On March 11, the Department of Treasury issued a Geographic Targeting Order (GTO) that mandates certain money service businesses (MSBs) located along the southwest border of the U.S. and Mexico to increase their reporting on cash transactions. MSBs are businesses that aren’t financial institutions but still offer certain cash services, such as money transfers, check cashing, or issuing money orders. Treasury’s mandate, which came into effect April 14, is an effort to collect information and curb the flow of funds connected to fentanyl trafficking between the U.S. and Mexico.
What This Means
The GTO requires all covered businesses to submit a Currency Transaction Report (CTR) to the Financial Crimes Enforcement Network (FinCEN) on cash transactions between $200 and $10,000. The idea isn’t new. In 1996 and 1997, the Treasury Department issued a similar mandate directed at Colombian cartels forcing MSBs to report cash transactions above $750.
Since MSBs must comply with anti-money laundering laws, they already are automatically required to report any individual who conducts transactions involving more than $10,000 in cash to FinCEN. This means that with the GTO, the Department of Treasury is forcing covered MSBs to report all cash transactions above the $200 threshold.
Why This Matters
In its recent Financial Trend Analysis, FinCEN determined that MSBs were used in 32% of all suspicious activity reports involving fentanyl. The filings stated that MSBs can finance everything from drug trafficking to supply chains used to transport the drug and its precursors between the U.S. and Mexico. Furthermore, cartels use the services of MSBs to send money back to themselves in money laundering schemes.
Cartels rely on complicated operations to move larger funds internationally. This often includes legitimate businesses in sectors ranging from construction to real estate that disguises illegally earned funds as legal to law enforcement. Therefore, the GTO will not cover such complex tactics, but instead focus on simple mechanisms local dealers and cartels use to source narcotics and repatriate funds. This includes techniques such as structuring, where large cash deposits are broken down into smaller values to muddle the actual amount.
By using the services of MSBs, cartels and their intermediaries can move funds between Mexico and the U.S. or use them as a step to access other financial institutions. For example, by purchasing a money order from an MSB, criminals can deposit the check into a bank, “cleaning” the money from its illicit origin. Cartels can then use the bank to wire the funds overseas. Operations such as these demonstrate the reliance cartels have on the U.S. financial system to hide their money.
Bottom Line
The fentanyl crisis requires a whole-of-government approach. Similar mandates have been issued before to address drug trafficking. It is likely that this new order will not be temporary, but instead expanded to cover more border cities in 180 days when the order is up for renewal.
