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FinCEN AML/CTF priorities part 8: Drug trafficking organizations

Hannakah Rubin, CAMS, CFE
September 1, 2021
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Drug trafficking organizations (DTOs) are a key concern

From drug cartels to street gangs, the illegal drug market has been a constant money-maker for DTOs. 

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Danielle Austin-Rios, CAMS also contributed to this article

From drug cartels to street gangs, the illegal drug market has been a consistent moneymaker for drug trafficking organizations (DTOs), and there is no end or slowdown in sight. Identifying and reporting money streams involving DTOs is a staple of the Bank Secrecy Act and this year, pursuant to the AML Act. FinCEN has listed DTOs as one of its priorities. 

In addition to bringing in billions of dollars, this activity is an incredible strain on the public health emergency fund. Former Attorney General William P. Barr with the Department of Justice (DOJ) released a report in October of 2020 stating, “The addiction crisis has taken an enormous toll on America’s families and communities, eroding public health, threatening public safety and claiming tens of thousands of lives year after year.”  

Read our blog series on the FinCEN's priorities. Start with part 1: Implications for community financial institutions.

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Trade-Based Money Laundering

Drug trafficking organizations and money laundering

Criminals need to turn their illicit gains into usable tender, and they do so through the U.S. financial system by relying on professional money laundering networks. The most common is known as a trade-based money laundering (TBML) scheme.   

FICO explains:

“In its simplest definition, TBML is the process of disguising the proceeds of crime and moving value (i.e., movement of money) using trade transactions to legitimize their illicit origins. TBML involves the exploitation of the international trade system for the purpose of transferring value and obscuring the true origins of illicit wealth. TBML schemes vary in complexity but typically involve misrepresentation of the price, quantity, or quality of imports or exports.” 

We are looking at money laundering on a global scale. As the TBML trend is increasing, DTOs are still using more traditional money laundering methods such as shell companies, couriers, and currency exchangers. These methods, when combined, create sophisticated and complex money laundering schemes. Not exactly the money laundering we know from movies and television!   

The Government Accountability Office (GAO) reports:

“According to the Department of the Treasury, TBML is one of the most challenging forms of money laundering to investigate because of the complexities of trade transactions and the large volume of international trade. U.S. law enforcement agencies believe there has been an increase in TBML activity attributable, in part, to U.S. financial institutions' improved compliance with Bank Secrecy Act and anti-money laundering regulations, such as cash reporting requirements.” 

Going Forward

What can financial institutions do?

While China remains a significant source of chemicals used to manufacture drugs such as fentanyl and other synthetic opioids, Mexican and South American cartels continue to operate separate DTOs for the trafficking of drugs such as cocaine. One thing they all have in common is the reliance on the use of TBML via the utilization of Asian networks. With this in mind, Financial Institutions should be aware of transactions involving China that are at or near the Capital Flight Restriction (50,000.00 USD).  

What does this mean for financial institutions?  

  • Financial institutions should be mindful of changes in customers’ transaction patterns involving foreign-based transactions. 
  • Financial institutions can expect additional scrutiny from regulators and auditors on EDD processes and high-risk customer monitoring.  
  • This is particularly important for entities with complex ownership structures that could be shell companies, but also to ensure an entity is not doing business or affiliated with a DTO 

Additionally, here are some red flags to help identify and report potential TBML schemes (FATF) 

  • Complex/illogical ownership structures 
  • Trade entities registered in jurisdictions with weak AML controls 
  • Lack of expected business transactions (i.e., payroll, tax payments) 
  • Transaction volumes/amounts not aligned with stated anticipated activity 
  • Staffing numbers non-commensurate with stated business activities/volumes 
  • Trade activity not aligned with stated type of business (ex: phone accessory manufacturer importing clothing) 
  • Invoices have inconsistent pricing based on market values (i.e., under- or over-invoicing) 
  • Round dollar amount transactions for trades 

Keep in mind, the existence of a red flag is not inherently suspicious on its own. The above are indicators of potential TBML activity that may warrant further investigation or scrutiny.  

As DTOs continue to evolve their money-laundering operations, they will likely remain a FinCEN Priority. Financial Institutions should continue to monitor advisories and other communications from FinCEN for additional information regarding DTOs, including how to meet regulatory obligations. 


About the Author

Hannakah Rubin, CAMS, CFE

Client Development Specialist
Hannakah Rubin is a Client Development Specialist with Abrigo and has 23+ years’ experience working in financial institutions with 15+ years in internal auditing, as a BSA officer, and in the AML/CFT software industry. While at Abrigo, Hannakah has served in an advisory capacity, implementing risk-based calibrations for financial institutions,

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