On May 2, 2025, the U.S. Department of the Treasury took significant steps in President Trump's ongoing campaign against Mexican cartels, with actions by the Office of Foreign Assets Control (OFAC) and Financial Crimes Enforcement Network (FinCEN) intended to target crude oil smuggling schemes (known as huachicol), described as a "cash cow" for Cartel Jalisco Nueva Generación (CJNG) and other cartels. These actions presage the continued escalation of the Trump administration's laser focus on cartels designated and sanctioned as Foreign Terrorist Organizations (FTOs) and their drug and non-drug revenue sources. The development is particularly relevant to companies involved in the oil and gas sector in Mexico and, more generally, provides additional insight into the administration's enforcement priorities. 

On May 2, OFAC announced that it sanctioned three Mexican nationals and two Mexico-based entities associated with CJNG due to their involvement in fentanyl trafficking, fuel theft, and smuggling of stolen crude oil from Mexico into the U.S. At the same time, FinCEN issued an alert that provides an overview of typical methods and financial transactions associated with the cartel's oil smuggling operations and lists red flags that may be indicative of crude oil smuggling.

Both OFAC's announcement and FinCEN's alert focus on the theft of crude oil. Huachicol refers to the practice of cartels stealing fuel, including gasoline and diesel, primarily from state-owned Petróleos Mexicanos (Pemex), by illegally drilling taps into oil pipelines, stealing from refineries, and threatening or bribing Pemex employees. After stealing the fuel, cartels often smuggle the fuel into the U.S., claiming that the stolen fuel is "waste oil" or other hazardous materials. OFAC's and FinCEN's alerts state that cartels sell the fuel to complicit U.S. importers, who, in turn, sell the fuel on behalf of the cartels in the U.S. and internationally. The U.S. importers receive payment for the stolen fuel and subsequently distribute the proceeds to Mexican brokers controlled by the cartels, who pay the cartels. As a result of these activities, Pemex has reported billions of dollars in lost revenue. 

Key Takeaways

• Escalating campaign against cartels and cartel revenue: In an unusual step, Secretary of the Treasury Scott Bessent discussed OFAC's decision to sanction these parties in a video address, underscoring the importance that "total elimination" of the cartels and their revenue sources holds for the Trump administration, and promising to use "all available tools" to take down cartels and violent terrorists. In addition, both OFAC and FinCEN described the actions as part of a "whole-of-government effort" and cited various U.S. government entities involved (Drug Enforcement Administration (DEA), Homeland Security Investigations (HSI), the Federal Bureau of Investigation (FBI), Customs and Border Protection (CBP)) highlighting the significant resources that the U.S. government has devoted to addressing cartel activity. OFAC's and FinCEN's coordinated announcements make clear that cartel activity remains a top priority for the administration. This point is further underscored by a Department of State announcement, also on May 2, 2025, designating two Haitian gangs as FTOs, echoing the Mexico-focused action and reinforcing that the administration's anti-terrorism effort has important elements extending beyond Mexico. 
• Use of counter-terrorism sanctions; zero tolerance for "fees" or other payments to cartels: Treasury continues to employ counter-terrorism sanctions to target cartels, citing both sanctions authorities historically used to target entities such as the Taliban and ISIS alongside and counter-narcotics sanctions authorities historically used to target the illicit drug trade. These authorities are the sharpest tools in Treasury's toolbox, creating compliance considerations for any entities or individuals who may be dealing with cartels, even inadvertently. U.S. and non-U.S. persons may face civil liability, criminal liability, or the imposition of sanctions for a broad range of activities that may involve designated cartels, even if inadvertent. Companies operating in the Mexican energy sector may find their business partners sanctioned for heretofore unknown or overlooked cartel ties, necessitating an immediate exit from a business relationship. The designation of certain cartels as FTOs also triggers criminal liability for material support, a term defined broadly to include a wide range of activity. Furthermore, in contrast to certain other counter-terrorism sanctions programs, there is no official exception for payments (such as so-called "taxes" or "fees") to designated cartels, even if made under duress or necessary for ordinary business activity. 
• U.S. coordination with Mexican authorities: Both OFAC and FinCEN noted that the announced sanctions were the result of cooperation with the government of Mexico, including La Unidad de Inteligencia Financiera (UIF), Mexico's Financial Intelligence Unit. This is notable – while friction between the two governments has recently emerged, namely in the context of trade policy, it appears that close cooperation on anti-cartel efforts continues. OFAC also noted such cooperation with UIF one month earlier in its announcement of sanctions against a collection of entities involved in "bulk cash" money laundering along the U.S.-Mexico border for the Sinaloa cartel.
• Evolving red flag guidance on crude oil smuggling schemes: OFAC's press release and FinCEN's alert provide helpful insight into how the U.S. government views huachicol oil smuggling schemes and evolving expectations of red flags that companies identify to ensure they do not inadvertently support illicit activity. OFAC describes a scheme to steal fuel and crude oil from legitimate companies – including through bribes, threats, tapping pipelines, or hijacking tanker trucks – and then smuggle them into the U.S., disguised as "waste oil" or other hazardous materials to avoid detection. OFAC also describes a derecho de paso scheme by which a gang charges "fees" to any trucks moving crude into the U.S. via certain routes. FinCEN adds a list of red flags that may indicate cartel oil smuggling schemes, such as selling oil or natural gas in the U.S. with profit margins that exceed a typical business profile or selling West Texas Intermediate (WTI) crude oil for significantly less than market rate. OFAC and FinCEN are likely to expect companies and financial institutions to take these risks into account when assessing sanctions and anti-money laundering risks. Beyond the oil and gas industry, OFAC and FinCEN's focus on these red flags, particularly the derecho de paso schemes, reinforce the risks associated with transportation and logistics for companies operating in Mexico. 
• Heightened enforcement risk: These developments have the potential to put companies operating in Mexico, particularly in the energy sector, in the enforcement crosshairs. U.S. authorities, including U.S. Attorney's Offices, the FBI, and Treasury, appear to be using a similar playbook as they have used when targeting oil smuggling by FTOs in Iran. Companies can be exposed if they are utilizing similar transportation companies as FTOs, moving materials through routes controlled by FTOs, or interacting with relevant front companies of FTOs. These investigations, especially given their stated U.S. territorial connection, may grow and lead to criminal prosecutions and asset forfeiture. For example, in April 2025, a Utah-based couple and their two sons were indicted on federal charges in connection with an alleged scheme to smuggle crude oil from Mexico into the U.S. and launder the funds. The indictment alleges that the scheme involved 2,881 shipments of crude oil into the U.S. that were falsely labeled as "waste of lube oils" and "petroleum distillates." Plaintiffs' attorneys also follow these developments in search for civil litigation against companies arguably providing material support or aiding and abetting the FTOs under the Anti-Terrorism Act (ATA). 
• Implications for banks and other financial institutions: Financial institutions that provide services to U.S. importers, especially those that specialize in financial services in the oil and natural gas industry and with correspondent banking relationships or operations in Mexico, should take steps to ensure that current compliance measures, including due diligence, transaction monitoring, and suspicious activity reporting procedures, are well-calibrated to detect potentially suspicious activity related to cartel oil smuggling schemes on the U.S. southwest border. In light of the administration's "whole-of-government effort" to cut off illicit revenue streams of cartels, financial institutions may see an uptick in subpoenas from authorities in connection with customers involved in the Mexican energy sector.   
• Increased scrutiny by CBP: CBP scrutiny in connection with crude oil smuggling from Mexico to the U.S. is also anticipated. In particular, FinCEN's announcement highlights the use of fabricated trade documentation to identify brokers and importers involved in the schemes. Companies operating in the crude oil and hazardous materials sectors near the southwest border should consider implementing additional checks and safeguards to ensure their trade documentation is accurate and complete in order to mitigate the risk that shipments will be detained.    

For more information, please contact:

Matteson Ellis, mellis@milchev.com, 202-626-1477

Maria Elena Lapetina, mlapetina@milchev.com, 202-626-1586

Richard A. Mojica, rmojica@milchev.com, 202-626-1571

Leah Moushey, lmoushey@milchev.com, 202-626-5896

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

Collmann Griffin, cgriffin@milchev.com, 202-626-5836

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