Mitigating Risk From the Designation of Cartels as FTOs and SDGTs
In Short
The Situation: After President Trump issued an Executive Order ("EO") that creates a process to designate international cartels and other organizations as "Foreign Terrorist Organizations" ("FTOs") or "Specially Designated Global Terrorists" ("SDGTs"), the Department of State designated eight organizations on February 20, 2025. Such designations will trigger broad restrictions accompanied by regulatory and criminal enforcement authority as well as potential litigation under the Anti-Terrorism Act ("ATA"), as amended by the Justice Against Sponsors of Terrorism Act ("JASTA").
The Result: Companies with customers or contractual counterparties that may be alleged to be cartels or engaged in dealings with cartels (or, more likely, that are alleged to have dealt with intermediaries linked to cartels) may be targeted in civil suits, governmental investigations, and administrative and criminal actions. Even attenuated claims may require costly investigations and litigation.
Looking Ahead: Companies should keep a close eye on new designations and review their due diligence practices with respect to new and existing customers and contractual partners to account for the associated regulatory and civil litigation risk. Mitigation measures could dramatically reduce exposure to this now heightened risk.
The Executive Order
On January 20, 2025, President Trump issued an EO that "creates a process by which certain international cartels […] and other organizations will be designated as" FTOs or SDGTs. The EO does not provide a definition of "cartel" or specify which cartels or other organizations should be designated as an FTO or SDGT. Rather, it directs the secretary of state, in consultation with other department heads, to make recommendations about which groups should receive a designation. On February 20, 2025, the Department of State made eight initial designations, designating Tren de Aragua, Mara Salvatrucha (MS-13), Cártel de Sinaloa, Cártel de Jalisco Nueva Generación, Cártel del Noreste (formerly Los Zetas), La Nueva Familia Michoacana, Cártel del Golfo (Gulf Cartel), and Cárteles Unidos as FTOs and SDGTs.
Designation Process
FTOs. Under the Immigration and Nationality Act, the secretary of state is authorized to designate a foreign organization as an FTO if it engages in "terrorist activity" that "threatens the security of United States nationals or the national security of the United States." 8 U.S.C. § 1189(a)(1). "[T]errorist activity" is broadly defined under 8 U.S.C. § 1(a)(3)(B)(iii) and 11 U.S.C. § 2656f(d)(2).
If, after review of an organization's administrative record compiled by the State Department in coordination with the Department of Justice and the Department of Treasury, the secretary of state determines an FTO designation is warranted, notice is provided to congressional leaders a minimum of seven days before designation. 8 U.S.C. § 1189(a)(2)(A)(i). Seven days after such notice, the designation is published in the Federal Register and becomes effective. The designated organization has 30 days from publication within which to seek judicial review of the designation. 8 U.S.C. § 1189(c).
SDGTs. Executive Order 13224, which was signed in 2001 by President George W. Bush, allows a broader range of entities (and individuals) to be designated as SDGTs. 66 Fed. Reg. 49079 (Sept. 23, 2001). The secretary of state, in consultation with the secretary of the treasury and the attorney general, is authorized to designate foreign individuals or entities that "have committed, or […] pose a significant risk of committing, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the United States." Id. The secretary of the treasury also has the authority to designate entities or persons determined—
- "to be owned or controlled by, or [who] act for or on behalf of an individual or entity listed in the Annex to the EO or who are otherwise designated;
- "to assist in, sponsor, or provide financial, material, or technological support for, or financial or other services to or in support of, such acts of terrorism or those persons listed in the Annex" to the EO or who are otherwise designated; and
- "to be otherwise associated with those persons" listed in the Annex or who are otherwise designated. Id.
A cartel's designation as an FTO or SDGT can present legal and compliance implications, particularly with respect to potential criminal and civil liability under the ATA.
The Legal Framework
Treasury Department Sanctions Enforcement. The Office of Foreign Assets Control ("OFAC") prohibits U.S. persons from engaging in transactions or dealings with designated persons to include FTOs or SDGTs. Engaging in a prohibited transaction with a designated entity could result in the blocking of payments or transactions, strict liability civil penalties up to twice the value of the transaction, or criminal penalties for willful violations.
Commerce Department Export Restrictions. The Bureau of Industry and Security ("BIS") requires a license for the export of any item to a person designated as an SDGT and does not provide a license exception. U.S. persons must seek authorization from BIS to export any item to an SDGT, and the unauthorized export could result in civil penalties, the denial of export privileges, or criminal penalties for willful violations.
ATA Civil Liability. The ATA provides a federal civil cause of action for U.S. nationals who are injured by acts of international terrorism committed, planned, or authorized by a designated FTO. A 2016 law, the JASTA, extends ATA liability to anyone that aids and abets acts of international terrorism "by knowingly providing substantial assistance." 18 U.S.C. § 2333(d)(2). The Supreme Court has interpreted "knowing and substantial assistance" to mean a defendant must "consciously, voluntarily, and culpably participate in" the terrorist act that injured plaintiffs. Twitter, Inc. v. Taamneh, 598 U.S. 471, 506 (2023). Plaintiffs in ATA actions have filed lawsuits against companies in a wide variety of industries including financial services, telecommunications, cybersecurity, pharmaceuticals, and cryptocurrency, alleging that these companies knowingly provided services or goods to individuals or entities with ties to the FTO that caused their injuries.
New FTO designations of cartels pursuant to the EO could expand the number of potential ATA victims to include U.S. nationals injured or killed by cartel activities (and those victims' family members). Victims would likely bring such claims against corporations, alleging that the corporate entities provided "knowing and substantial assistance" to the FTO that harmed them. Companies with customers or contractual counterparties that may be alleged to be FTO or SDGT-designated cartels or intermediaries of cartels, or that operate in cartel-controlled territory, will face ATA liability risk. And though attenuated connections will not be enough for civil liability in most circumstances, liability may still lie where "the provider of routine services does so in an unusual way or provides such dangerous wares that selling those goods to a terrorist group could constitute aiding and abetting a foreseeable terror attack." Id. at 502.
ATA Criminal Liability. The ATA also criminalizes the provision of "material support" to terrorists, 18 U.S.C. § 2339A(a), and FTOs, id. at § 2339B(a), as well as "willfully provid[ing] or collect[ing] funds" to be used to carry out terrorism, id. at § 2339C(a). It is also unlawful to launder funds in connection with any of those offenses. Id. at § 1956(a). In 2022, the Department of Justice prosecuted a corporation for the first time under § 2339B for providing material support to terrorists and successfully obtained a guilty plea—the corporation was a global building materials manufacturer and its subsidiary had agreed to pay ISIS and ANF in exchange for permission to operate a cement plant in Syria. The EO could, therefore, also expand the number of companies the Department of Justice could prosecute under these sections.
Reducing the Risks
The provisions discussed above could have knock-on risk implications for a wide range of companies, including financial institutions, firearm manufacturers and dealers, transportation companies, and mining companies. Companies operating in cartel-controlled territories, or whose services are likely to be utilized by cartels, should take steps now to limit their exposure to legal, financial, and reputational harms.
First, companies should consider conducting a preventive risk assessment of their customers, counterparties, vendors, and/or contractors based on the new designations and the expansion of what groups may be designated as FTOs or SDGTs to determine if their services may be exploited. Particular attention should be paid in areas where cartels maintain wide influence, including with respect to legitimate businesses and the potential use of protection payments. If any concerns materialize, companies should engage qualified legal counsel to help determine whether remediation is necessary and to help identify and evaluate measures to implement.
Second, companies should determine whether their compliance programs sufficiently address anti-terrorism and national security risks. Greater investment in anti-terrorism efforts may be needed to ensure compliance where there is an expansion of designated FTOs and SDGTs.
Finally, banks and other entities should consider implementing or enhancing existing due diligence procedures with regard to customers and third parties. Due diligence procedures should meet or exceed "Know Your Customer" industry standards. Companies should also monitor OFAC's list of sanctioned individuals and entities and the State Department's announcements of new terrorist designations. Based on these lists, companies should screen new customers and consider whether to screen or conduct enhanced diligence on existing customers.
Three Key Takeaways
- The designation of cartels and other organizations as FTOs or SDGTs will increase the risk of civil terrorism suits, governmental investigation, and administrative and criminal actions for companies with customers or contractual counterparties who may be alleged to be cartels, engaged in dealings with cartels, or to have dealt with intermediaries linked to cartels.
- The designation of cartels and other organizations as FTOs or SDGTs will expand the number of parties for which transactions, dealings, and exports would be prohibited or limited by the Treasury and Commerce departments.
- Companies that operate in or do business with entities in cartel-controlled areas should perform a risk assessment and ensure that their compliance programs sufficiently address anti-terrorism and national security risks, consider enhancing existing due diligence procedures to address the increased risks, and closely monitor announcements of new FTO and SDGT designations.
