Cartel Terrorist Designation: Mitigating Compliance Risk in the Americas

On 20 January 2025, President Trump issued an executive order creating a process for designating certain international cartels and other transnational criminal organizations as Foreign Terrorist Organizations (FTOs) or Specially Designated Global Terrorists (SDGTs). The terrorist designation for cartels and other criminal organizations creates an increased risk of breaching the United States’ anti-terrorism statutes for companies operating in Mexico and certain Central and South American countries. Breaching these statutes could result in significant fines, forfeiture of profits, and reputational damage for companies, as well as fines and/or imprisonment for individuals. With this in mind, ongoing commitment to mitigating compliance risks in these countries is fundamentally good practice, both under the current US administration and future administrations.

Understanding the Impact of the Executive Order on Companies

The executive order notes that cartels “function as quasi-governmental entities, controlling nearly all aspects of society” in some parts of Mexico. The widespread reach of cartels means that companies operating in Mexico are likely to encounter cartels within their supply chain, either directly or through entities affiliated with or controlled by the cartels. Knowingly transacting, whether directly or indirectly, with a cartel that has been designated as a terrorist organization (“designated cartel”) may be viewed as “providing material support or resources to designated foreign terrorist organizations” under US anti-terrorism laws.  

Additionally, companies could find themselves in a situation resembling that of Lafarge S.A. and their Syrian subsidiary, which pleaded guilty in 2022 to making payments to ISIS and the al-Nusrah Front (ANF) from 2013 to 2014 in exchange for permission to operate a cement plant in Syria. Lafarge’s guilty plea was the DOJ’s first corporate prosecution for material support for terrorism. The investigation uncovered payments totaling around USD 6m from Lafarge to ISIS and ANF through intermediaries and resulted in Lafarge paying criminal fines and forfeiture totaling USD 778m. Companies may now face a similar dynamic in cartel-controlled areas where payments could be demanded by cartels in exchange for secure operations.

Implementing Preventive Measures

Some corporate leaders may be toying with whether the heightened risk is worth the reward of doing business in countries that have a large cartel presence, particularly Mexico. For companies that have already made significant investments in these countries, the best way forward is to ensure that they adequately mitigate their risks rather than withdraw their operations.

Preventive steps should be tailored to each company’s operations based on a comprehensive assessment of the company’s risk profile as it relates to its operations in countries with designated cartels. A few key areas that companies should assess and strengthen where necessary in light of the new executive order include:

1. Internal controls related to supply chain management,  
2. Enhanced due diligence for vendors, customers, and any other business partners or affiliates within the impacted countries,  
3. Thorough due diligence of target companies for any mergers or acquisitions, and  
4. Establishing and/or strengthening applicable compliance monitoring activities.

Compliance Investment is a Necessity, not a Trend

Companies may question whether the enforcement of the President’s executive order will be prolonged enough to warrant the cost of implementing such preventive measures. While it is impossible to predict how the enforcement will play out long term, taking these preventive measures is generally good practice and can also address other risks that companies likely face within the same geographies. Therefore, investing in compliance and control activities is a sound decision, regardless of whether the US government’s position on cartels changes in the future.

Establishing a Defensible Position

Implementing robust preventive measures also establishes a strong foundation for a company’s defense if something does go wrong. Demonstrating that proactive steps were taken to prevent and detect misconduct can help reduce penalties that companies may face.  

Companies operating in Mexico and certain Central and South American countries must now traverse the changing legal landscape in these regions and need to reassess their risk profile accordingly in order to avoid or limit exposure to the significant penalties that could stem from the President’s executive order. Engaging external counsel and forensic experts to consult on these new risks can help establish a strong defensible position and streamline any future investigations that may arise from a breach of the United States’ anti-terrorism statutes.