US Designation of Cartels as Terrorist Organizations Increases Risk of Doing Business in Mexico

Recent US government actions indicate a possible increase in US financial crimes investigations and enforcement targeting drug cartels and transnational criminal organizations in Latin America.

On January 20, 2025, US President Donald Trump issued an executive order directing the secretary of state to designate certain international criminal cartels and transnational criminal organizations as Foreign Terrorist Organizations (FTO) and Specially Designated Global Terrorists (SDGT).

On February 20, 2025, the US State Department announced the designations of several criminal organizations: the Sinaloa Cartel, Cartel del Noreste (formerly Los Zetas), Gulf Cartel, La Nueva Familia Michoacana, Carteles Unidos, Mara Salvatrucha, and Tren de Aragua.

On March 11, 2025, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a geographic targeting order further focusing US enforcement against the cartels by requiring all money services businesses located in certain zip codes along the US border with Mexico to file currency transaction reports with FinCEN for transactions of $200 or more. As a result, businesses throughout Latin America, but particularly Mexico, face increased scrutiny and enforcement of US sanctions.

On March 18, 2025, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published an alert on the terrorist designations of the cartels and the increased sanctions and criminal liability risks for businesses with exposure to the designated organizations. These actions illustrate a growing sanctions enforcement risk for companies with business activities in Mexico.

US sanctions are administered and enforced primarily by OFAC. Sanctions programs generally prohibit persons subject to US jurisdiction from dealing directly or indirectly with sanctioned parties. OFAC interprets its jurisdiction broadly to include US citizens and lawful permanent residents, any person located in the United States, transactions using the US financial system or involving US dollar payments, and virtually any other transaction with a nexus to the United States.

In its March 18 alert, OFAC also emphasized that non-US persons are prohibited from engaging in conduct considered to evade sanctions or causing/conspiring to cause US persons to violate sanctions. Sanctions violations are strict liability, making a party’s lack or intent or knowledge of a violation legally irrelevant to liability.

New executive orders on sanctions and public announcements related to sanctions enforcement authorities portend an increase in US government resources on investigations and enforcement in a particular industry, geographic location, or sanctions program. Narcotics and transnational crime sanctions traditionally have been perceived as a lower priority for limited government resources. These actions indicate a reprioritization of US sanctions to focus on transnational criminal cartels. This closer scrutiny increases the risk to financial institutions and non-financial businesses operating in Mexico, or elsewhere that have potential vulnerabilities to dealings involving the designated cartels.

While many of the individuals and entities designated on February 20 were already designated under US sanctions programs targeting drug trafficking, the new sanctions grant OFAC additional authorities with which to identify and enforce sanctions. In this case, the terrorist designation expands OFAC’s ability to identify transactions involving sanctioned parties and enforcement authority to target non-US persons determined by OFAC to support sanctioned parties.

The designation of these parties as terrorists provides OFAC the authority to leverage the Terrorist Finance Tracking Program (TFTP). The TFTP provides sanctions investigators access to additional financial intelligence sources. These sources are limited to investigations where the US Department of the Treasury has identified a connection between the subject of an investigation and terrorism or terrorist financing.

If investigators find a nexus, the TFTP authorizes them to access financial payment messages processed by the Society for Worldwide Interbank Financial Telecommunications (SWIFT). Access to SWIFT payment information expands OFAC’s capability to identify persons and companies that engaged in transactions with designated parties. Any business that sends or receives payments to Mexico will now need to enhance their compliance procedures to address this increased risk.

Additionally, persons determined to have engaged knowingly in transactions with designated terrorist organizations or SDGTs risk criminal charges for providing material support and resources to foreign terrorist organizations. As illustrated in the 2022 prosecution of Lafarge S.A., the US Department of Justice will use these authorities against individuals and companies that make payments to the designated cartels as a cost of doing business in cartel-controlled areas.

The terrorism designations also allow US enforcement to apply “secondary sanctions” to foreign financial institutions found to have knowingly conducted or facilitated any significant transaction on behalf of the cartels, other designated parties, or any entities owned 50% or more by a designated party. The secondary sanctions authorize the secretary of the Treasury to prohibit or restrict such foreign financial institutions from maintaining a correspondent account or payable-through account in the United States, effectively cutting them off from the US financial system.

This shift of sanctions priorities to Mexico and the designation of cartels as terrorist organizations requires companies with business dealings in Mexico to review and reassess their sanctions risk profile. Companies, including non-financial institutions, will need to enhance procedures to identify their customers, suppliers, any third parties involved in their business, including in some cases, the ultimate beneficial owners of such counterparties and their locations.

Companies can mitigate risk by screening counterparties against the published sanctions lists to identify potential matches. However, companies may also need to conduct additional due diligence to determine whether any counterparties may be owned or controlled by designated parties.