US Ramps Up Financial Crackdown on Mexican Drug Trafficking Orgs

    United States Treasury Secretary Janet Yellen visited Mexico from December 5-7, seeking support for a strategy of going after drug trafficking organizations’ money.

    Yellen vows that the Treasury Department will focus harder on this. The day before her trip, she announced a “Counter-Fentanyl Strike Force,” to “advance President Biden’s counternarcotics priorities” with a focus on “financial crimes”—by “targeting the global illicit supply chain with sanctions and other disruptive actions [and] working with Mexico and Canada to counter illicit fentanyl … when possible, through joint investigations.”

    “They hold some in cash; some in investments, such as in real estate; and, increasingly, in digital assets.”

    Targets will include organizations’ use of shell companies and cryptocurrency to launder money.

    “Drug trafficking organizations generate billions of dollars in illicit proceeds every year,” Yellen said in prepared remarks on December 6. “They hold some in cash; some in investments, such as in real estate; and, increasingly, though still in small amounts, in digital assets.”

    Over the past two years, according to Yellen, the Treasury has sanctioned 250 individuals or entities for alleged connections to drug trafficking, including moving the precursor chemicals used to make fentanyl.

    Also on December 6, the Treasury announced new sanctions against what it termed the Beltrán Leyva Organization. The splintering of this group from the Sinaloa Cartel and “El Chapo” reportedly led to a surge in violence in Mexico in 2008; it’s now reportedly splintered itself. The Treasury sanctioned 15 individuals it called “linked, directly or indirectly” to Beltrán Leyva, plus two companies: Editorial Mercado Ecuestre, a “publisher of equestrian-related media,” and Difaculsa, a pharmacy. Any US-based person who buys or sells something from them must report to the Treasury or face penalties.

    In recent months, the Treasury has also issued multiple sanctions aimed at Sinaloa and the Cartel de Jalisco Nueva Generacionalleging that in addition to drug trafficking, CJNG engages in petroleum theft, firearms trafficking from the US and even “timeshare fraud.”


    What, If Anything, Will This Do?

    There’s no question that trafficking organizations in Mexico—fighting to control a lucrative trade created by drug prohibition—contribute to insecurity, violence and suffering. And it could be argued that financial enforcement is much less costly and brutal than sending in armed police or military, which has always entailed human rights abuses. But what effect, if any, will this strategy have?

    Years before he founded the Drug Policy Alliance, Ethan Nadelmann studied money laundering and trafficking organizations at the State Department’s Bureau of International Narcotics Matters (since rebranded). He wrote a classified report, interviewing at least 50 people throughout the US and Latin America, that was later declassified.

    “It ultimately makes no difference in affecting the supply of drugs into the US.”

    “My conclusion at the time was that ‘follow the money’ and money laundering can be incredibly important both for intelligence agencies and law enforcement,” he told Filter. “It can be useful for targeting their assets, weakening them, making their life more difficult.” However, “whether it has ever been successful in taking down a major trafficking organization, I don’t know.”

    On one point, though, he is clear: “It ultimately makes no difference in affecting the supply of drugs into the US. The trafficking organizations just replace one another, and it’s typically not the biggest and most effective groups that get caught—it’s those that are less effective, sometimes having the effect of helping the bigger groups get more robust because they have the resources to counter [financial enforcement efforts].”

    This is a version of the “balloon effect” seen with conventional drug enforcement—that it may remove the trade from specific places for a time or remove specific actors, but it won’t dent the overall supply, which just shifts to different places or into different hands, creating instability and often violent power struggles.

    Zara Snapp is a harm reduction advocate involved in organizations in Mexico and Colombia, and a former member of the secretariat of the Global Commission on Drug Policy, focused on Latin America. She noted that financial enforcement is not replacing regular enforcement, which is also ramping up—so while it’s less violent, it works together with violent military and punitive approaches. And she doubts it will be effective without a broader anti-corruption strategy within Mexico.

    “A lot of these activities happen with the complicity of banks, businesses and government,” she told Filter. “So how useful is it in a country where rule of law tends not to be honored and respected, and where corruption has infiltrated most levels of government?”

    Plus, the Treasury seems less interested in targeting US-based entities profiting from the drug trade.

    “[The Treasury] mentioned they will be working with [Mexican] banks, but it’s many US banks that are also engaged in this,” Snapp said. “How is it that only sanctions are being levied against people in Mexico, but we know there must be folks engaged and having large returns on drug distribution and production [in countries where they are consumed]?”


    “Smarter” Enforcement, or Negotiated Amnesty?

    Robert Mazur has a very different perspective. He’s a former federal agent for the IRS, Customs and the Drug Enforcement Administration, and worked undercover to infiltrate the Colombian Medellín Cartel founded by Pablo Escobar. His bestselling memoir, The Infiltrator (2009), was adapted into a 2016 film starring Bryan Cranston.

    Mazur told Filter that law enforcement “justifies its existence through stats,” including arrests and forfeitures, and that this actually disincentivizes agents from targeting the most effective trafficking organizations. “If I put all my resources into trying to take down the world’s biggest cartel, and I fail, I’m not going to have good stats,” he said. “My promotion and career is based on statistically justifying that I’m good at what I do.”

    “It’s a very easy audit trail. Why don’t governments and central banks want to do that?”

    Mazur sees this system of law enforcement incentives as a problem. At the same time, he’s no big proponent of drug policy reform—though he acknowledges that the US, with its focus on supply-side interventions, has tragically underinvested on the demand side, in terms of resources for people who use drugs.

    But in calling for what he views as smarter forms of enforcement against trafficking organizations, he cited a Colombian financial scheme he learned about in the 1980s. At the time, Colombian citizens were banned from holding US dollar accounts by the US government. But people could visit the Colombian central bank and deposit dollars in cash through a “secret window,” with no questions asked. The central bank would then shrink-wrap and send shipments of dollars—hundreds of millions a month—to its account with the US Federal Reserve.

    “Banks constantly repatriate currency to the Federal Reserve,” Mazur said. “Wouldn’t it be rather easy for the Federal Reserve to run a reverse audit, go back to the banks providing the cash and say, you need to identify for us which institutions or which accounts are providing you the cash? There should be an exchange of information between central and member banks so we work backwards in the audit trail … It’s a very easy audit trail. Why don’t governments and central banks want to do that?”

    “How do we talk about amnesty and legal licenses?”

    Drug policy reform proponents like Snapp, however, see legal regulation of drugs as a more promising approach to issues around trafficking organizations, in addition to its ability to reduce harms for people who use drugs.

    This may involve—to some extent—working with trafficking groups to offer them a pathway into the mainstream economy. It’s not just a hypothetical idea: Negotiations in Colombia, for example, resulting in amnesty being offered to people involved in certain crimes, besides drug trafficking, as part of a 2016 peace deal with the rebel FARC group.

    “That’s a negotiation that has to happen between the government and non-state actors,” Snapp said. “How do we talk about amnesty and legal licenses for production of drugs, and commit to disarming, demobilizing and integrating into a legal market, where the costs of operating illegally are so great they no longer want to do so?”


    Photograph of IRS Criminal Investigation division agent via the Internal Revenue Service

    The Influence Foundation, which operates Filter, previously recieved a restricted grant from the Drug Policy Alliance to support a Drug War Journalism Diversity Fellowship.

    • Alexander is Filter’s staff writer. He writes about the movement to end the War on Drugs. He grew up in New Jersey and swears it’s actually alright. He’s also a musician hoping to change the world through the power of ledger lines and legislation. Alexander was previously Filter‘s editorial fellow.

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