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Navigating the U.S.-Mexico border: Understanding the surge in criminal activity

Terri Luttrell, CAMS-Audit, CFCS
January 3, 2024
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Hotspot for illegal activity highlights the need for appropriate BSA procedures

Financial institutions must be vigilant against southwest border activities such as human trafficking and illegal drug/arms trading. Know the red flags to watch for. 

You might like this checklist, "AML investigations checklist: Red flags for detecting money laundering."

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Border challenges

Incorporating southwest border considerations in your AML program

The southwestern border of the United States, spanning 1,954 miles, is more than a geopolitical boundary between the U.S. and Mexico.  Its vast expanse has become synonymous with both opportunity and challenges over the years. While many think of trade, commerce, and cultural exchange when considering this region, ignoring the undertow of illicit activities is impossible—the border remains a hotspot for drug trafficking, illegal arms trade, human trafficking, and smuggling operations, necessitating vigilant scrutiny and transaction monitoring within the U.S. financial system. 

Financial institutions are tasked with understanding the concerns along the U.S.-Mexico border and incorporating these considerations into their Bank Secrecy Act (BSA) policy and procedures. It is critical to monitor for suspicious activity to ensure proceeds from these illicit activities don’t infiltrate our U.S. financial system, and regulators will expect it. Some of the most significant threats on the border include: 

Money-laundering threats

Drug trafficking schemes

The border is a primary entry point for illicit drugs coming into the U.S. from Mexican drug cartels. The Sinaloa Cartel and the Jalisco New Generation Cartel have extensive networks that smuggle narcotics, including marijuana, methamphetamine, cocaine, heroin, and fentanyl, into the U.S. Such drug operations require significant sums of money to maintain. Money transfers, cash activity, and other financial indicators can lead to funding sources and financial beneficiaries of drug trafficking, making it essential for institutions to be on high alert. In 2019, FinCEN issued an “Advisory to Financial Institutions on Illicit Financial Schemes and Methods Related to the Trafficking of Fentanyl and Other Synthetic Opioids” to alert financial institutions to illicit schemes related to the trafficking of these deadly drugs. The advisory describes several typologies and red flags to assist in suspicious activity monitoring.  

Fentanyl crossing the border is a crisis that must be considered when developing an anti-money laundering (AML) program.  According to the National Institute on Drug Abuse (NIDA), deaths involving synthetic opioids, primarily fentanyl, continued to rise, with 70,601 overdose deaths reported in 2021. In 2022, NIDA reported that 109,680 people died as the fentanyl crisis deepened.  According to a 2019 FinCEN Advisory,  the U.S. is in an unparalleled epidemic of addiction and death fueled by the illicit trafficking, sale, distribution, and misuse of fentanyl and other synthetic opioids. Transnational Criminal Organizations (TCOs), international drug traffickers, money launderers, and other criminal actors profit off the misery of victims. Criminal networks and others generate billions of dollars in illicit drug proceeds and use the U.S. financial system and economy to advance their criminal enterprises and continue this epidemic to generate more criminal profits, resulting in more deaths and addictions. Financial institutions should monitor transactions to and from China in particular, as the sale or purchase of fentanyl often involves money transfers to individuals in China and other foreign countries. The transactions are usually structured to evade BSA reporting.  

Red flags for trafficking and smuggling

Human trafficking and human smuggling

Apart from regular migration, there are instances of people being trafficked or smuggled across the border for forced labor, sexual exploitation, or criminal activities. Human smuggling is defined by the United Nations as the facilitation, for financial or other material gains, of irregular entry into a country where the migrant is not a national or resident. The criminals behind this highly lucrative business seize the opportunity created by the need or desire of people to escape poverty, lack of employment opportunities, natural disasters, conflict, or persecution. While smugglers, or “coyotes,” prey on these vulnerabilities, many migrants die of thirst in deserts, perish at sea, or suffocate in containers in search of a better life.  

The Department of Homeland Security defines human trafficking as using force, fraud, or coercion in exchange for labor, services, or a commercial sex act. The illegal trafficking of humans is a multi-million-dollar industry. Large or recurring payments to familiar sources in border regions could signify involvement in such activities, so be sure your financial institution tracks suspicious transactions.

Human trafficking gets a lot of exposure in the media and attention from law enforcement. However, its sister crime of human smuggling can be just as deadly. Human smuggling is not a victimless crime, as evidenced by the San Antonio, Texas discovery in June 2022 of 53 migrants, including children, who died in a tractor-trailer as they attempted to enter the United States illegally. The smuggler abandoned the locked trailer in sweltering South Texas temperatures with no water, allowing the people to perish. This example is only one of the many yearly tragedies along our southwest border.  

In January 2023, FinCEN issued an alert on human smuggling along the United States’ southwest border. The southwest border is a hotbed for this crime, where over 2.3 million encounters occurred in 2022, up from 1.7 million in 2021 and growing. According to the Homeland Security Operational Analysis Center, human smuggling along the southwest border generates an estimated $2-$6 billion in annual revenue for these criminals.

Human trafficking and smuggling have been named as part of FinCEN’s National Priorities, and financial institutions should include these concerns in their risk assessment and AML program. In addition to the two FinCEN advisories released in 2014 and 2020, the 2023 alert gives several red flags specific to threats along the southwest border, such as frequent cross-border wire transfers, rapid movement of funds, and deposits followed by immediate withdrawals (funnel accounts). 

More money laundering activities

Illegal arms trade and potential terrorist entry

The U.S. has long been a source of military-grade firearms smuggled into Mexico that end up in drug cartels' hands. As reported by CBS News, this illegal arms trade has fueled violence in Mexico that can spill into the U.S. border cities at an alarming rate. Cartel gunrunning networks operate like terrorist cells and pay Americans to buy weapons from gun stores and online dealers nationwide. 

In September 2023, the U.S. Department of the Treasury announced the sanctioning of a well-known Mexican arms trafficker for supporting the Carel de Jalisco Nueva Generacion (CJNG), among other violations. “CJNG relies on high-powered weapons primarily obtained from the United States to protect its territory while intimidating rivals and governmental authorities,” said Under Secretary of the Treasury Brian E. Nelson. “CJNG’s access to these weapons contributes to its ability to flood the United States with fentanyl and other deadly drugs. Treasury is working with U.S. and Mexican partners to expose, isolate, and disrupt those who facilitate CJNG’s lethal activities.” The Treasury’s action is part of a government effort to stop arms and drug trafficking across the U.S. southwest border.

Another potential threat from the southwest border is the movement of terrorists in the region. Intelligence agencies have raised alarms about extremist individuals exploiting the vastness of this border to enter the United States.  This year, U.S. border agents have encountered a “growing number of individuals” on  the FBI’s terrorist watchlist  trying to enter the country via the southern border, according to the Homeland Threat Assessment 2024 released by the Department of Homeland Security. Immigrants from the Eastern Hemisphere, including Africa and the Middle East, pose the most significant threat of terrorist activity. These groups' immigration numbers have more than doubled in 2023 to 228,000 from 110,000 in 2022.

Financial institutions can help prevent drug dealers, terrorists, arms dealers, and other criminals from operating and expanding their criminal enterprises by following FinCEN guidance on red flags for money laundering. 

Conclusion

Reporting to assist law enforcement

The U.S.-Mexico border is a focal point of numerous illicit activities that require vigilant oversight by law enforcement and financial institutions. Recognizing the signs of illicit financial activity and acting on them is crucial in combatting the broader issues plaguing the border. Financial institutions, equipped with FinCEN guidance and a deeper understanding of border-related risks, can become formidable partners in the fight against border-related financial crimes.

Tailor your oversight based on your unique risk profile, and if there's a hint of suspicion from your staff, dive deeper. That suspicion might be the thread that unravels a more significant, darker scenario. Reporting suspicious activities via Suspicious Activity Reports (SARs) ensures institutions remain ahead of the curve. 

Learn more human trafficking behavioral indicators with this checklist: "Human Trafficking Red Flags."

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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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