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Global criminals, including rival drug-trafficking organizations, or DTOs, increasingly use the same networks of professional brokers to launder their proceeds, according to Drug Enforcement Administration officials involved in a recent operation against a powerful new cartel in Mexico.

In nearly a decade, the Jalisco New Generation Cartel, or CJNG, has grown into one of the world’s most dangerous transnational groups and expanded its operations into most Mexican states and several large U.S. cities thanks to its propensity for violence, willingness to traffic all manner of narcotics and ability to wash hundreds of millions of dollars in proceeds each year.

David Olesky, section chief for financial investigations at the DEA, and Michael Miller, staff coordinator for public affairs, spoke with ACAMS moneylaundering.com senior reporter Valentina Pasquali about Project Python, a DEA-led initiative that netted more than $20 million in seized cash and the arrests of some of the organization’s top leaders in just six months.

An edited transcript of their email interview follows.

What is CJNG and why has it become such a focus for U.S. law enforcement?

Michael Miller: CJNG is one of the five most dangerous transnational criminal organizations in the world. Since breaking away from another cartel in 2011, the cartel has expanded exponentially because of their propensity for violence, and their ability to recruit supporters and sympathizers in small “pueblitos” and financially disadvantaged towns.

CJNG has a disciplined command and control structure, utilizes sophisticated money-laundering techniques, controls some of the busiest and most significant ports in Mexico and now has a presence in at least 22 of Mexico’s 32 states.

Within the United States, CJNG has primary distribution hubs in Los Angeles, New York, Chicago, Houston and Atlanta, an ever-growing presence along the Southwest border as well as operations in many smaller cities and towns throughout America.

What types of illegal activities are they primarily involved in and where do they operate?

Miller: CJNG is a poly-drug trafficking group, but especially a prolific methamphetamine producer and importer of precursor chemicals from China and India. CJNG also recruits chemists and experienced cooks to produce its own precursor chemicals, which has enabled it to expand into fentanyl and heroin production and distribution. To support their activities, CJNG has shown a willingness to engage in violent confrontations with Mexican security forces and rival cartels.

What is Project Python, why was it launched and what are its ultimate objectives?

Miller: The rapid expansion of CJNG through the use of violence, combined with the group’s prevalence in the manufacturing, smuggling and distribution of methamphetamine, which has seen a resurgence within the U.S., has led the DEA to put all CJNG investigations under the umbrella of Project Python, to more quickly gather and analyze intelligence gleaned during investigations, and disseminate it. The effort harnesses the assets of the DEA and relationships with other federal, state and local agencies to target and ultimately dismantle CJNG.

Did the DEA track CJNG funds as part of Project Python? How?

David Olesky: The targeting of the financial infrastructure and the money laundering networks associated with CJNG were one of the pillars of Project Python. The agency utilizes a combination of investigative tools and techniques to target the money laundering activities of these organizations.

Those techniques include many of the basic methods involved in traditional drug investigations, such as surveillance, utilizing confidential sources and wiretaps. Investigators also work extensively with FinCEN. Many of the individuals, businesses and networks involved in the money-laundering process are walled off from the underlying drug-trafficking activity.

Oftentimes, those entities are unwittingly moving money for CJNG for one transaction, while simultaneously engaging in a transaction for a Colombian drug-trafficking organization. It is important to note that financial institutions are not immune from prosecution when they either intentionally or negligently execute these transactions.

What has the operation achieved in terms of indictments, arrests, seizures, etc.?

Miller: The DEA recently secured a third superseding indictment against the undisputed leader of CJNG, Nemesio Ruben Oseguera Cervantes a.k.a. “El Mencho,” and has also arrested and extradited El Mencho’s son, Ruben Oseguera Gonzalez, a.k.a. “Menchito.” The DEA also arrested El Mencho’s daughter, Jessica Johanna Oseguera, and more than 700 CJNG associates.

Project Python has resulted in the seizure of more than 15,000 kilograms of methamphetamine, 4,500 kilograms of cocaine, 130 kilograms of fentanyl and 1,100 kilograms of heroin, along with more than $20 million in bulk U.S. currency.

The DEA worked with the State Department to establish a $10 million dollar reward for information leading to the arrest of El Mencho, and also coordinated with the Treasury Department’s Office of Foreign Assets Control, or OFAC, who in August 2015 designated El Mencho and 10 entities he controlled under the Foreign Narcotics Kingpin Designation Act.

Are there any reliable estimates in terms of how much dirty money the group raises and launders each year?

Olesky: Both U.S. and international agencies, governmental and nongovernmental, have tried to place a dollar figure on the illicit drug trade in Mexico. This has been a challenge and estimates have varied greatly, from several billion dollars to hundreds of billions of dollars annually.

The DEA estimates annual proceeds generated in Mexico as a result of the heroin, cocaine, and methamphetamine trade to be $8 billion minimum. That bottom range number alone demonstrates the scope of the challenge we face in confronting cartel-related money laundering. This is not their profits, this is an estimate of the cash flow that corresponds to their operations.

CJNG is among the most prominent Mexican cartels, so their activity likely encompasses a significant percentage of that amount.

How does CJNG and its leadership move and launder those illicit proceeds?

Olesky: In decades past, drug cartels would control the entire drug production, transportation, distribution, and remittance (laundering) process for their drug proceeds. Current day DTOs in Mexico, including CJNG, have become more willing to rely upon international money brokers who are engaged in a hybrid of trade-based money laundering activity and the black market peso exchange, and are not beholden to any one particular organization.

These brokers profit by arranging currency exchanges between drug organizations and businesses who wish to purchase money at a discounted rate. Territorial battles between DTOs for control of a container terminal in Mexico or ports of entry along the U.S. and Mexico border are commonplace, but when it comes to money laundering, it is very common to find a money broker who is moving illicit proceeds for the Sinaloa cartel in one transaction and then CJNG in the next, or, similarly, a DTO working with a Hebrew money laundering organization for one transaction, then an Arab network for another.

The rise of Chinese money laundering organizations around the globe has added another component to an already crowded pool of TCOs [transnational criminal organizations] eager to profit from the abundance of illicit dollars.

The weakening of the Chinese yuan and the resulting enforcement of the government’s foreign exchange, or capital flight, laws has resulted in networks of Chinese money brokers willing to fulfill the needs of Chinese nationals seeking to move their capital out of China to more stable economies … aided by the abundance of illicit drug proceeds globally.

Do they have any corrupt ties to financial institutions? If so, where?

Olesky: Without getting into the details of any active investigations, it’s fair to say we have seen these organizations take advantage and benefit from weaknesses within the private sector, both via corrupt bankers and weak compliance departments. This is not unique to Mexico as we have witnessed it here in the United States and elsewhere around the world.

Separately, do they funnel funds through unwitting and unknowing banks in the United States? If so, what should lenders be on the lookout for when it comes to CJNG?

Olesky: As mentioned previously, one of the common methods for moving illicit drug proceeds is through trade-based money laundering. Financial institutions are best positioned to identify such activity by focusing on third-party wire transfers when one business is sending a wire transfer to an unrelated business for either payment of a trade debt or, as mentioned, movement via a funnel account.

If a compliance department observes wire transfers between seemingly unrelated businesses, they should consider them for further analysis. While these organizations utilize professional money launderers who are experts in this arena, they still make mistakes.

Contact Valentina Pasquali at VPasquali@acams.org