How to Seize Against Drug Cartels Using KingPin Act?

The outburst of drug abuse particularly Fentanyl in America caused around 38,000 mass casualties in 2023, as reported by the 2024 National Drug Threat Assessment (NDTA) issued by the DEA’s Strategic Intelligence Section.

Responding to the elevating threat to human and national security, the Kingpin Act outlines compliance and scrutiny measures against drug cartels to launder drug proceeds and escalation of organized drug manufacturing and supply on American land and its proxies.

Inspired by the historical crackdown on Colombian drug cartels by the OFAC (Office of Foreign Assets Control) sanctions in 1995, the Kingpin law was modeled under the mandate of the IEEPA (International Economic Powers Act.

Restricting access to those funds and seizing the laundering efforts of drug money, Kingpin law authorizes the president to sanction individuals potentially involved in global drug trafficking. The act targets individuals involved in narcotics trafficking and exploiting financial systems to launder those proceeds demanding global businesses to identify and report financial transactions of drug traffickers.

Proceeds from drug trafficking are massive which can literally fill up a room to its roof. The analogy to money laundering tactics from Meth Lord Heisenberg explains it all.

In this blog, we will cover the nuances of the Kingpin Designation Act with a comprehensive sneak peek into its history, accomplishments, implications, real-world challenges, and the possible way forward to effective compliance.

What is KingPin Act?

Dated back to Dec 1999, the Kingpin Act became a law to abide by every institution. Exclusively aiming to curb narcotics trafficking and laundering its proceeds, the law was subjected to restrict easy access to drug proceeds, assets, and businesses of drug traffickers through the US’s financial systems.

Not limited to businesses and corporations, the act requires governing authorities to identify a drug kingpin and deny him access to trade and transactions resisting the cartel from growing illicit activities.

What is a drug kingpin? Generally known as a drug lord, a drug kingpin is someone who rules over organized drug cartels and hides behind layers of straw men to avoid legal and regulatory attention.

The length of crimes these harmonized drug cartels operate with has always questioned the effectiveness of imposed law and order. However, looking into the historical context of kingpins and their tactics to dodge the legislation is interesting, if not shocking. Let’s get into it.

Historical Context of KingPin Act

The Foreign Narcotics Kingpin Designation Act (Kingpin Act) is a persuasion of a massive financial crackdown against the pioneer of cocaine trafficking (Medellin and Cali Cartels) in Colombia under Executive Order 12978.

Under the governance of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the Kingpin Act was ruled in 1999 to sanction narcotics trafficking groups and financially impair their operations.

Extended to a global scope, the Kingpin Act empowers the President to annually nominate national or foreign individuals who participate in drug trafficking and threaten the national security of the United States.

The U.S Treasury Department (OFAC) strengthens the implications of the law by making derivative designations of kingpins and individuals who assist drug cartels in conducting illicit drug trade and laundering the proceeds.

The Kingpin Act designation process requires OFAC to follow a series of intricate steps that allow it to target drug traffickers. Learn about OFAC’s enforcement mechanism here.

To enhance the effectiveness of kingpin compliance, OFAC identifies kingpins under Kingpin law and in consultation with global anti-narcotics agencies. The stats from a report on counternarcotics, published by the United States Government Accountability Office (GAO) show the list of five countries with the Most Tier 1 Kingpin Designations for years 2000-2019. It is unlikely to be amazed by the fact that Mexico and Colombia lead the game.

Having the objectives of the act explained, one might ponder on the implications and other consequences of Kingpin Act sanctions imposed on foreign entities and individuals influencing illicit drug trafficking. Let’s take a look at four leading implications of the Kingpin Sanction Act.

Four Major Impacts of Kingpin Act

Having hold of the power to designate kingpins, OFAC imposes bans on assets and financial transactions while penalizing businesses that trade with them. Catching kingpins napping, the Treasury put a trade lock on designees’ proceeds.

• Ban on Assets

Aiming to block kingpin’s access to their property in the U.S., the Treasury can freeze the assets of designees including the assets controlled by U.S. persons.

• Transaction Bans

Prohibited from doing any business with designated entities, the act implies a ban on financial transactions between U.S individuals and kingpins.

• Restrictions on Visa

The act allows authorities to cancel existing visas of designated individuals and deny new visa applications.

• Legal Setbacks

Any individual or entity in the U.S. is obliged to follow the law and can be imposed with criminal and civil penalties upon finding facilitating designees.

The civil penalty cost for a nondesignee individual is $1.5 million per violation while the criminal penalty asks for a $5 million (individual) and $10 million (corporation) fine from violators. How to avoid non-compliance fines? Find the top trends of AML in 2024.

No matter how old is the law, the implications have not left the ground. Efforts to enhance the effectiveness of impairing financial support of drug trafficking and putting a hold on illicit drug trade have seen an escalation in 2024. Regulatory bodies not only are strengthening compliance with their advanced tools but rigorously issuing penalties on businesses that facilitate designees. What’s the way forward for businesses?

Top Business Requirements Under KingPin Law

Whether it is money laundering by El Chapo’s drug cartel or failed anti-money laundering AML in banks such as HSBS for indifferently facilitating Mexican drug cartel transactions, the non-compliance consequences got businesses off-guarded. Identification and monitoring of kingpin-sanctioned entities require businesses to employ efficient AML solutions and stay ahead of regulatory wrath.

Due Diligence

To prevent civil and monetary penalties under the Kingpin Act, businesses are in dire need of conducting due diligence through Know Your Customer (KYC) and Anti-Money Laundering (AML) solutions. One must verify customers and potential business partners against designated kingpin data sanctioned under the legislation.

Transaction Monitoring

Under the implications of kingpin law, financial transactions must be banned impairing drug traffickers. Financial businesses such as banks are required to monitor and report any suspicious transactions breaching the threshold.

Effective & Simple Compliance Solutions

The complexity of identifying organized drug mafias and a trail of harmonized transactions across the globe makes it difficult for businesses to meet kingpin compliance needs. The need of the hour is to look for AML tools and solutions that are not only easy to navigate through but embedded with advanced technology to pull the rug out of kingpins.

Whenever a new regulatory update hits the ground, it becomes undoubtedly hard for businesses to keep pace with the liquidity of legislation. Hurdles in the real-world implication of the Kingpin Sanctions Act are proof that regulatory folks need to align businesses with compliance requirements and operational efficiency.

Two Practical Challenges of KingPin Act Enforcement

Is good faith a compliance measure? In spite of spending thousands of bucks in employing up-to-date compliance measures, why it is hard for businesses to meet the unending demands of the sanctions regime? What are these practical challenges that every business faces and keeps wondering how close is too close?

OFAC’s 50 Percent Rule & Ambiguities

The 50 percent rule by OFAC requires businesses to identify blocked individuals who own 50% or more shares of a company, the company will also considered blocked and no one should step up to do business with the identified.

With advancements in technology and escalation in illicit financial crimes, drug traffickers launder their proceeds with hidden identities layered behind straw men. How a business is supposed to acquire information on complex company structures while the government holds all it all?  Identification of kingpins and sanctioned entities from SDN (Specially Designated Nationals and Blocked Persons) lists sounds easy but not a cup of tea.

Unstable Screening Standards

With every passing day, the designated sanctioned entities are adding up to the list, thanks to the increased financial exploitation by drug traffickers and corrupt elites. Searching for an individual for a potential presence in the sanctions list can be misleading in so many ways. Increased false positives are a constant headache for compliance officers where a mismatch can happen because of several factors including spelling errors in names and cultural differences in naming conventions.

The question arises how to crack the code and find the big fish in turbid waters? How one can stop bad boys (drug traffickers and money launderers) from infiltrating financial systems and avoiding a legal drag? Most importantly, what will define the success of Kingpin Act sanctions and an effective hold on illicit drug trade from the global market?

Streamline Compliance with AML Watcher

A wise man once said, that if AML compliance is costly then try non-compliance. Good faith can not be a defense but non-compliance fines urge businesses to adopt AML solutions to screen out designated sanctioned entities under the Kingpin Act.

AML Watcher, call it your compliance partner who understands the depth of compliance challenges businesses face – buried under the regulatory demands. We aim to bring your compliance game at ease with its simple, accurate, and hand-picked data-driven AML screening solution.

AML Watcher offers open search – a gateway to extensive AML compliance coverage for more than 235 countries while screening against Politically Exposed Persons, Sanctioned Entities, and Barred individuals leveraged by 60,000+ enriched data sources.

Contact our experts to formulate your customized compliance needs.