna. US prosecutors are continuing to build a case alleging he took bribes from drug traffickers, and Mexican officials are demanding the return of millions of alleged illegal assets.

‘Top cop’ García Luna was Mexico’s secretary of public security from 2006 to 2012 – a role in which he was responsible for designing and executing Mexico’s assault on organized crime and drug trafficking. He is accused of accepting multimillion-dollar bribes from the Sinaloa Cartel in exchange for letting the group traffic tons of cocaine into the US. 

He is also accused of illegally obtaining at least $250m from the Mexican government between 2012 and 2018 through a “complicated unlawful government-contracting scheme.”

In September, UIF announced its “first civil lawsuit abroad to recover assets related to illegal financial operations carried out by Genaro García Luna.”

Geographic risk

In the US, geographic locations that present a particularly high risk of money laundering and financial crime may be designated High-Risk Money Laundering and Related Financial Crime Areas or High-Intensity Financial Crime Areas (HIFCA). 

The US Financial Crimes Enforcement Network’s (FinCEN) HIFCA regional map shows counties across the Mexican border as high-risk areas. 

Intended to help law enforcement agencies combat money laundering and other financial crimes, HIFCA programs are also relevant to the AML/CFT efforts of financial institutions, who may use them to inform their risk assessments and better contribute to the fight against money laundering. 

Compliance staff should be mindful of the money laundering typologies and risks that come with trade, the use of free trade zones, and high cash volume businesses. Localized financial crime advisories can also help compliance teams accurately assess and manage risks.

Comprehensive know your customer (KYC) processes are important and firms should include in-person visits to clients when necessary, as certain clients may warrant face-to-face contact to fully understand their business. If suspicious activity is detected, consider if there is a wider network operating with accounts at the firm – this could expose previously known risks that go beyond the initial customer but within the same bank.

Read more about how financial crime trends have evolved this year so far with our Mid-Year Review

Originally published October 15, 2021, updated November 18, 2021

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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