Tag: compliance

“Nothing crosses into or out of Mexico without the approval and payment to Mexican drug cartels. American businesses that engage in any cross-border trade bear a significant amount of responsibility to do so without benefitting those cartels and without threatening our national security,” said U.S. Attorney Justin R. Simmons for the Western District of Texas. “The bribery scheme in which the Scoular Company engaged demonstrates the dangerous corporate corruption we in the Western District of Texas are committed to fighting on behalf of the American people.”

This is not a quote from The Onion, but it is an extraordinary statement from a United States Attorney. It is not confined to companies that knowingly pay cartels. It is not limited to businesses operating in cartel-controlled industries. It speaks broadly to American companies engaged in cross-border trade with Mexico.

The statement appeared in the Department of Justice’s Press Release announcing that The Scoular Company would pay more than $10 million to resolve an FCPA investigation involving payments to Mexican officials. According to the DOJ, customs brokers paid approximately $2,000 per train to allow shipments of corn and other products to cross the border despite inspections identifying dirt, soil, and other impurities. The payments were invoiced back to Scoular as “reinspection fees.” The enforcement message extends far beyond Scoular. Every U.S. company importing goods from Mexico should take notice.

Cartels and the UFLPA

One of the few laws that demands such an approach is the Uyghur Forced Labor Prevention Act (UFLPA), which targets goods made, whole or in part, by forced labor in the Xinjiang region of China or made by forced labor in other parts of China by Uighurs or other minorities. It is designed to operate as a de facto trade ban on goods from China’s Jing Jang region. US businesses will face a heavy burden to overcome the presumption of forced labor. It is perhaps the most significant US law addressing forced labor, and it has the most tangible repercussions companies can face. Under the UFLPA, the key is your documentation for US Customs and Border Protection. Travis Miller has noted that this means if you are “asking companies to look back into where the actual sand came from that got turned into the silica, that got turned into the semiconductor, that got turned into the circuit board, that got turned into the device that finds its way into your laptop. There’s just never been anything like it.”

The UFLPA and its guidance weave together existing business processes. The UFLPA emerged from the America Supply Chain Executive Order in the US/China trade war, which focused on semiconductors, critical raw materials, and elements that are the subject of the extractives. To comply with it, you could not actually start unless you already had a product compliance program in place. This means that if you do not know the bill of materials, do not have an approved vendor list, or do not know where your components are manufactured, you cannot prove compliance. This may well be the approach the Trump Administration takes under FTOs in Mexico and other locations in Central and Latin America.

Is Every Cross-Border Company Benefiting a Cartel?

In my podcast discussion with Matt Ellis, Latin America Practice Lead at Miller & Chevalier, Ellis challenged the literal breadth of the government’s statement. He noted that companies move legitimate goods between the United States and Mexico every hour without knowingly benefiting drug cartels. It would be inaccurate to conclude that every cross-border transaction involves a cartel payment.

Nevertheless, Ellis called the statement striking. He raised the question every CCO should now be considering: Is the DOJ establishing a new compliance standard for companies doing business across the U.S.-Mexico border? The statement does not create a new statute, regulation, or formal presumption of liability. Yet prosecutorial statements communicate enforcement expectations. Here, the expectation appears to be that American businesses must understand not only who their immediate third parties are, but also whether their supply chain activities could provide economic benefits to organized crime.

That puts pressure on importers in three ways. First, companies may face greater scrutiny over customs brokers, logistics providers, trucking companies, warehouses, security providers, labor organizations, and other parties supporting Mexican operations. Second, companies may be expected to investigate the downstream destination of payments, even when there is no obvious cartel connection. Third, the government may examine whether compliance programs integrate anti-corruption controls with sanctions, anti-money laundering, trade compliance, supply chain security, and organized-crime risk.

The question will no longer be limited to whether the company intended to pay a bribe. Prosecutors may also ask whether the company reasonably understood the environment in which its money and goods were moving.

Traditional Third-Party Due Diligence May Not Be Enough

Ellis made one of the most important observations of our discussion: standard third-party screening may not identify cartel connections. Conventional anti-corruption due diligence focuses heavily on government-facing intermediaries. Companies screen owners and principals, search adverse media, identify politically exposed persons, review government relationships, obtain certifications, and include anti-corruption language in contracts. Those measures remain necessary. They may not be sufficient for organized-crime risk.

Cartel affiliations are rarely disclosed in a corporate registry. A logistics provider may appear legitimate while making payment for protection. A trucking company may operate in a region controlled by a criminal organization. A supplier may use subcontractors with undisclosed local connections. A customer, warehouse, labor group, or security provider may be vulnerable to criminal infiltration.

This means companies should broaden the universe of third parties subject to risk-based review. For Mexican supply chains, that universe may include:

• Suppliers
• Customers
• Customs brokers
• Freight forwarders
• Trucking companies
• Warehouses
• Security companies
• Local consultants
• Port and terminal service providers
• Labor contractors
• Union representatives
• Subcontractors
• Last-mile transportation providers

The legal requirement to use a licensed customs broker should not reduce scrutiny. As Ellis noted, mandatory licensing can sometimes create a false sense of security. A government license does not replace a company’s responsibility to understand how the broker operates.

Contextual Due Diligence Becomes Essential

If database screening cannot reliably identify cartel connections, companies need a contextual approach. This begins by examining where the third party will operate and what criminal activity is associated with that region. Relevant questions include:

• Is the location known for cartel activity?
• Are particular highways or transportation corridors subject to roadblocks or protection payments?
• Is the region associated with fentanyl production, human trafficking, fuel theft, cargo theft, or smuggling?
• Are unusual labor or union arrangements present?
• Does the vendor use subcontractors that have not been disclosed?
• Are payment requests made in cash or to unrelated accounts?
• Is the third party reluctant to explain its security or transportation arrangements?
• Does the third party promise an unrealistic customs clearance rate?
• Are employees instructed not to ask questions about local payments?

Companies must also listen to their employees on the ground. Local personnel may understand risks that do not appear in formal databases. They know the regional rumors, transportation practices, local power structures, and third parties that other companies avoid.

This presents another compliance challenge. Local employees may fear retaliation if they report suspected cartel connections. A company’s speak-up system must provide credible confidentiality, escalation, and protection measures. A hotline is not enough if employees believe that raising a concern will endanger them or their families.

The New Standard Is Demonstrable Reasonableness

Companies cannot guarantee that no peso in a complex Mexican supply chain will ever reach a cartel-affiliated person. Prosecutors should not expect the impossible. They can expect companies to identify their risks, conduct reasonable diligence, monitor high-risk transactions, respond to warning signs, preserve relevant communications, and improve controls when new information emerges.

That is the pressure created by the Scoular resolution. Companies must be able to demonstrate that they made a serious, documented, and risk-based effort to prevent their operations from benefiting criminal organizations. The compliance burden is moving from a narrow inquiry into government-facing intermediaries toward a broader examination of the entire supply chain ecosystem.

Actions for CCOs

CCOs should consider five immediate steps:

1. Expand Mexico-related risk assessments beyond traditional FCPA intermediaries.
2. Map the complete supply chain, including subcontractors and transportation routes.
3. Test customs-broker invoices and recurring border-related payments.
4. Incorporate regional cartel intelligence and local employee knowledge into due diligence.
5. Brief the board on the convergence of corruption, sanctions, organized crime, and national security risk.

The Scoular resolution does not establish that every company importing goods from Mexico is paying a cartel. It does put every such company on notice that the DOJ may ask what it did to make sure it was not. That is a significant change in compliance expectations. But look to your response to the UFLPA and see if you can find guidance from that compliance issue. Regardless, companies need to respond accordingly.