The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), in coordination with the Office of Foreign Assets Control (OFAC), the US Drug Enforcement Administration (DEA), the Federal Bureau of Investigation (FBI), and Homeland Security Investigations (HSI), issued an alert on May 1, 2025 warning US financial institutions of the growing threat of oil smuggling schemes across the US southwest border (FinCEN Alert).
According to the FinCEN Alert, Mexico-based cartels and other transnational criminal organizations are stealing billions of dollars of crude oil from Mexico’s state-owned oil conglomerate, Petróleos Mexicanos (Pemex), and smuggling it across the US southwest border and into the US. According to the US Department of the Treasury (Treasury), smuggling crude oil in this fashion is the second-largest annual revenue generator for the cartels after illicit drug trafficking. Treasury Secretary, Scott Bessent, called fuel theft and crude oil smuggling “cash cows” for one of the designated cartel’s – Cartel Jalisco Nueva Generacion (CJNG) – “narco terrorist enterprise.”
OFAC concurrently announced the designations of three Mexican nationals and two Mexican-based entities and, consistent with previous OFAC actions targeting the CJNG, highlighted its coordination with Mexico’s La Unidad de Inteligencia Financiera (UIF), Mexico’s Financial Intelligence Unit.
The FinCEN Alert is the latest in a series of measures taken under the Trump Administration’s declared policy of the “total elimination” of the cartels and other transnational organizations and – to that end – demonstrates the Administration’s ongoing “whole-of-government,” “all-available-tools” approach by utilizing multiple authorities, law enforcement, and regulatory agencies to achieve its policy. The FinCEN Alert and OFAC announcement also highlight the ongoing coordination with Mexico’s government, law enforcement, and UIF.
Our previous client alerts have covered these measures, including the designation by OFAC of certain transnational organizations as Foreign Terrorist Organizations (FTO) and Specially Designated Global Terrorists (SDGT); FinCEN’s warnings directed at US financial institutions; the expansion of reporting requirements for money services on the southwest border; and the publication of the Department of Justice’s (DOJ) memorandum entitled, “Total Elimination of cartels and Transnational Criminal Organizations (TCOs),” directing additional DOJ resources toward the prosecution of cartels and TCOs.
Below, we summarize the FinCEN Alert and corresponding OFAC designations, highlighting key trends and certain reporting requirements in what is an evolving risk landscape for both US and non-US financial institutions and businesses involved in the oil and gas industry.
Methodology of the cartels’ oil smuggling operations
The 13-page FinCEN Alert lays out in somewhat unusual detail the “methodologies and financial typologies associated with the cartels’ oil smuggling operations,” including how the cartels obtain crude oil by:
- Bribing Pemex employees and government officials
- Threatening Pemex employees
- Using illegal drill taps to access oil pipelines and steal from refineries, and
- Hijacking tanker trucks.
The stolen (or misappropriated) crude oil is then smuggled in tanker trucks through cartel-controlled regions of Mexico and across the US border, where it is often mislabeled as “waste oil” or other hazardous materials in order to evade US regulations and taxes. The crude oil is then delivered to cartel-controlled Mexican brokers and complicit US importers, who sell the product at steep discounts on the US and global energy markets to third-party brokers and international refineries. The US importers send wire transfers to Mexican brokers for the import of “waste oil,” who in turn make payments to cartels.
The FinCEN Alert specifically identifies CJNG as one of the cartels that generates hundreds of millions of dollars annually from fuel theft and fentanyl trafficking.
OFAC designates a key CJNG-linked network
On the same day of FinCEN’s Alert, OFAC designated three Mexican individuals and two transportation companies associated with CJNG’s fuel theft and oil smuggling operations. The sanctioned individuals include Cesar Morfin Morfin (also known as Primito), a CJNG leader, who was designated pursuant to Executive Orders (EOs) 14059 and13224, as well as two of Primito’s brothers, Alvaro Noe Morfin Morfin and Remigio Morfin Morfin, who were designated pursuant to EO 14059. OFAC also designated the hazardous materials transportation companies SLA. Servicios Logisticos Ambientales, SA de CV and Grupo Jala Logistica, SA de CV pursuant to both EO 14059 and EO 13224 for their involvement in the CJNG fuel theft and operating directly or indirectly for Primito. Eight other CJNG members had been designated by OFAC under EO 14059 on September 10, 2024, in connection with related activities.
FinCEN emphasizes enhanced diligence where appropriate, new key term, and encourages 314(b) program for information-sharing among US financial institutions
The FinCEN Alert also emphasizes reporting and filing obligations for US financial institutions that know of or have reason to suspect that a transaction involves funds linked to suspicious activities described in the alert including using the new key term, “FIN-2025-OILSMUGGLING” in both Suspicious Activity Reports (SARs) and on Form 8300 (Box 1b) for suspicious transactions involving cash payments of more than $10,000.
Additionally, under Section 312 of the USA PATRIOT Act, covered financial institutions must implement due diligence programs to detect and report any known or suspected money laundering, or other suspicious activity through private accounts held for non-US persons. Such institutions should thus be prepared to conduct due diligence related to the oil smuggling activities described in the FinCEN Alert, particularly where the account is held by senior foreign political figures and may implicate foreign corruption.
FinCEN also “strongly encourage[d]” voluntary information sharing among financial institutions as it relates to money laundering or potential terrorist financing in connection with the oil smuggling schemes pursuant to the USA PATRIOT Act’s safe harbor under section 314(b) (314(b) Program). The 314(b) Program permits US financial institutions to share information with each other regarding individuals, entities, organizations, and countries to identify and (where appropriate) report activities that may involve possible terrorist activity or money laundering.
Finally, considering the transnational nature of the oil smuggling schemes, FinCEN also “encourage[d] US financial institutions to continue to use, and potentially expand, their existing processes to collect and share information with foreign financial institutions in furtherance of investigations that involve cross-border activity.”
FinCEN provides detailed red flags that institutions should consider incorporating into compliance programs
In addition to its in-depth description of the oil smuggling methodologies, FinCEN provided 14 detailed and specific red flag indicators to help financial institutions detect, prevent, and report potentially suspicious activity related to cartel oil smuggling schemes. As a foundational matter, FinCEN reiterated its long-time guidance that “no single red flag is determinative of illicit or suspicious activity.” As such, before filing a SAR, FinCEN advises that financial institutions should “conduct an appropriate review of the activity, including to determine whether the customer exhibits multiple red flag indicators.”
At bottom, FinCEN continues to encourage institutions to understand the customer’s business, its historical financial activity, and to use common sense to help determine whether certain transactions or business practices or metrics are unusual or suspicious relative to prevailing (non-illicit) business practices. For example:
- Higher risk customers may be small, US-based oil and natural gas companies whose profits and activity are unusually significant. This may include profit margins exceeding the typical business profiles of similar companies, sales of West Texas Intermediate (WTI) crude oil for prices less than the market rate, or the sudden or significant purchase of waste oil or hazardous materials.
- Higher risk customers may also have a low public profile, which may include a limited online presence, a registration associated with a residential address (particularly where the customer is ultimate consignee or final recipient/refiner of waste oil or other hazardous material purchases), or a business profile which appears to be the shell of a Mexican company, especially relative to the volume and amount of transactions or revenue.
- The pattern of wire transfers or transactional activity may indicate a connection with cartels, including:
- A small US-based oil and natural gas company customer receiving both domestic and international wire transfers related to the sale of crude oil before or soon after sending wire transfers to Mexican or US companies for invoices for the purchase of waste oil or other hazardous material.
- A US importing company customer receiving wires from small US-based oil and natural gas companies and wiring the funds to a single or small number of companies in Mexico.
- A US importing company customer receiving wires from US-based oil and natural gas companies for invoices involving the importing company’s purchase of waste oil or other hazardous materials, despite the US importing company not being registered with the US Environmental Protection Agency (EPA).
Key takeaways for affected financial institutions and oil and gas and/or transportation companies with supply chains in Mexico
The Administration is casting a wider enforcement net as it “relentlessly” pursues its goal of the “total elimination” of the cartels:
- The Administration’s decision to designate CJNG members under EO 13224 as SDGTs highlights a more aggressive use of sanctions to combat cartels. On April 8, 2015, OFAC announced the designation of CJNG pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act). Then, on December 15, 2021, OFAC designated CJNG pursuant to EO 14059 titled, “Imposing Sanctions on Foreign Persons Involved in the Global Illicit Drug Trade”. The Trump Administration has intensified the war against the cartels with the use of terrorist designations, announcing the designation of CJNG as an FTO and SDGT in February 2025 and expanding the list of CJNG-related SDGT designations.
- Since the FTO and SDGT terrorist designations involve more significant penalties for noncompliance, the recently announced FTO and SDGT designations are expected to have a broader enforcement impact. In addition to civil penalties and export restrictions, the US government may also impose criminal penalties on US businesses who knowingly provide material support or resources to an FTO.
- Non-US businesses may face secondary sanctions and the loss of access to US financial markets when transacting with FTOs or SDGTs. In previous actions pursuant to the Kingpin Act, OFAC designated a wide range of Mexican businesses, including “shopping centers, real estate companies, agricultural companies, a music promotion business, and a luxury boutique hotel.” These past OFAC actions – combined with designation of the transportation logistics companies in this latest action – demonstrate that non-US businesses that engage in transactions or provide services to FTOs and/or SDGTs could face severe penalties. Indeed, both US and non-US companies that act for FTOs or SDGTs – directly or indirectly – could face severe penalties. Companies that face this type of exposure are encouraged to consider more vigilant Know-Your-Customer and due diligence measures.
Bank Secrecy Act-regulated financial institutions are encouraged to conduct a cartels- and oil smuggling-specific risk analysis with the new FinCEN oil smuggling methodologies and red flag indicators in mind to:
- Help ensure that anti-money laundering (AML) and sanctions compliance programs, including (among others) customer onboarding, transaction monitoring, geographic and industry-specific risk-ratings, and escalations procedures are operationally updated and adapted to incorporate these new risks.
- Use common sense to determine if a particular transaction or set of transactions make sense for that customer.
Specific operational enhancements may include:
- Building into onboarding and (where appropriate) transaction monitoring processes a cross reference of customers and counterparties (and their customers) against the list of EPA-licensed/registered hazardous and/or waste oil transport companies identified in the 20th footnote of the FinCEN alert.
- Recalibrating or fine-tuning risk triggers based on North American Industry Classification System (NAICS) codes, which are derived when a company receives a federal tax ID code, particularly for smaller financial institutions that may not use NAICS codes in their AML compliance systems. As industry experts have recognized, this will help identify customers who have represented to the US government that they are in the waste oil and hazardous materials transportation industries and those that have not. Either case could warrant additional diligence.
Financial institutions should consider information-sharing programs:
- Given the challenging nature of cartel-related illicit activity and money laundering, it would be unsurprising if the number of financial institutions enrolled in the information-sharing 314(b) Program increases. If this occurs, FinCEN may grow skeptical of institutions who do not elect to participate, in part because gaining access to such information could materially enhance an institution’s efforts to identify transactions involving the cartels or cartel-connected individuals or entities. Therefore, financial institutions should consider enrolling and, if they do, develop procedures to review and make risk-based compliance decisions after analyzing the shared information.
- Financial institutions should also consider that FinCEN has “encouraged” voluntary information-sharing with foreign financial institutions in addition to the 314(b) Program. Participating in a voluntary program like this may provide significant intelligence and due diligence benefits but should be done thoughtfully in certain circumstances and with appropriate controls for operational and information security after discussing the matter with counsel.
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