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

cartels mexico us terrorist designation business risk

Recent US government actions have placed a significant spotlight on drug cartels and transnational criminal organizations in Latin America, particularly Mexico. The implications for businesses operating in the region are far-reaching, and the latest moves by the US government signal an increased risk for financial institutions and non-financial businesses alike.

On January 20, 2025, US President Donald Trump issued an executive order that commanded 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). This was a pivotal moment for organizations that have dealings with or in Mexico, as it marked a clear shift in how the US government views these entities and their international impact.

On February 20, 2025, the US State Department made public its list of designated cartels, which includes well-known groups like the Sinaloa Cartel, Cartel del Noreste (formerly Los Zetas), Gulf Cartel, La Nueva Familia Michoacana, Carteles Unidos, Mara Salvatrucha, and Tren de Aragua. These designations officially label these cartels as terrorist organizations, intensifying the scrutiny that businesses across the globe must apply when interacting with entities in Mexico.

Just weeks later, on March 11, 2025, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a geographic targeting order. This order requires all money services businesses (MSBs) in certain US border zip codes with Mexico to file currency transaction reports for transactions of $200 or more. The focus on businesses in proximity to the Mexican border is indicative of how these sanctions affect cross-border transactions, particularly in the areas of finance, trade, and services.

The Treasury’s Office of Foreign Assets Control (OFAC) also issued an alert on March 18, 2025, reiterating that businesses with exposure to the designated cartels face severe risks of criminal liability. This increased risk is especially relevant to companies with operations or financial relationships in Mexico. The designations expand the reach of US sanctions laws, extending to foreign financial institutions and other entities that do business with or support designated parties.

Understanding US Sanctions and Their Broad Jurisdiction

US sanctions are enforced primarily by OFAC, which administers a broad range of sanctions programs targeting individuals, companies, and entire countries. When an organization is designated under US sanctions, all US persons—whether individuals or businesses—are prohibited from engaging in any transactions, directly or indirectly, with those entities.

In particular, OFAC interprets its jurisdiction broadly, extending to US citizens, lawful permanent residents, and any person located in the United States. Transactions involving the US financial system, such as those utilizing US dollar payments or processing through American banks, are also subject to these sanctions. The broader interpretation of US jurisdiction means that the impact of these sanctions extends far beyond the US borders, affecting international trade and financial systems.

A critical aspect of the March 18 alert was the warning that non-US persons are prohibited from engaging in activities designed to evade US sanctions. For example, foreign nationals or companies that facilitate transactions or provide support to a designated cartel could find themselves in violation of US law. Sanctions violations are treated as strict liability offenses, meaning that a lack of intent or knowledge on the part of the violator is legally irrelevant.

How Terrorist Designations Expand Enforcement Capabilities

The terrorist designations of cartels offer US authorities enhanced enforcement tools, including the ability to leverage the Terrorist Finance Tracking Program (TFTP). The TFTP enables US investigators to access additional financial intelligence, particularly data regarding cross-border financial transactions processed by the Society for Worldwide Interbank Financial Telecommunications (SWIFT). This access allows investigators to trace financial connections between businesses and designated terrorist organizations, making it much easier to identify individuals or companies that may be unknowingly involved in transactions with sanctioned entities.

For businesses involved in transactions with Mexican companies, this means a heightened level of due diligence is necessary. As the US government expands its scrutiny of cartel-related financial activity, companies must be prepared to comply with increased reporting requirements and scrutiny of financial transactions. Businesses that send or receive payments in US dollars to Mexico, or any other country where these cartels are active, must reevaluate their internal compliance processes to ensure they are not inadvertently facilitating transactions with designated parties.

Risks of Secondary Sanctions for Foreign Institutions

One of the most significant changes in the enforcement landscape is the introduction of secondary sanctions. These secondary sanctions apply to foreign financial institutions that knowingly conduct or facilitate significant transactions on behalf of the cartels or any entities controlled by them. If a foreign institution is found to have engaged in such transactions, they could face severe penalties, including being cut off from the US financial system. This would effectively prohibit these institutions from maintaining correspondent accounts or payable-through accounts in the United States.

The imposition of secondary sanctions signals that the US government is serious about its expanded enforcement efforts. Foreign banks and financial institutions that do business with Mexican entities associated with the designated cartels may face a stark choice: cease those activities or risk losing access to the US financial system. This has far-reaching implications for international trade and financial operations in the region, particularly for businesses operating in Mexico or Latin America.

Implications for Companies Doing Business in Mexico

The designation of Mexican drug cartels and transnational criminal organizations as terrorist groups represents a shift in US foreign policy and enforcement priorities. This shift has direct consequences for companies doing business in Mexico, as they must now reassess their exposure to US sanctions risk. Companies must be proactive in identifying potential vulnerabilities in their business relationships, particularly in relation to customers, suppliers, and third-party intermediaries.

To mitigate the risks posed by these expanded sanctions, companies should implement robust compliance programs that include thorough screening of customers and business partners. This includes ensuring that no business relationships involve entities that are owned or controlled by designated cartels. It is also crucial for companies to verify the ultimate beneficial owners of their counterparts, particularly in cases where the ownership structure is opaque or complex.

Additionally, businesses should work closely with compliance officers and legal advisors to stay up to date on any changes to US sanctions and enforcement policies. The complexity and breadth of the sanctions regime make it essential for companies to have a dedicated compliance team that understands the nuances of the regulations and can respond swiftly to any potential red flags.

Conclusion: A Growing Risk for Business in Mexico

The US government’s decision to designate Mexican drug cartels and transnational criminal organizations as terrorist entities has significantly raised the stakes for businesses operating in Mexico. As US sanctions enforcement continues to grow in both scope and intensity, companies must take immediate action to review their risk profiles and ensure that they are in compliance with US regulations. Failure to do so could result in severe penalties, including criminal charges, financial penalties, and exclusion from the US financial system.

Businesses must invest in enhanced due diligence, customer screening, and compliance protocols to protect themselves from the expanding enforcement reach of US sanctions. The shifting priorities of US sanctions enforcement mean that companies doing business in Mexico must be more vigilant than ever in managing their exposure to criminal organizations and ensuring that their operations remain free from illicit activities.