On February 20, 2025, the U.S. Department of State designated eight cartels as Foreign Terrorist Organizations (“FTOs”), in furtherance of the Trump Administration’s stated goal to bring about the “total elimination” of cartels. While several cartels operating in Latin America were already subject to US sanctions, the Trump administration’s move to designate them as FTOs elevated
these groups from criminal enterprises to prime threats to US national security. The designated cartels consist of Tren de Aragua, Mara Salvatrucha (MS-13), Cartel de Sinaloa, Cartel de Jalisco Nueva Generación, Cartel del Noreste, La Nueva Familia Michoacana, Cartel de Golfo, and Carteles Unidos. These FTOs have a substantial presence in Mexico, and also operate in Colombia,
Venezuela, Ecuador, Chile, El Salvador, Honduras, and Guatemala.
What does an FTO designation mean in practice?
FTO designations substantially increase the US government’s investigation and enforcement powers, open the door to civil litigation, and supersize the pool of potential defendants.
Civil Litigation
Designating cartels as FTOs subjects them to US anti-terrorism laws, most notably the Anti-Terrorism Act (the “ATA”). The ATA allows private litigants to sue not only FTOs but also companies who provide them “material support.” The concept of “material support” is extremely broad, and can include providing financial aid, logistical support, training, weapons, and refuge. Multinationals subject to US jurisdiction – which has been interpreted very broadly the US government – may run afoul of the ATA if they knowingly provide, or attempt to provide, material support or resources to an FTO.
Theoretically, if an American citizen were injured or killed by MS-13 in Mexico, the citizen or their estate could sue not only MS-13 but also any companies that provided MS-13 “material support.” This dynamic played out in 2019, when almost 400 people who were either injured in Afghanistan or who had family members killed in the country sued a group of companies that had been paying the Taliban protection payments, arguing: “Defendants supported the Taliban for a simple reason: Defendants were all large Western companies with lucrative businesses in post-9/11 Afghanistan, and they all paid the Taliban to refrain from attacking their business interests…Those protection payments aided and abetted terrorism by directly funding an al-Qaeda-backed Taliban insurgency that killed and injured thousands of Americans.” Plaintiffs who successfully bring ATA claims may also be entitled to treble damages and attorneys’ fees.
Government Investigations & Enforcement Actionsn
In addition to civil litigation, the US Department of Justice can also launch criminal investigations and enforcement actions, including investigations connected to US sanctions laws containing provisions relating to FTOs. For instance, the DOJ prosecuted Chiquita Brands International for violating the International Emergency Economic Powers Act (IEEPA) in 2007 by making security payments to a Colombian group that had been designated as an FTO. Chiquita paid a $25 million fine, agreed to five years of probation, and agreed to implement an ethics and compliance program. The government’s view of paying protection payments was summarized in the DOJ press release announcing the investigation’s resolution: “Like any criminal enterprise, a terrorist organization needs a funding stream to support its operations. For several years, the AUC terrorist group found one in the payments they demanded from Chiquita Brands International. Thanks to Chiquita's cooperation and this prosecution, that funding stream is now dry and corporations are on notice that they cannot make protection payments to terrorists…Funding a terrorist organization can never be treated as a cost of doing business…American businesses must take note that payments to terrorists are of a whole different category. They are crimes.”
Cartels’ Ever-Expanding Reach
It is against this backdrop that these latest FTO designations should be viewed. The legal imperative of avoiding even indirect contact with cartels is complicated by the situation on the ground. Cartels no longer limit themselves to narcotics and human trafficking. They have
diversified their activities and infiltrated a wide range of legitimate business sectors, including public water systems, the fishing, poultry, and avocado industries, construction companies, gas stations, tortilla shops, and trucking companies. Many cartels also demand regular protection and safe passage payments from local businesses. Multinational companies operating in the region are therefore at risk of coming into contact with FTOs through interactions with local companies that, as a practical matter, have no choice but to interact with them. And cartels aren’t concentrated in a few areas. This 2024 map of cartel activity in Mexico shows how geographically dispersed cartels are:
Photo courtesy of Crashout by Ioan Grillo
Companies operating in Mexico and Latin America can be accused of providing “material support” to these cartels in a variety of ways, including:
- By establishing legitimate relationships with third parties who have been infiltrated by cartels that have been designated as FTOs (or that are controlled by them);
- By being forced to do business with a specific person or company that is associated with a cartel; and
- By being forced to make extortion payments to cartels under various pretexts. Some cartels demand “right of way” payments, while others require donations to local communities or protection payments.
Compliance Considerations
In light of these heightened risks, there are numerous steps that companies can take to mitigate the risks of doing business with FTOs.
Review Current Compliance Program through a Cartel-Adjusted Lens: Even companies that already have a robust Compliance program and due diligence processes should reassess their programs to gauge their cartel exposure in Latin America. Companies should reassess whether they are operating in a high-risk sector or in a geography known to have cartel presence.
Educate on Traditional Risk Factors: Relevant employees should be empowered to recognize red flags that could indicate cartel-related activities. Such red flags may include unexplained wealth, cash-intense businesses, complex ownership structures with no clear rationale, and a flow of
funds through jurisdictions that don’t have any connection to the transaction at hand (or through questionable financial hubs). Employees who are on the ground and actively selling or providing products or services are the first line of defense against misconduct. Such employees are often best positioned to observe suspicious activity; enabling them to recognize – and report – such activity can pay dividends.
Permit/License Inventory: Create an inventory of required permits and licenses, and then devise a system to monitor associated payments in order to differentiate between legitimate and illegitimate permit and license expenditures.
Increase Compliance Resources: Companies should consider hiring Compliance professionals who have local knowledge of conditions on the ground, as well as a solid understanding of Compliance requirements and relevant red flags. Companies doing substantial business in Latin America shouldn’t underestimate the benefits of investing in local knowledge and expertise.
Increase Physical Security: If possible, companies should dedicate more physical security resources to functions most susceptible to cartel pressures and threats, such as field operations, inventory, logistics, and waste management.
Supply Chain Mapping: Supply chain mapping involves detailing the discrete steps in a production process and identifying all actors involved at each stage. Performing due diligence on primary suppliers and any sub-suppliers would allow companies a greater level of confidence that their supply chains are not being infiltrated by cartels.
Crisis Management Playbook: Refine or develop a cross-functional crisis management playbook focused on the actions that would be taken in the hours and days after a cartel-related incident occurs (whether the incident is related to kidnapping, extortion payments, or discovering cartel infiltration in a partner or company division).
Policies & Procedures: Create or review any policies or procedures that instruct employees on how to react to extortion requests from cartels, and then ensure these policies and procedures are adequately communicated to relevant employees and third parties.
Beneficial Ownership & Control: Screening tools that reveal beneficial ownership and controlling shareholders are another essential tool in the due diligence arsenal. Companies should ensure their screening tools can handle truncated names and other text anomalies that could cause tools to miss the names of people or companies on various sanctions and watch lists. Screening tools should also continuously monitor a company’s ownership and emit alerts whenever ownership changes or adverse media hits materialize. If a business is owned by a shell company, a trust, or another opaque corporate structure, requiring documentation that reveals the natural person behind such organizations is key.
Enhance Contractual Provisions: Companies should strive to incorporate prohibitions on cartel and FTO connections in contracts with their third parties, suppliers, and counterparties.
Information Sharing: Subject to confidentiality and privacy restrictions, companies should consider alerting their suppliers and business partners if they have potential connections to cartels and working together to exchange information that would shed light on cartel member or
affiliate identification.