I. Introduction
The U.S. Department of State recently designated Tren de Aragua (“TdA”), Mara Salvatrucha (“MS-13”), Cártel de Sinaloa, Cártel de Jalisco Nueva Generación (“CJNG”), Cártel del Noreste (“CDN”), La Nueva Familia Michoacana (“LNFM”), Cártel de Golfo (“CDG”), and Cárteles Unidos (“CU”) as Foreign Terrorist Organizations (“FTOs”) and Specially Designated Global Terrorists (“SDGTs”). These designations have introduced significant legal and compliance challenges for companies operating in Mexico and Latin America. This move, aimed at curbing the influence of powerful cartels, has far-reaching implications for businesses that must now navigate a complex landscape of anti-terrorism regulations. This alert explores the risks associated with the cartel terrorist designation and provides strategic recommendations for companies to mitigate these risks.
II. Background on Cartel Terrorist Designation
On his first day in office, President Trump issued an Executive Order (“EO”) pursuant to the International Emergency Economic Powers Act creating, “a process by which certain international cartels (the Cartels) and other organizations will be designated as [FTOs], consistent with section 219 of the INA (8 U.S.C. 1189), or [SDGTs], consistent with IEEPA (50 U.S.C. 1702) and EO 13224 of September 23, 2001 (Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), as amended.” These instructions to designate cartels as terrorist organizations is part of a broader strategy to combat the influence of these criminal groups, which are involved in drug trafficking, human smuggling, and other illicit activities. The EO aims to disrupt the financial networks of these cartels and enhance the enforcement capabilities of U.S. law enforcement agencies.
The EO is also meant to work in conjunction with the “Day One Memo” issued by the U.S. Department of Justice (“DOJ”) calling for the Total Elimination of Cartels and Transnational Criminal Organizations. The Memo realigns DOJ priorities and resources to aggressively target cartels and removes bureaucratic impediments to doing so.
III. Legal Risks
The designation of cartels as FTOs significantly increases the legal and compliance risks for companies operating in affected regions. Under U.S. law, providing material support to a designated terrorist organization is a serious offense that can result in severe penalties, including significant fines and imprisonment.
Companies operating in areas controlled by these cartels, or doing business with them, face increased risks of U.S. sanctions violations, potential criminal investigations, and civil liability and asset forfeiture.
The reach of the Anti-Terrorism Act (“ATA”), 18 U.S.C. § 2339B(d) is explicitly extraterritorial, meaning these restrictions are intended to regulate the actions of non-U.S. entities. While Specially Designated Nationals (“SDNs”) restrictions have allowed the United States to sanction extra-territorial actors in limited circumstances, they primarily target U.S. entities and transactions involving U.S. entities or U.S. dollars (“USD”).
A. Economic Sanctions Risks
Each of the eight organizations listed above has been added to the Office of Foreign Assets Control’s Specially Designated Nationals List (“SDN List”). This means that any property or interests in property of those organizations that is in the United States or in the possession or control of U.S. persons, including U.S. financial institutions, is blocked.
U.S. persons, and non-U.S. persons subject to U.S. sanctions jurisdiction, risk violating U.S. sanctions regulations and facing civil and criminal liability if they engage in virtually any activity, directly or indirectly, involving these organizations. In the case of non-U.S. persons, the United States may bring enforcement actions where transactions (i) are directly or indirectly prohibited as to U.S. persons (e.g., involve SDNs or other blocked persons such as these organizations or their property and interests in property), and (ii) have a direct or indirect U.S. nexus (e.g., the use of USD).
Whether or not there is a U.S. nexus, the U.S. government may impose blocking sanctions (i.e., secondary sanctions) on non-U.S. persons determined to have provided "material support" to any of these organizations. The U.S. government may also impose correspondent account/payable through account (“CAPTA”) restrictions on non-U.S. financial institutions determined to have knowingly conducted or facilitated a significant transaction on behalf of an SDGT.
B. Criminal Liability for Providing "Material Support" to an FTO
Importantly, in addition to the sanctions risked involved with dealing with the designated entities described above, U.S. persons, and non-U.S. persons subject to U.S. jurisdiction as set out in the ATA, that knowingly provide “material support” to FTOs may face criminal liability. The definition of “material support” broadly encompasses “any property, tangible or intangible, or service.” The term includes currency, monetary instruments, financial securities, financial services, lodging, training (i.e., instruction or teaching designed to impart a specific skill), and expert advice or assistance (i.e., advice or assistance derived from scientific, technical, or other specialized knowledge), among others.
The ATA also provides another robust mechanism for the U.S. government to combat terrorism: the use of asset forfeiture, which allows for the seizure of assets belonging to individuals or entities that provide material support to FTOs. This includes funds, property, and other tangible or intangible assets.
- Case Study
Background
A European multinational company faced serious allegations of complicity in human rights violations and financing terrorism in a Middle Eastern country. Between 2012 and 2014, the company’s subsidiary continued operations at its facility despite the escalating conflict in the region.
Allegations and Charges
The company was criminally charged by the United States Attorney’s Office for conspiring to provide material support and resources to two designated FTOs. The specific conduct involved:
- Payments to Terrorist Groups: The company allegedly paid these groups to ensure safe passage for employees and goods. This included direct payments to terrorist organizations to secure the safety of their operations.
- Purchasing Raw Materials: The company allegedly bought raw materials from suppliers who were controlled by or affiliated with terrorist groups. This enabled the subsidiary to continue its production activities.
- Revenue Generation: By maintaining operations and securing raw materials through these means, the subsidiary was able to generate millions in revenue during the period in question.
Legal Proceedings
In October 2022, the company, in a first-of-its-kind agreement, pleaded guilty to a one-count criminal information charge of conspiring to provide material support to FTOs. The U.S. District Court sentenced the company to probation and imposed financial penalties, including criminal fines and forfeiture, totaling hundreds of millions of dollars.
Impact and Implications
This case underscores the intersection of corporate crime and national security. It highlights the severe consequences for companies that operate in specific regions, especially in high-risk environments. The case serves as an example of the importance of investing in robust compliance programs, paying vigilant attention to national security compliance risks, and conducting thorough due diligence.
IV. Impact on Companies Operating in Mexico and Latin America
The designation of cartels as FTOs poses several challenges for companies operating in Mexico and Latin America:
- Heightened Regulatory Scrutiny: U.S. regulatory agencies are likely to increase their scrutiny of companies operating in regions affected by the cartel designations. This may result in more frequent audits, investigations, and enforcement actions.
- Operational Disruptions: Companies may face operational disruptions if they are forced to sever ties with business partners or suppliers linked to designated cartels. This can impact supply chains, production schedules, and overall business continuity.
- Reputational Damage: Being associated with designated terrorist organizations can cause significant reputational damage. Companies must proactively manage their public image and communicate their commitment to compliance and ethical business practices.
Strategic Recommendations for Companies
To mitigate the risks associated with the cartel terrorist designation, companies should contact Blank Rome for strategic recommendations.
V. Conclusion
The designation of drug cartels as FTOs by the U.S. government has introduced significant challenges for companies operating in Mexico and Latin America. By understanding the risks, companies can navigate this complex landscape and mitigate potential legal, operational, and reputational risks.
For more information and assistance, contact Bradley L. Henry or another member of Blank Rome’s White Collar Defense & Investigations group.
Blank Rome will continue to closely monitor the ever-changing landscape of challenges that come with new EOs and will report on any new developments. Please refer to Blank Rome’s new Trump Administration Resource Page for other useful updates.
