Challenges of identifying cartel activity for a financial institution
Drug cartels use advanced technology and legitimate businesses to mask their activities, creating challenges for financial institutions in identifying their operations and activities. They have long shown a tendency to avoid new laws and oversight trends as they adapt to law enforcement techniques and changes in the global financial system. Based on recent trends and events, cartels have expanded their technological capabilities and have hired the expertise needed to navigate the financial system and its associated controls. These and other recent cartel trends make it challenging for financial institutions to identify their activity.
Professional money launderers
Cartels are hiring professionals to help identify loopholes in the financial system, including roles such as lawyers, accountants and even business associates that create invoices.
Use of financial services/cryptocurrency
Cartels use financial services companies (cryptocurrency, precious metals, Money Service Businesses (MSB)) and stock exchanges in poorly regulated jurisdictions to rapidly move funds from foreign jurisdictions using multiple mediums (wires, cash, cryptocurrency, counterfeit goods), making it difficult to trace.
Fake or shell companies
Cartels often use fake or shell companies as intermediaries to layer funds. These companies, which are often foreign domiciled, can be identified by a lack of a clear business purpose or exhibiting indicators of illegitimacy upon closer inspection. This may include company websites that appear legitimate on the surface but have broken links, minimal content and/or replicated content. Other potential signs could include companies falsely claiming to be registered with official government bodies or shared controlling parties across multiple transacting parties, suggesting funds were not moved for business reasons.
Integration with legitimate activity
Cartels leverage legitimate businesses, charities, sports teams and well-known organizations to commingle funds, making it challenging to discern activity explainable by business operations, including internal transactions between operational accounts resulting in layering. Importantly, many otherwise legitimate companies are forced to pay ransoms, extortion or protection fees to cartels, which could now qualify as potentially terrorist financing.
Bank involvement
Cartels with insider information or who have compromised bank employees have successfully opened accounts, on-boarded shell companies and processed money movements, thus avoiding certain regulatory reporting. Cartelcompromised employees can exploit deficient bank controls and technology to set up a network of accounts on behalf of criminal organizations and refuse to record key individuals in Currency Transaction Reports (CTRs) physically present during cash deposits.
Intermediaries with money mules
Cartels use accounts nominally held by conspirators and/or victims to avoid being reported on in CTRs and internal bank records. Surges in funnel accounts and ATM activity in poorly regulated jurisdictions are a key indicator of potential money mule accounts.
High-risk jurisdictions/regions
Cartels have shown a tendency to take advantage of and focus efforts within particular regions or countries, which are susceptible to becoming hubs of criminal activity and money laundering, due to corrupt or lax oversight, controls and law enforcement. For instance, the Sinaloa Cartel and the Jalisco New Generation Cartel influence many regions of Mexico, including the states of Sinaloa, Baja California and Chihuahua. Academic institutions, law enforcement and regulatory agencies regularly report and update known regions of cartel influence.
