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An unprecedented order by the U.S. Treasury to cut off three Mexican financial firms for supposedly helping drug cartels launder funds took effect Monday. But its impact has already swept through the country's banking industry. The three designated firms -- CIBanco SA, Intercam Banco SA and Vector Casa de Bolsa SA -- have been broken up and sold for parts. Their clients have decamped with their business -- a big chunk of which was foreign exchange -- to other banks or brokerages. And beyond those firms, the banking system at large is on high alert: Lenders have purged clients, bolstered internal controls and upped communication with both Mexican and U.S. regulators in an effort to avoid becoming the next example of the Trump administration's crackdown on drug cartels. U.S. officials have made their intentions clear: There's a zero tolerance policy when it comes to helping traffickers launder funds connected to America's fentanyl crisis. The ban on the three firms -- announced in June -- was the first use of powers given to the Treasury's Financial Crimes Enforcement Network by last year's Fend Off Fentanyl Act. High-level Treasury officials have repeatedly visited the country to hammer home the message. "This was a shot across the bow in terms of telling banks that Treasury has this tool and intends to use it," said Craig Timm, a former Department of Justice lawyer and senior director at the Association of Certified Anti-Money Laundering Specialists. "You don't want to be next, because as we're seeing with these institutions, it's an existential threat the moment it becomes public." Among the order's knock-on effects: Kapital Bank is acquiring a significant part of Intercam's operations while Vector has transferred some assets and clients to Casa de Bolsa Finamex SAB. CIBanco had its banking license revoked earlier this month, and BanCoppel, part of Grupo Coppel, is buying the firm's portfolio of auto loans. Banco Multiva SA is taking over CIBanco's trustee business -- an operation of substantial importance in Mexico's financial system. CIBanco was trustee for most of the country's issuances of private equity certificates and real estate investment trusts. Intercam also had a significant trustee business. While the U.S. order had downplayed the potential impact on the Mexico banking system and economy, saying that CIBanco and Intercam together represented less than 2% of the country's commercial bank assets, it made no mention of the significant size of CIBanco's trustee offering. In the wake of the order, Mexican real estate trusts and U.S. private equity firms had rushed to change trustees in investment vehicles to avoid potentially running afoul of the U.S. designation. The FinCEN orders are among the Trump administration's unconventional arsenal of tools it has been deploying both domestically and abroad, such as the recent deadly military strikes on supposed drug-trafficking boats from Venezuela. The move against the Mexican banks was part of a broader U.S. administration strategy for the "total elimination of cartels" using powerful tools with a relatively low bar for action. There was no recourse to the order by FinCEN, and just last week, Mexican President Claudia Sheinbaum said the U.S. had not delivered convincing evidence that linked the firms to drug trafficking. She said Mexican regulators found only administrative faults and "nothing to do with money laundering." The banks were fined in late June, in tandem with the U.S. orders, by local regulators over anti-money laundering controls while Vector faced fines related to updating fund information. Amid the deeper clampdown by U.S. officials, banks in Mexico and globally are enhancing their scrutiny of transactions, particularly those involving Chinese companies that could be linked to the trade in precursor chemicals, Timm said.
