In a significant move to curb illegal activities at the U.S. Southwest border, the Financial Crimes Enforcement Network (FinCEN) issued an alert, on May 1, 2025, concerning oil smuggling from Mexico into the United States, orchestrated by notorious cartels such as the Cartel Jalisco Nueva Generacion (CJNG). This alert highlights the crucial role of financial institutions in identifying and reporting suspicious activities linked to this illicit trade. It forms part of a broader initiative involving U.S. law enforcement agencies, including the Treasury's Office of Foreign Assets Control (OFAC), the DEA, FBI, and Homeland Security Investigations (HSI), all working in concert to dismantle the financial networks underpinning these transnational criminal operations. (See related blog posts here and here.) Simultaneously, OFAC announced sanctions against key individuals and entities connected to CJNG, which are involved in drug trafficking, fuel theft, and oil smuggling, generating extensive illicit revenues. Together, FinCEN and OFAC aim to outline specific financial typologies and red flags to effectively combat these smuggling schemes.
The Cartel's Revenue Streams: Beyond Drugs
Crude oil smuggling has emerged as a significant revenue source for cartels like CJNG, Sinaloa, and Gulf Cartel, who have been implicated in stealing oil from Petróleos Mexicanos (Pemex). This stolen oil crosses the U.S. southwest border, finding its way into the hands of small U.S.-based oil companies. The ramifications are significant: exacerbating violence and corruption in Mexico while disrupting legitimate business operations in the U.S. oil market. Recognized as a Foreign Terrorist Organization (FTO) and Specially Designated Global Terrorist (SDGT), CJNG is involved in trafficking fentanyl and other narcotics into the U.S., contributing to economic instability. Recently, these groups have broadened their criminal portfolios to include fuel theft and crude oil smuggling, resulting in notable financial losses for the Mexican government and facilitating violence along the border.
Huachicol: The Mechanics of Smuggling
Cartels exploit existing trade flows to smuggle crude oil into the United States, taking advantage of Mexico's export of unrefined and partially refined crude oil. They employ various illicit methods such as bribing employees, tapping pipelines, and hijacking tanker trucks to steal oil from Pemex. The stolen oil is often mislabeled as "waste oil" to avoid scrutiny and is sold at discounted rates by complicit importers in U.S. energy markets. This practice, known as huachicol, represents a substantial revenue source for cartels, with profits funneled back to sustain their operations.
Financial Institutions' Role in Reporting
FinCEN has requested financial institutions to include the term "FIN-2025-OILSMUGGLING" in Suspicious Activity Reports (SARs) to enhance tracking of these activities. This initiative leverages financial oversight to combat transnational criminal organizations (TCOs), aiding law enforcement agencies in gathering data for targeted investigations.
Financial Typologies and Red Flags
Oil smuggling operations are characterized by complex financial maneuvers designed to disguise the origin and movement of funds. Cartels employ brokers to transport stolen oil, collaborating with U.S. importers who sell it in domestic and international markets. The proceeds are routed through multiple accounts, often via wire transfers that obscure transactions. Front and shell companies further mask operations, making it difficult for authorities to trace funds. FinCEN's alert advises financial institutions to monitor for indicators such as below-market pricing, unusual profit margins, lack of appropriate registrations, and complex wire transfers across jurisdictions. To assist financial institutions in identifying suspicious activities related to oil smuggling, FinCEN has outlined several red flag indicators:
- Transactional Activity and Profit Margins: Companies exhibiting transactional activity or profit margins significantly above industry norms may warrant further scrutiny.
- Pricing of Crude Oil: Selling crude oil at prices well below market rates could indicate illicit sourcing.
- Online Presence: Companies with minimal online presence or websites that mimic major industry players may be attempting to legitimize illicit operations.
- Inconsistencies in Business Operations: Discrepancies between claimed business activities and transactional behavior, such as purchasing waste oil despite a focus on crude oil sales, are potential indicators.
- EPA Registrations: Companies dealing with waste oil or hazardous materials without appropriate registrations from the U.S. Environmental Protection Agency (EPA) should be examined.
- Shell Company Activity: Sudden, significant transactional activity with companies lacking online presence and exhibiting other characteristics of shell companies.
- Wire Transfer Patterns: Complex wire transfer patterns involving multiple jurisdictions and accounts may be designed to obscure the origins and destinations of funds.
These indicators are not individually determinative of illicit activity, but when combined, they can provide a comprehensive profile of potentially suspicious operations.
Strategic Sanctions: Targeting Key Players
The FinCEN alert aligns with OFAC sanctions targeting individuals and entities involved in oil smuggling, aiming to dismantle networks facilitating illegal activities. Key figures sanctioned under Executive Orders 14059 and 13224 include CJNG leader Cesar Morfin Morfin, linked to both drug trafficking and oil theft. Associates and transportation companies involved in these operations have also been sanctioned, reinforcing efforts to dismantle the operational infrastructure of CJNG.
Collaborative Efforts and Compliance
FinCEN emphasizes the importance of information sharing under section 314(b) of the USA PATRIOT Act. Collaboration among financial institutions is crucial for tracing and preventing the movement of illicit funds. Sharing account or transaction information does not violate SAR confidentiality unless it reveals a SAR, allowing institutions to support investigations without legal complications. This complements the Treasury Department's strategy of using sanctions to counter TCOs, reinforcing efforts to address narcotics trafficking and related crimes.
Conclusion: A Unified Approach
The FinCEN alert and OFAC sanctions represent a coordinated strategy to address cartel operations like those of CJNG. These measures provide insights into oil smuggling methodologies and aim to impact illicit revenue streams. Financial institutions play a key role in this process by adhering to outlined measures, supporting the integrity of the financial system and enhancing regional security. By targeting key figures and networks, U.S. authorities aim to contribute to a safer and more stable international environment, with financial entities playing an essential role in these efforts.
In this multifaceted approach, the collaboration between law enforcement and financial institutions is important to dismantling the intricate networks that support these criminal enterprises, paving the way for more effective interventions and a reduction in cartel-driven violence and instability.
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