Compliance Considerations: Classifying Cartels as Foreign Terrorist Organizations

When the U.S. designated two criminal organizations in Brazil as Foreign Terrorist Organizations (FTOs) in June 2026, it reignited concerns around the implication of the 2025 executive order that enables the U.S. to designate cartels and transnational organizations as FTOs and, derivatively, as Specially Designated Global Terrorists (SDGTs).

Concerns stem not from the classification itself—one can argue newly classified organizations are terroristic in nature—but how the U.S. will treat corporations using the broad-brush “material support” definition that can trigger enforcement.

Eight cartels were designated as FTOs in early 2025—six Mexican cartels and two transnational organizations—with the list eventually expanding to 20 across Latin America; Los Viagras and the Juarez Cartel became the latest additions in July.

The designations have increased the importance of compliance programs, with even modest infractions, such as having a third-party distributor paying a cartel fee to transport goods through a controlled area, potentially triggering civil and criminal liability under U.S. law. Entire supply chains are vulnerable; it is no longer enough for organizations to ensure they cut direct ties to criminal organizations.

In Brazil, companies are now grappling with this reality as two wide-spanning criminal organizations, Comando Vermelho (CV) and Primeiro Comando da Capital (PCC), were designated as FTOs in June 2026. Following the designation, the U.S. Department of Treasury sanctioned three Brazilian companies, one Portuguese company and two Brazilian nationals for their connection to PCC.

Cartels and criminal organizations are deeply embedded in Latin American infrastructure, especially Mexico. Assessing exposure and minimizing risk of enforcement is challenging, and in some cases nearly impossible. The complexity of potential FTO-related enforcement adds to the already difficult secondary sanctions risks faced by Latin American financial institutions and businesses, and there is no one-size-fits-all solution. Many companies are still evaluating how to manage these risks, whether they emanate from direct counterparty relationships or indirect exposure.

Criminal Organizations Designated as FTOs Under Executive Order 14157

Compliance Considerations: Classifying Cartels as Foreign Terrorist Organizations

How the U.S. Arrived at Executive Order 14157

Signed on January 20, 2025, Executive Order 14157 signaled the U.S. administration’s intent to systematically apply pre-existing terrorism authorities to individuals and organizations that had primarily been targeted through other enforcement authorities. This policy decision has fundamentally changed the scope, depth and consequences of Latin American compliance programs. The buildup to this new policy approach was, however, decades in the making, driven in large part by the growing scale and severity of the violence perpetrated by transnational drug-trafficking organizations and cartels to assert and maintain influence and control over their areas of operation.

As cartel reach has expanded beyond drug trafficking to include terrorist-like violence and control of regions, the U.S. has increasingly been working to implement enforcement mechanisms to weaken the organizations and cut off access to the U.S. financial system. The December 1999 Foreign Narcotics Kingpin Designation Act asserted the United States’ intent to apply economic sanctions to significant foreign narcotics traffickers to protect national security. Executive Order 14059, signed in 2021, further expanded the U.S.’ ability to target individuals and organizations involved in international drug production and trafficking, a concerted attempt to disrupt the growing threat posed by fentanyl.

Executive Order 14157 enables the U.S. to apply its expansive, extraterritorial, discretionary and often existentially significant terrorism authorities to fight against organized crime, greatly changing the impact of interactions with individuals and organizations connected to sanctioned drug-trafficking FTOs and SDGTs. The potentially broad application of the prohibition against providing “material support” to an FTO does not specifically account for a company’s intent. For example, a business that makes protection payments to an FTO may still face significant scrutiny and enforcement risk. While deliberate obfuscation is an aggravating factor, it is not necessary to support potentially organizational-threatening criminal or administrative actions and penalties.

Ultimately, organizations are still unsure on what the enforcement landscape will look like for the gray space between disassociation and cooperation with FTOs and SDGTs. However, at a minimum, organizations must start strengthening compliance practices in the area to proactively avoid the risk, both to protect the future of the organization and leadership from criminal prosecution, financial sanctions and administrative penalties. In the world of discretionary enforcement, showcasing proper green flags can be as important as avoiding red ones.

Real-World Compliance Shifts for Organizations

Financial institutions, businesses and their leadership must act now to strengthen due diligence and compliance practices, making necessary adjustments to ensure they are ready to defend their ongoing business practices against potential criminal or administrative liability. Organizations should strive to implement risk-based, reasonable practical enhancements to due diligence and compliance programs in a way that is feasible, prioritizing enhanced due diligence on third parties identified as high-risk.

Setting the highest global standards means little if they are neither sustainable nor practical to implement. While organizations cannot control the complexity of operating within cartel-controlled regions, they can ensure their compliance programs are able to adequately and practically identify and mitigate potential risks and ensure proper documentation of their efforts.

Most transnational Latin American companies may not be—at least knowingly—involved in cartel activity. However, strengthening compliance programs can help identify where a company may be exposed to FTO risk. Improving practices can have other benefits, including the detection and mitigation of fraud, conflicts of interest and corruption risks.

Organizations must assess risk exposure in their own supply chains and the risks posed by third parties and clients. An organizational risk assessment is the foundational building block to an appropriate risk-based compliance approach, enabling organizations to understand their overall level of exposure, defining their risk appetite and determining where to prioritize resources.

Enhanced due diligence, for example, is one tool in the risk-based compliance toolbox that should be deployed to protect organizations from inadvertent FTO or SDGT-related exposure. This must go beyond simple list-based screening to involve active scrutiny and engagement that is controlled and documented through a clearly identified process. Historically, companies operating in high-risk areas and high-risk industries may have avoided asking questions about their third parties to avoid discovering an uncomfortable truth. Under the FTO framework, such willful blindness could lead to liability for a company and its directors.

Uncertainty as Opportunity

Documentation is just as critical. The due diligence practices of a compliant organization must be recorded, serving as an internal safeguard against unacceptable deviations from policy and procedure and as defensible evidence in the case of government probes. Evidence of risk should correspond with action, including terminating relationships as necessary.

But identifying and acting on risk is not always straightforward. Cutting ties—or avoiding FTO- and SDGT-designated cartels can be difficult or carry security consequences. Companies must do the best they can by controlling the egregiousness of any potential perceived material support violations.

In a world where competitors may be paralyzed by indecision, strong leadership can seize control of these moments to reassert their control over supply chains, vendors and commercial partners.

Kroll is uniquely positioned to stress test compliance programs, assess FTO and terrorism sanctions-related risks and conduct third-party due diligence, helping organizations mitigate exposure and strengthen compliance frameworks. In a world where global standards are often not tailored to address local challenges, organizations can turn to seasoned practitioners with criminal and regulatory experience to understand how enforcement priorities may be applied.

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