By Peter Hardy, Andres Fernandez, Gabriel Caballero, Siana Danch and Daniel Noste
A staggering amount of funds flow in and out of the United States from the international trade of fentanyl, methamphetamine, cocaine and other illegal drugs consumed by millions of Americans. In 2025, the Trump administration therefore prioritized combating transnational criminal organizations, or TCOs, and drug cartels for the purposes of Bank Secrecy Act/anti-money laundering regulation and enforcement. These steps included designating certain drug cartels as terrorist organizations, issuing new currency reporting requirements for money transmitters in the southwestern U.S., precluding U.S. financial institutions from transacting with certain foreign financial institutions, and urging U.S. financial institutions to scrutinize transactions for red flags of laundering by cartels and TCOs.
This prioritization has significant implications for U.S. financial institutions and their BSA/AML compliance programs. As we discuss, institutions should review their programs in light of these developments and take steps to address the related risks. One challenge for institutions is that cartels and TCOs can be adept at disguising the nature and sources of their funds through many other techniques, such as by “layering” transactions through the use of multiple nominees or shell companies, trade-based money laundering, real estate investments, the use of money mules and virtual currency.
Targeting cartels and TCOs
On Jan. 20, 2025, President Donald Trump issued Executive Order 14157 designating certain international cartels and other TCOs as foreign terrorist organizations (FTOs) and specially designated global terrorists (SDGTs). Shortly thereafter, the U.S. Department of State designated eight specific cartels and TCOs operating in Mexico, Central America and South America. These coordinated actions signaled a new and aggressive approach to combating cartels and TCOs by invoking the powerful tool of U.S. sanctions laws, historically reserved for more “traditional” terrorist organizations. Consequently, all property and interests in property of those designated organizations that are in the United States or that are in possession or control of a U.S. person are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.
Detecting, reporting and preventing these illicit transactions is important not only for protecting against BSA/AML regulatory liability, but the administration’s designations also may create an increased risk for U.S. financial institutions for liability to civil plaintiffs under the Anti-Terrorism Act, which provides a civil cause of action against defendants found to have provided material support or financing to terrorist organizations.
FinCEN pursues the administration’s agenda
As part of the administration’s approach, the Financial Crimes Enforcement Network, the U.S. Department of Treasury bureau that administers the BSA, took several actions in 2025 addressing the money laundering risks posed by cartels and TCOs. Although the administration’s stated focus clearly has spurred FinCEN, drug trafficking and TCO activity already were two of the eight national AML/countering the financing of terrorism priorities earlier identified by FinCEN in 2021. FinCEN’s 2025 publications repeatedly highlight how financial institutions must be alert to the possibility that their customers may be moving, unwittingly or otherwise, funds generated by TCOs and cartels.
- In March 2025, FinCEN issued an alert on bulk cash smuggling by Mexico-based TCOs. The alert stated that TCOs smuggle bulk cash through Mexican businesses, “usually with locations near the U.S. southwest border. TCOs utilize the cover of Mexico-based businesses to repatriate formerly smuggled bulk cash into the United States via foreign and domestic armored car services (ACSs) and air transport.” The ACS then delivers the bulk cash “to a U.S. financial institution, typically a depository institution or money services business (MSB), [to be] either deposited into accounts that are owned by the Mexico-based businesses or transmitted by the MSBs on behalf of the Mexico-based businesses.”
- Also in March 2025, FinCEN issued a geographic targeting order to address illicit activities of Mexico-based cartels along the U.S. southwest border. The order required all MSBs located in 30 zip codes across California and Texas near the southwest border to file currency transaction reports with FinCEN at a $200 threshold in connection with cash transactions. This order represented a dramatic change to the usual $10,000 threshold for filing CTRs and underscored the role of cash in the laundering of TCO and cartel funds in the United States. After several MSBs filed lawsuits contesting FinCEN’s ability to impose such a substantial reporting requirement, FinCEN issued a “modified” order in September 2025 that raised the reporting threshold to $1,000 and expanded its application to areas within Arizona, California and Texas. This modified order is effective through March 6, 2026, assuming that it withstands ongoing litigation.
- In May 2025, FinCEN, working with the Treasury Department’s Office of Foreign Assets Control and several federal law enforcement agencies, issued an alert urging financial institutions to detect and report suspicious activity connected to the smuggling of stolen crude oil from Mexico across the U.S. southwest border by Mexican-based TCOs. The alerts set forth in part numerous potential red flags for financial transactions by small U.S.-based oil and natural gas companies inconsistent with prevailing business practices.
- In August 20205, FinCEN released a detailed advisory on the use of Chinese money laundering networks, or CMLNs, by Mexican-based TCOs and drug cartels. This advisory was accompanied by a comprehensive analysis of CMLN activity from 2020 to 2024. These materials explain that a corrupt symbiotic relationship has developed between CMLNs and Mexican-based TCOs due in part to laws passed by the governments of Mexico and China restricting financial flows. Specifically, China caps annual foreign currency conversions at $50,000 per person. Mexico, in turn, prevents large amounts of U.S. dollars from being deposited into Mexican financial institutions. Consequently, “Chinese citizens’ demand for large quantities of USD and the Cartels’ need to launder their illicit USD proceeds has resulted in a mutualistic relationship wherein the Cartels sell off their illicitly obtained USD to CMLNs who, in turn, sell the USD to Chinese citizens seeking to evade [China’s] currency control laws.” FinCEN identified three primary methodologies used by CMLNs, acting as professional intermediaries, to launder Mexican-based TCO and cartel funds: (1) mirror and informal value transfer system transactions, in which one member receives illicit cash in one country while another person delivers an equivalent value, often in another currency or in virtual currency, to a recipient abroad; (2) trade-based money laundering, often in which illicit funds are used in the United States to purchase bulk quantities of high-value goods; and (3) use of money mules, acting either complicitly or unwittingly, to open U.S. bank accounts to conduct quick and repeated transfers of funds.
From alerts to enforcement
Beyond collecting data and issuing alerts, FinCEN also took notable enforcement actions in 2025 focused on Mexico-based TCO and drug cartel activity. In June, FinCEN issued orders identifying three Mexico-based financial institutions as being of “primary money laundering concern” in connection with illicit opioid trafficking and broadly prohibiting any transactions by U.S. financial institutions involving those Mexican institutions. FinCEN issued these orders under the FEND Off Fentanyl Act, a recently enacted statute that is similar to, but more powerful than, Section 311 of the Patriot Act, which permits the Treasury Department to issue less drastic “special measures” prohibiting certain types of transactions with targeted foreign financial institutions. In a nutshell, orders issued under either statute make it near impossible for a targeted financial institution to continue to do business because it is deprived of access to the U.S. financial system.
In November 2025, FinCEN again turned to Section 311 of the Patriot Act and issued a notice of proposed rulemaking identifying transactions involving 10 Mexico-based gambling establishments as a class of transactions to be of primary money laundering concern because the establishments allegedly have been laundering funds on behalf of Mexico-based TCOs and cartels. If finalized, the proposal would prevent any U.S. financial institution from providing correspondent accounts for or on behalf of a foreign banking institution if the account were to be used to process a transaction involving any one of the gambling establishments.
However, even before the Trump administration’s efforts and these 2025 actions, the laundering of Mexico-based TCO and drug cartel funds produced a major enforcement action. In October 2024, an international bank pled guilty to conspiracy to commit money laundering, failing to maintain an adequate AML program, and failing to file required CTRs. The bank agreed to pay over $3 billion in combined criminal and civil penalties, retain independent compliance monitors and be subject to an asset cap. The case centered mainly on allegations that a CMLN deposited hundreds of millions in Mexican drug cartel cash through large deposits into nominee business accounts. The bank allegedly allowed these transactions to continue, filed inaccurate CTRs, and failed to maintain an adequate transaction monitoring program. The DOJ criticized the bank for its “flat cost paradigm” and an alleged failure to invest in compliance.
Potential compliance considerations
Given the administration’s focus in 2025, U.S. financial institutions should consider compliance steps to address the risk presented by TCOs and cartels. This is easier said than done: TCOs and cartels have insinuated themselves into many legitimate industries, including energy, transportation and financial services, thereby making it difficult to identify the true nature and source of fund flows.
First, customer risk assessments should be reviewed and revised if appropriate. Although consideration of customers’ and their counterparties’ geographic locations is an obvious step, other more nuanced factors, such as each of their purported line of business and expected account activity, can be important.
These same factors are also relevant to effective AML transaction monitoring. An institution should review its transaction monitoring scenarios, — for example, the account activity that will trigger an alert, to ensure that it is adequately screening for transactions involving TCOs and cartels.
Similarly, financial institutions should pay particular attention to activity conducted through correspondent bank account relationships with foreign banks. Effective monitoring of a correspondent bank account can be difficult, because the customers of the foreign bank transacting through the account are not the customers of the U.S. financial institution, which as a practical matter must rely upon customer and audit information requested from the foreign bank.
Despite the current environment of challenging financial institutions for derisking and “debanking” customers by closing accounts, it is important that accounts involving potential TCO or cartel funds are closed expeditiously and that the same persons are not allowed to circumvent account closures by thereafter opening up new accounts using other businesses or nominees.
Section 314(b) information sharing, which involves eligible U.S. financial institutions voluntarily sharing information with each other on suspected money laundering or terrorist financing activity, is an effective but often under-utilized tool. In September 2025, FinCEN encouraged financial institutions to combat TCO activity through cross-border information sharing, while admitting that U.S. or foreign privacy laws may prohibit information sharing with foreign financial institutions.
Effective employee training and supervision is also important. Although the filing of required suspicious activity reports is central to any AML compliance program, an institution also must ensure that its staff are able to file complete and accurate CTRs — the value of which sometimes has been overlooked as the economy becomes increasingly digitized. Internal complaints or reports of unusual customer activity must be treated seriously. Conversely, insider misconduct is one of the most serious threats facing an institution. That threat is exacerbated when transactions involve cash and/or professional money launderers acting on behalf of TCOs and cartels.
Ultimately, financial institutions should be willing to continue investing in BSA/AML compliance. Although the Trump administration has prioritized regulatory recalibration to reduce burden in many areas of bank regulation, this focus has generally not been applied to financial crime — particularly with respect to funds involving TCOs and cartels. Furthermore, DOJ, FinCEN and other agencies have whistleblower programs focused on financial institutions and money laundering, and the government is always interested in tips on alleged insider abuse or refusal by management to treat compliance concerns with sufficient seriousness. As always, fostering an institution-wide “culture of compliance” is critical.
Peter Hardy, Andres Fernandez and Gabriel Caballero are partners, and Siana Danch and Daniel Noste are senior counsel with Holland & Knight LLP. They are all members of the firm’s Financial Services Regulatory Team.
