Trump Administration’s designation of cartels as FTOs raises difficult questions for companies operating in Mexico.

BY MATTESON ELLIS
AND JAMES TILLEN

On January 20, 2025, on his first day in office, President Trump issued Executive Order (E.O.) 14157, “Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists.” In response to the E.O., on February 20, 2025, Secretary of State Marco Rubio designated eight Latin American cartels, many with a significant presence in Mexico, as Foreign Terrorist Organizations (FTOs), including Cártel de Sinaloa, Cártel de Jalisco Nueva Generación (CJNG), Cárteles Unidos, Cártel del Noreste, Cártel del Golfo, and La Nueva Familia Michoacana.

While U.S. companies and individuals are already prohibited from engaging in transactions with Specially Designated Nationals (SDN)-designated cartels, the FTO designations create new potential civil and criminal liabilities under the U.S. Anti-Terrorism Act (ATA) for companies and individuals that provide “material support” to FTO-designated cartels. “Material support” is broadly defined as providing an FTO with any property (tangible or intangible) or services, including currency, financial services, lodging, personnel, and transportation. The Department of Justice can pursue criminal penalties for companies that provide such support or seize assets with any arguable connection to an FTO. Under the ATA’s civil liability provisions, a U.S. national physically injured or who has property or business injured as a result of an act of international terrorism may sue a company to recover treble damages (as well as attorney fees) if the company provided material support or knowingly provided substantial assistance to the perpetrators of an attack committed, planned, or authorized by an FTO.

Now two months into the designations having taken effect, companies that operate in Mexico are learning how difficult compliance with such restrictions can be. For one, cartels have become sophisticated and pervasive, with their tentacles extending to all corners of Mexican society. Cartels have become major players in multiple sectors of the economy, including agriculture, tourism, entertainment, real estate, and diesel fuel. One study from 2023 asserted that cartels are the fifth largest employer in Mexico.

Cartels have also infiltrated government institutions. The Council on Foreign Relations reports that the Cártel de Sinaloa has “considerable influence in Mexican government and public institutions,” while the CJNG thrives in various criminal enterprises due to “its control over several Mexican ports.” Companies interacting with governments, such as seeking government contracts, permits, authorizations, and government approvals, now face FTO risk in addition to exposure under anti-corruption laws.

Unfortunately, cartels are also not always easy to identify. Although some cartels members may be identified by tattoos, others keep their allegiance a secret. Moreover, cartels often operate through front companies, disguising their connection to cartel members. As a result, standard due diligence screening may not be sufficient to flag potential cartel connections.

Cartel interactions – and perhaps more importantly ceasing such interactions – can also have significant safety implications. Cartels operate in the “plata o plomo” adage – if a company doesn’t provide money, its people will receive bullets. Security payment schemes have grown sophisticated, with cartels setting up companies that simulate services and issue false invoices to receive payments from companies. A 2024 survey conducted by the American Chamber of Commerce in Mexico found that 45 percent of respondents had received extortion demands for protection payments.

These extortion payments extend to certain roads in Mexico controlled by cartels. Transportation and logistics companies paying access payments (derecho de paso) to cartels now may face FTO risk. Cartels might also infiltrate transport and logistics companies to use them to transport narcotics, weapons, and people in connection with criminal activities. If companies fail to detect this conduct, they could be deemed as having provided material support to FTOs.

Companies selling goods or services that may be of use to cartels also face risk. Whether through direct purchase or theft, cartels may solicit precursor chemicals for use in drug manufacturing, weapons, agricultural and construction materials for growing illegal drugs, vehicles and shipping containers for transport of drugs and people, and other products or services. For money laundering purposes, cartels may also be interested in obtaining properties, art, jewels, sports cars, and other luxury items. Banks and other financial institutions are particularly susceptible to money laundering risk as cartels need their services to move funds and access U.S. financial markets.

As a result of these FTO designations, now is the time for companies to reevaluate their risk management efforts. Heightened due diligence on counterparties (such as vendors, customers, employees, business partners) can identify FTO links. Gathering intelligence about security risks in various parts of the country can help companies design operations to mitigate risk. Companies can adopt and train on extortion policies, so employees know what to do when confronting protection payment and access payment demands. Companies should ensure adequate controls around third-party payments and expense reimbursements as well as customer payments to identify and remediate FTO and money laundering red flags.

Matteson Ellis founded and leads Miller & Chevalier’s Latin America practice. James G. Tillen is a Member and Practice Co-Lead for FCPA & International Anti-Corruption at Miller & Chevalier.

They wrote this article for Latinvex. © Copyright Latinvex

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