In depth
The Secretary of State must make the designations within fourteen days of the order, and the US Attorney General, as well as the Secretary of Homeland Security, are directed to take the necessary actions to ensure compliance with the relevant laws. The order does not identify cartels by name, but it does mention that in Mexico some cartels have taken de facto possession of territorial space and thus function as quasi-governmental entities, controlling almost every aspect of society.
Some criminal organizations operating in Mexico already have a Treasury Department designation as Drug Kingpins. Among the designated entities are the Cartel Jalisco Nueva Generación, Sinaloa Cartel, Gulf Cartel, Juárez Cartel, the Northeast Cartel (the Zetas) and the Caballeros Templarios. This designation prohibits US persons from conducting transactions with the designated persons. This operates primarily to enforce the freezing of the assets of the designated persons. Therefore, and in our experience, we have not seen US authorities actively or aggressively participate in cases of "derecho de piso" extortion against US persons or their subsidiaries in Mexico that operate under their direction.
This is in stark contrast to the FTO or SDGT designation. Here, we should look to examples in other jurisdictions, such as Colombia. On 10 September 2001, then US Secretary of State Colin Powell designated the United Self-Defense Forces of Colombia (AUC) as an FTO, and shortly thereafter as SDGT. During the ensuing years, a US company's Colombian subsidiary made extortion payments to the AUC totaling USD 1.7 million in "security services". The US company sold its Colombian subsidiary to a local buyer in 2004. But in 2007, the US company reached an agreement with the DOJ to pay USD 25 million for providing "substantial assistance" to the AUC.
The case did not end there, however. In 2018, the US company had to settle for USD 38 million in Florida with relatives of six people killed by the AUC. The US company also lost its litigation against its US insurance company regarding its claim for compensation for the extortion events. And in June 2024, the US company was ordered to pay reparations to other victims of violence in Colombia involving the AUC. Fourteen employees or former employees of the US company are being investigated as possible criminally liable in these cases.
The elevated risks for interactions with FTOs and SDGTs are clear. We recommend that clients do at least the following:
- Reach out to operating personnel in regions affected by the groups that are designated as FTOs and SDGTs to ascertain whether there are any threats or other types of interaction.
- Review local payment procedures to eliminate "manual" or "exception" payments that are not subject to standard controls and audits.
- Ensure vetting of vendors that present heightened risk: vaguely defined services, transport and security vendors, etc.
- Consider reminder notes that any extorsion or otherwise irregular payments should be immediately escalated for review.
As a final note to address additional concerns, the designation of the cartels as terrorist organizations does not directly authorize US authorities to use its military to conduct operations in Mexico to combat such organizations. The effects of the designation are limited to the criminal and civile justice systems, and punishable by awarding damages, fines and incarceration.
