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      What are the business implications of the U.S. Government's Executive Order on designating drug cartels as Foreign Terrorist Organizations (FTOs)?

      What risks do companies in Mexico face in this situation?

      The Legislative Observatory of Global Affairs of the Chamber of Deputies points out that the announcement by the United States (US) government regarding the designation of criminal groups as FTOs has created significant uncertainty for companies across various sectors. This situation necessitates a prioritized focus on identifying risks within value chains, as well as on preventing possible sanctions and disruptions to trade flows.1

      The designation, issued on February 20th, 2025, prohibits individuals and entities from providing "material support" to these groups; however, this term is broadly defined and may encompass both tangible and intangible goods, from money and lodging to financial services, training or advice.

      This complicates the identification of specific risks, making it essential to enhance preventive measures to cover a wide range of activities that could be penalized by third-party or involuntary actions.

      In this context, companies should consider the following elements so that, with the appropriate advice, they can strengthen their prevention and compliance management systems.

      1. Preventive approach

      Since the concept of "material support" is not precise, it is necessary to strengthen due diligence processes to mitigate risks. In this sense, a qualified third party can support in performing supply chain assessments, verifying the clauses in contracts and implementing preventive and corrective measures.

      2. Risk Management

      Organizations must establish comprehensive risk management frameworks that enable them to identify potential supply chain impacts. Among the main triggers are:

      • Misuse of company assets
      • Transactions in high-risk areas
      • Relationship with third parties (suppliers or customers) that could have illicit links
      • Theft of Sensitive Data
      • Recruitment without proper background checks
      • Fraud in payment methods

       

      3. Identification of obligations and updating of preventive programs

      Although compliance issues in Mexico vary across sectors, it is important to recognize the value of identifying risks and potential sanctions in the face of U.S. government designation. With the specialized support of a third party, companies can:

      • Analyze compliance gaps and confirm activities that, until now, have gone unnoticed, and may generate new compliance obligations
      • Design or improve third-party risk classification criteria
      • Evaluate process automation and, if necessary, use artificial intelligence (AI) to monitor key processes (i.e. transaction monitoring and sanctions screening)
      • Coach and train talent in understanding risks, their materialization and potential impacts
      • Implement reporting mechanisms that address specific risks
      • Design and implement efficient response and communication protocols

      4. Protección frente a riesgos

      While reactive decisions such as de-risking should be avoided, companies should perform risks assessments that consider the level of risk exposure and the degree of risk aversion, as the impact of the designation could lead to an insufficient understanding of the Know Your Customer principle (KYC). In this regard, some aspects to consider are:

      • Establishing or enhancing the due diligence processes, including third parties, such as customers and suppliers, and including second or third-level reviews for high-risk cases
      • Consider outsourcing the due diligence processes to transfer or share risk, in addition to accessing tools and procedures developed by specialists
      • Setting up regular updates of third-party information, contract reviews, implementation of audit clauses and underutilized risk mitigation mechanisms

      5. Reinforcement of controls

      As companies face increased compliance requirements, especially in international transactions, access to financing may be complicated by anti-money laundering banking restrictions. Furthermore, in the face of increased scrutiny of the supply chain, rigorous evaluations must be conducted to avoid links with criminal groups.

      Penalties for non-compliance may include fines in the millions of dollars, loss of access to the U.S. market, among others. As a result, proactive risk management controls and key measures focused on the prevention of terrorist financing are required, including the following:

      • Implement or enhance customer classification matrix, according to sector, geographic location, and type of transactions
      • Strengthen transaction monitoring processes and establish early alerts to flag suspicious changes in transaction activity
      • Monitor the supply chain for the timely detection of infiltrations in areas with a high criminal presence, and identify businesses with higher risk levels, such as those related to transportation, logistics, agrobusiness, financial services, among others
      • Execute due diligence processes to assess and validate the legal identity of suppliers and partners, screen records against blacklists and, where necessary, inspect facilities to confirm the company's existence

      Any payment or material support made to undertakings, organizations or individuals linked, knowingly or unwittingly, to a criminal group could be interpreted as a form of support for terrorist organizations.2

      The measures established by the U.S. against individuals and organizations linked to terrorism include blocking assets, prohibiting transactions and other restrictions on entities.3

      While criminal groups in Mexico have been subject to financial sanctions by the U.S. government, the designation of these organizations as FTOs creates an environment of uncertainty for companies, while at the same time driving a sense of urgency to strengthen due diligence systems, compliance controls, risk management and immediate actions in the face of potential threats.

      Our services

      KPMG Mexico can advise you on supply chain monitoring, due diligence and surveillance of vulnerable situations for companies, in the following topics:

      • Proactive risk management
      • AML / CFT Gap analysis
      • Efficient technological solutions for risk monitoring
      • Fraud risk management
      • Development and implementation of financial crime prevention programs|
      • Design and implementation of sanctions programs (terrorist financing or TF)
      • Contracting out of due diligence processes
      • Design, implementation and restructuring of third-party risk management programs
      • Analysis and update of internal policies and guidelines related to the prevention of terrorist financing.
      • Review and updating of contractual clauses as a risk mitigation and liability measure
      • Anti- Money Laundering / Counter the Financing of Terrorism (AML / CFT) training

      Contact our specialists to protect your operations from possible indirect links to people, entities and actions sanctioned by the Office of Foreign Assets Control (OFAC).

      1 Designación de cárteles como terroristas: Implicaciones y desafíos en la relación México – Estados Unidos. Observatorio Legislativo de Asuntos Globales, Cámara de Diputados, 2025.

      2 Ídem.

      3 Terrorist Designations and State Sponsors of Terrorism. Executive Order 13224, U.S. Department of State, 2001.