USA – FLORIDA Trends and Developments Contributed by: Wifredo A. Ferrer, Barbara A. Martinez, Marcelo J. Ovejero and Oscar Alejandro Quiroz-Chávez, Holland & Knight LLP
Conducting comprehensive risk assessments A robust risk assessment forms the foundation of any effective compliance programme. In the context of cartel-related risks, the assessment must go beyond traditional financial crime risks and account for car - tels’ operational methods and territorial presence. The risk assessment process should be systematic, documented, and regularly updated to reflect chang - ing circumstances. The geographic dimension of risk assessment is particularly critical for companies operating in Latin America, particularly in Mexico. Companies must develop a nuanced understanding of cartel presence and influence across their operational footprint. Infor - mation for this assessment should come from multi - ple sources, including specialised government reports on drug trafficking, security consultants with regional expertise, and importantly, insights from local employ - ees who understand ground-level realities. Customer and supplier risk profiling represents anoth - er crucial component of the assessment process. Companies should analyse their business relation - ships to identify those that may present elevated risk of cartel connection. This analysis should consider factors such as the counterparty’s industry sector, ownership structure, geographic location, and busi - ness model. Certain industries, such as transporta - tion, logistics, construction, and cash-intensive busi - nesses, may present higher risks due to their utility for money laundering or operational value to cartels. Transaction-level risk assessment involves examining the types of business activities that could potentially facilitate cartel operations or create inadvertent con - nections. Companies should map their product and service offerings against potential misuse scenarios. For example, companies selling industrial chemicals should assess the risk that their products could be diverted for drug manufacturing, while logistics com - panies should evaluate the risk that their services could be used to transport illicit goods. Documentation of the risk assessment process is cru - cial for demonstrating good faith compliance efforts. The assessment should produce a clear risk matrix that identifies specific risks, their likelihood and poten -
tial impact, existing controls, and any gaps requiring remediation. This documentation should be presented to senior management and the board of directors to ensure appropriate oversight and resource allocation for compliance efforts. Identifying red flags The ability to identify red flags indicating potential cartel involvement is essential for preventing viola - tions of anti-terrorism laws. Given the constructive knowledge standard applicable under these laws, companies must train employees to recognise warn - ing signs and establish clear procedures for respond - ing to suspicious circumstances. The development of red flag indicators should be based on the company’s risk assessment and tailored to its specific operational context. Geographic red flags often provide the first indication of potential cartel involvement. Transactions involving counterparties in known cartel-controlled territories warrant enhanced scrutiny, particularly when com - bined with other suspicious factors. Unusual delivery locations, circuitous transportation routes, or requests for deliveries at odd hours or to remote locations may indicate efforts to avoid detection. Corporate structure and ownership red flags can reveal attempts by cartels to disguise their involve - ment in legitimate business transactions. Warning signs include newly formed companies engaging in large transactions without established business his - tory, frequent changes in company names or regis - tered addresses, and opaque ownership structures with multiple layers of shell companies. Companies should be particularly wary of counterparties that can - not provide coherent explanations for their business model or whose stated activities do not align with their transaction patterns. Financial and transactional red flags often indicate money laundering or efforts to obscure illicit con - nections. These may include insistence on cash pay - ments or unusual payment methods, payments from third parties unrelated to the transaction, pricing sig - nificantly above or below market rates without clear justification, and structured transactions designed to avoid reporting thresholds. Rapid changes in transac -
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