Navigating Legal and Compliance Risks of Cartel Operations

By Jaclyn Jaeger

The scope of legal and compliance risks faced by multinational companies that aid and abet in international drug cartel operations has heightened significantly over the past year. Whereas cartel activity has not been a major focus for anti-corruption compliance programs historically, companies across many sectors are now expected to monitor it like any other terrorist financing risk.

A major driver of this has been the U.S. government’s shifting enforcement priorities away from traditional anti-corruption efforts toward terrorist financing and national security efforts. Consequently, multinational companies with business partnerships or operations in Mexico, Latin America, and Central America face a whole new landscape of legal, compliance, and financial risks.

Shifting enforcement landscape

In January 2025, U.S. President Donald Trump designated international drug cartels as foreign terrorist organizations (FTOs) and specially designated global terrorists (SDGTs). One month later, the U.S. Department of State designated seven cartels as FTOs and SDGTs, six of them with ties to Mexico’s largest drug cartels.

As part of the administration’s priorities, the Department of Justice’s Criminal Division in May 2025 issued a memorandum stating that it will prioritize the following investigations and prosecutions as white-collar crimes:

financial institutions and their insiders that commit sanctions violations or enable transactions by cartels, transnational criminal organizations (TCOs), hostile nation states, and/or FTOs;
Material support by corporations to FTOs;
Complex money laundering schemes and other organizations involved in laundering funds used to manufacture illegal drugs, like fentanyl;

Updates to the DOJ’s “Whistleblower Awards Pilot Program,” which added whistleblower reports of corporate crime related to cartels and TCOs as a potential qualifier for a whistleblower award, further heightens compliance and legal risk. Moreover, the DOJ in June 2025 issued a memo directing prosecutors to consider whether potential misconduct is associated with cartels or TCOs when deciding whether to pursue a Foreign Corrupt Practices Act (FCPA) investigation or enforcement action.

The heightened focus on drug cartel activity is not limited to the U.S. government alone. In May 2025, the Mexican government created a new to unit within its Financial Intelligence Unit to combat organized crime, “an indication that Mexico is aligning with the United States in prosecuting drug cartels,” Jacabed Rodriguez-Coss, of counsel at DLA Piper, said on a law firm webinar.

Inner workings of CMLNs

Chinese Money Laundering Networks (CMLNs), in particular, play a major role in international drug cartel operations and have gained attention as a U.S. national security threat.

According to a financial trend analysis report, issued by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), CMLNs moved approximately $312 billion in suspicious transactions between January 2020 and December 2024, highlighting the scope and breadth of their illicit activities.

A primary interest of CMLNs is to obtain large quantities of U.S. dollars to meet the demands of Chinese nationals seeking more foreign currency to evade strict currency controls imposed by the government of the People’s Republic of China (PRC), while TCOs need a way to launder their illicit U.S.-dollar funds. This creates what FinCEN refers to as a “mutualistic relationship.”

“CMLNs operate in a compartmentalized fashion, leveraging relationships built on trust rather than working through a hierarchical structure to launder money,” FinCEN stated in an advisory.

The scheme between CMLNs and TCOs, particularly Mexico’s drug cartels, operates like this: A cartel gives a U.S.-based CMLN U.S. dollars for laundering. The CMLN then coordinates with a Mexico-based CMLN counterpart who conducts a so-called “mirror transaction,” transferring pesos of an equivalent amount to the cartel’s Mexico-based accounts, minus a nominal fee. Through this informal value transfer, CMLNs “purchase” the value of the cartels’ illicit USD proceeds in pesos.

The U.S.-based CMLNs then sell these “purchased” U.S. dollars by “advertising it on social media or leveraging personal networks, to Chinese citizens or businesses seeking to evade the PRC’s currency control laws,” the FinCEN advisory states.

Once a buyer is identified, the U.S.-based CMLN connects that buyer to a China-based operator, who then instructs the buyer to transfer an equivalent amount of RMB, plus a fee, from their bank account in China to an account controlled by the China-based operator. This transfer, internal to China, effectively evades PRC’s currency controls. Once the transfer happens, the U.S.-based CMLN makes the “purchased” U.S. dollars available to Chinese buyers in the United States.

Cleaning illicit funds

According to FinCEN, CMLNs typically comprise both current and former U.S.- and foreign-based Chinese passport holders. Often, they’ll recruit members of the Chinese population, particularly Chinese students studying at U.S. universities, to act as money mules, money brokers, and cash couriers.

CMLNs also have been known to recruit employees at financial institutions to act as complicit insiders, or infiltrate and place CMLN members within a financial institution to assist in the illicit operations, the FinCEN advisory states.

Trade-based money laundering (TBML) is another common way funds are laundered. Money mules are used to purchase U.S. electronics and other luxury goods (e.g., cell phones, automobiles, clothing, designer handbags) at various businesses across the United States. Once the goods are purchased, CMLNs often use online marketplaces, front companies, or complicit businesses to resell or export these goods.

Compliance measures

The FinCEN advisory lists 18 specific red-flag indicators that may be indicative of a CMLN-affiliated, money-mule or TBML scheme. Compliance and legal teams should refer to the full list to map those suspicious activities against the bank’s own internal records, customers, and activities. Information-sharing is another critical component for identifying, reporting, and preventing CMLN-related and other illicit financial activity, the FinCEN advisory noted.

Beyond the financial services industry, companies operating in regions of the world with significant cartel activity, such as Mexico, should be prepared for escalating enforcement risk in this area. “For example, bribery schemes that involve defense, intelligence, or critical infrastructure may be subject to heightened scrutiny,” Rodriguez-Coss said. “This includes projects related to energy, technology, and transportation.”

Non-U.S. companies operating in Latin America, particularly with strong ties to the United States and the U.S. financial system, could face increased scrutiny as well, Rodriguez-Coss added. “This could increase their liability exposure and create new risks,” she said.

Every Latin American company should conduct a risk assessment immediately, if they have not done so already, Rodriguez-Coss advised. Consider what mechanisms are in place to detect potential cartel-linked activity by distributors, agents, or suppliers, she advised.

Consider whether to conduct a risk assessment more often than annually. “Companies should be doing at least bi-annual risk assessments internally to ensure they are addressing those risks within their industry,” Rodriguez-Coss said. Multinational companies also should be conducting robust due diligence on agents, distributors, suppliers, and business partners.

Pertaining to the financial services industry, the FinCEN advisory recommends that covered financial institutions have risk-based procedures in place for conducting ongoing customer due diligence, including:

understanding the nature and purpose of customer relationships to develop a customer risk profile;
identifying and verifying the identity of certain of their legal entity customers’ beneficial owners.
conducting ongoing monitoring to identify and report suspicious transactions; and
maintaining and updating customer information.

All such risk-based controls and due diligence procedures must extend to private banking accounts held for non-U.S. persons as well. Financial institutions must further ascertain whether any account owners are senior foreign political figures, which would necessitate enhanced scrutiny that’s “reasonably designed to detect and report transactions that may involve the proceeds of foreign corruption,” the advisory states.

Francisca Franzani, a partner at DLA Piper and regional co-leader of the firm’s U.S. and Latin America white-collar practice group, observed that, in certain regions of South America, such as Argentina and Brazil, companies are facing heightened scrutiny over payments, third parties, and requests for correspondent banking, specifically know-your-customer (KYC), and know-your-customer’s-customer (KYCC). “Banks are asking now for beneficial owners,” she said.

Lastly, it’s important to maintain a data trail, Franzani advised. Keep invoices, shipping documents and, generally, be prepared to readily produce any documents that may be requested.

ACI’s Forum on “Cartels, TCOs & Compliance in Latin America” will be held July 20-21, 2026, in Washington DC. For more information, and to register, please visit: https://www.americanconference.com/cartels-in-latam/