• The U.S. State Department has, for the first time, designated certain international cartels as Foreign Terrorist Organizations, responding to President Trump’s Executive Order declaring a national emergency in relation to cartels.
• These designations have significant implications for multinational companies and their employees. In particular, providing “material support” to an FTO can result in severe criminal sanctions, as well as civil and regulatory consequences.
• Companies should evaluate and enhance their compliance systems and controls to account for these new risks.

On his first day in office, President Trump declared a national emergency regarding threats posed by international cartels and directed the Secretary of State to recommend criminal organizations to be designated as Foreign Terrorist Organizations (“FTOs”) or Specially Designated Global Terrorists (“SDGTs”). In response, on February 20, 2025, the State Department designated eight international cartel organizations as both FTOs and SDGTs.

Seven of the eight designated cartels had previously been designated under other sanctions programs mainly targeting narcotics traffickers and transnational criminal organizations. However, this is the first time cartels have been designated as FTOs, which has significant implications for companies and their employees alike. In particular, knowingly providing “material support or resources” to these entities is now a criminal offense for any person subject to U.S. jurisdiction, including extraterritorial jurisdiction.

Companies should review and, as needed, update their existing customer and counterparty due diligence processes to account for risks posed by these designations. This is especially so for companies operating in parts of Mexico and elsewhere in Latin America where cartels maintain significant operations or investments, as well and companies otherwise more likely to implicate cartel activity such as financial institutions potentially facilitating cross-border activity between Mexico and the United States.

Significance of a Cartel’s Designation as an FTO or SDGT

It is a serious criminal violation for any person to knowingly provide, or conspire with others to provide, “material support or resources” to an organization designated as an FTO. This prohibition is interpreted broadly and can expose entities to criminal liability for engaging with an FTO or FTO-affiliated persons, even if the activity is not related to terrorist activities, as discussed further below. Criminal charges can also be brought against corporate executives and employees who facilitate, authorize or play other roles with respect to prohibited conduct. Indeed, DOJ is now prioritizing criminal investigations and prosecutions of cartel-linked conduct around the world.

In addition, FTOs and SDGTs are included on the Specially Designated Nationals and Blocked Persons List (the “SDN List”) maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) under terrorism-related sanctions authorities, which are broader than most other sanctions programs. This means that any property or interests in property of such FTO/SDGT that are in the United States or in the possession or control of a U.S. person must be frozen (“blocked”) and reported to OFAC. Additionally, because these are terrorism-related sanctions programs, exemptions available under other sanctions programs (e.g., the so-called “travel exemption” and exemption for information or informational materials) are not available.

Public companies may also have disclosure obligations to the Securities and Exchange Commission (the “SEC”) regarding any dealings with any person that falls under the FTO/SDGT designation, including unlisted legal entities automatically targeted by U.S. sanctions because they are ultimately owned by a designated cartel, as discussed further below.

Expansive Meaning of “Material Support or Resources”

The term “material support or resources” is defined as “any property, tangible or intangible, or service” and includes currency or monetary instruments or financial securities; financial services; lodging; training; expert advice or assistance derived from scientific, technical or other specialized knowledge; safehouses; false documentation or identification; communications equipment; facilities; weapons; lethal substances; personnel; and transportation.

A person subject to U.S. jurisdiction that provides any such support or resources to an FTO, even if the activity is not directly linked to a terrorist act, could be investigated and prosecuted for a criminal violation of the material support statute. For example, making payments to cartel-affiliated organizations or individuals, or providing financial services to, or conducting financial transactions for, a cartel-owned business, may be investigated for contributing material support to an FTO. And again, criminal liability can also be imposed on any corporate officers or employees who play any role in the prohibited conduct.

Meaning of “Knowingly”

It is a crime to “knowingly” provide material support to an FTO. Thus, to bring charges, DOJ must be prepared to prove that the person engaging with the FTO had knowledge that the counterparty was a designated FTO or that it engaged in terrorism or terrorist activity. It is critical to note, however, that “knowingly” does not necessarily require actual knowledge. DOJ generally argues that the standard is satisfied whenever the person reasonably should have known of the facts based on all the surrounding circumstances.

For companies, the most effective mitigating strategy is to have an up-to-date, well-tailored risk-based compliance and diligence program. It is essential to be able to document that the company undertook a sophisticated and good-faith effort to prevent any impermissible payments or other contacts.

Further, it is not necessarily a defense that a payment to an FTO was made under threat of extortion or as a ransom. These situations are highly fact-intensive and require careful consultation with counsel.

Regulatory Compliance Obligations

Blocking and Reporting

Designated FTOs and SDGTs are added to the SDN List, and as such, U.S. persons have the same obligations to block property, report such property to OFAC and generally not engage in any dealings with an individual or entity on the SDN List. In addition, pursuant to OFAC’s so-called “50% Rule,” an entity that is 50% or more owned by one or more persons on the SDN List is also automatically blocked. Because the FTO/SDGT designations target organizations that are not identifiable legal entities, it may be more difficult for persons subject to U.S. jurisdiction to trace ownership to ensure an entity they are engaging with is not affiliated with a designated FTO/SDGT.

SARs

Financial institutions that are required under the U.S. Bank Secrecy Act to report suspicious activity to the U.S. Treasury Department would be required to report a wide range of customer activity conducted “by, at or through” the financial institution that it suspects may involve or be related to an FTO.

Issuers of U.S. Publicly Traded Securities

As previewed above, companies that are issuers of SEC-registered securities and that file quarterly or annual reports with the SEC have an obligation to disclose in those reports if the issuer or any of its affiliates knowingly engaged in any transaction or dealing with persons designated as terrorist organizations under E.O. 13224, which include SDGTs. These reporting obligations arise without a materiality threshold.

Extraterritorial Scope

The material support statute applies extraterritorially, meaning U.S. authorities can prosecute individuals and entities for conduct occurring outside the United States. Among other bases for jurisdiction, the statute applies to conduct that has even a de minimis effect on interstate or foreign commerce (e.g., most transactions by a multinational company or facilitated by a multinational or local bank).

In addition, non-U.S. persons determined to have provided “material support” may be designated themselves as SDNs and become a target of blocking sanctions.

The Potential Consequences of Violating the Material Support Statute

Criminal Liability

A person that violates the material support statute faces potentially significant criminal penalties. Specifically, a company may be required to pay criminal fines and forfeiture and enter into broad compliance obligations with the DOJ. An individual could face a lengthy prison term in addition to financial penalties.

Civil Forfeiture

Even in the absence of a criminal prosecution, DOJ can seek forfeiture of assets derived from, involved in or used or intended to be used in carrying out violations of the material support statute.

Sanctions

As previewed above, non-U.S. persons determined to have provided “material support” may be exposed to secondary sanctions risks and become a target of blocking sanctions. Furthermore, the U.S. government may impose correspondent account/payable through account sanctions on non-U.S. financial institutions determined to have knowingly conducted or facilitated a significant transaction on behalf of an FTO. However, these designations would require an affirmative action by the U.S. government, and such actions are generally reserved for cases of significant violations.

Civil Lawsuits

Under the Anti-Terrorism Act (the “ATA”), individuals injured in their person, property or business due to an act of international terrorism can sue for damages. Plaintiffs often seek compensation not only from FTOs but also from companies that allegedly aided or supported the FTOs, including following a material support resolution. The Justice Against Sponsors of Terrorism Act (“JASTA”) expanded ATA liability to include secondary liability, allowing plaintiffs to hold third parties accountable under certain circumstances. To establish liability, plaintiffs must show that the defendant generally was aware that their actions contributed to illegal activity by an FTO, and plaintiffs may rely on aiding and abetting or conspiracy theories to bring such claims.

Key Mitigation Steps

• Consider a risk assessment of customers, suppliers, vendors, counterparties, business lines, products, services and geographic operations to identify high(er)-risk activities—implicating any cartel, especially those designated as FTOs or SDGTs—that may require additional diligence and possibly monitoring.

• Assess existing controls regarding the provision of services or goods to sectors or geographic locations known to have links or significant exposure to a cartel (e.g., companies or customers operating in certain regions in Mexico).

• Consider whether due diligence and third-party screening processes and policies should be enhanced to address cartel-related risks, including, as relevant, reviewing methodologies for determining the risk profiles of customers that may be associated with or have exposure to cartels, and document any related compliance enhancements.

• Consider relevant training for personnel to identify red flags related to cartels, including when and how to escalate any activity or customer potentially associated with a designated cartel.

This publication is for general information purposes only. It is not intended to provide, nor is it to be used as, a substitute for legal advice. In some jurisdictions it may be considered attorney advertising.