For banks and their employees, the time to act is not next quarter, or even next month. The time is now.
On his first day back in office, President Trump signed Executive Order 14157, a sweeping measure that reclassified major Mexican drug cartels as Foreign Terrorist Organizations (FTOs). While the order is framed as a crackdown on cartel violence, its reach extends far beyond law enforcement. For the first time, banks, lenders, and global investment firms may face criminal liability for transactions that even indirectly involve a designated cartel.
From Narco-Trafficking to Terrorism
By labeling cartels as FTOs, the executive order shifts drug enforcement into the realm of counterterrorism law. That shift matters because U.S. law imposes some of the strictest sanctions in the world on transactions involving designated terrorist groups.
Under the material support statute (18 U.S.C. § 2339B), providing funds, goods, or services to an FTO is a federal crime regardless of intent. For banks, that means even an otherwise routine loan, payment processing service, or cross-border wire transfer could expose the institution to prosecution if the counterparty is later found to have any ties to the cartel.
The penalties are steep: criminal charges, civil forfeiture, and asset freezes. Worse, knowledge is not always required. In certain cases, “should have known” standards can apply, making strict compliance essential.
A Preview of Enforcement
The administration wasted little time showing how aggressively the new policy will be applied. Just weeks after the executive order was signed, ICE arrested Mexican boxer Julio César Chávez Jr. in California for alleged ties to the newly designated Sinaloa Cartel. The arrest came only days after his nationally televised fight with an internet personality, showing that enforcement will be swift, public, and highly visible.
While Chávez Jr. himself is not specifically tied to a bank, his case illustrates how quickly ties to cartels, once designated as terrorists, can trigger federal action. Financial institutions, especially those with Latin American clients, correspondent banking relationships, or a high amount of cross-border transactions are now in the government’s direct line of sight.
Why Financial Institutions Are at Risk
Banks and other financial firms are vulnerable because of their central role in global commerce. Unlike private individuals, financial institutions are intermediaries in thousands of transactions daily, many of which touch regions where cartels operate. Even an indirect connection could be enough to raise red flags under the new regime.
Institutions most at risk include:
- Correspondent banks that process international transfers on behalf of smaller regional institutions.
- Investment firms with exposure to Latin American markets, particularly in sectors such as agriculture, mining, or logistics.
- Lenders and private equity funds financing companies with opaque ownership structures or cross-border supply chains.
The key legal challenge lies in defining what constitutes “material support.” Courts have interpreted the term broadly, covering not just cash but also services, advice, or facilitation. For banks, that could mean everything from opening an account to extending credit.
What Companies Must Do Now
Executive Order 14157 is not a distant threat; it is active law, and financial institutions should respond immediately. At EPGD Business Law, we’ve seen how quickly lenders and investment firms are reevaluating compliance in light of this order, particularly those with cross-border exposure.
- Audit existing relationships: Compliance teams must review client portfolios, correspondent banking ties, and third-party service providers. Any connection to businesses with even indirect exposure to cartel-linked industries requires scrutiny.
- Strengthen due diligence: Traditional anti-money laundering (AML) and Know Your Customer (KYC) processes may no longer be enough. Banks will need to expand their screening tools to detect not just money laundering risk but also terrorist designation risk.
- Revise contracts: Standard financial agreements should now include enhanced representations and warranties requiring counterparties to certify that they have no dealings with FTOs. Breach clauses should be updated to allow immediate termination if exposure is discovered.
- Train compliance staff: Many professionals are accustomed to AML protocols but may not be familiar with counterterrorism obligations. Training should emphasize the expanded definition of material support and the legal environment regarding FTOs and liability.
- Coordinate internationally: For global institutions, the challenge is compounded by differing foreign laws. European or Latin American regulators may not recognize cartels as terrorist organizations, creating compliance conflicts. U.S. banks must prepare for this legal discrepancy.
What Employees Should Know
It’s not just institutions that face exposure. Individual employees, from compliance officers to loan officers, could also find themselves under investigation if they sign off on transactions that later appear linked to an FTO.
Employees should:
- Escalate suspicious activity even if it does not fit the classic profile of money laundering.
- Avoid assumptions that longstanding clients are “safe.” Under the new order, historic relationships may suddenly carry new risks.
- Seek legal guidance if they are asked to approve transactions involving high-risk jurisdictions or counterparties.
A Climate of Uncertainty
The biggest unknown is how broadly the Department of Justice and Treasury will apply these powers. Cartels have left a wide economic footprint, from real estate to trucking, meaning that otherwise legitimate businesses could be pulled into investigations.
Banks caught in the middle may find themselves litigating not just compliance errors but also what it means to work with a designated group.
Looking Ahead
The designation of cartels as terrorist organizations has redrawn the compliance map overnight. For financial institutions, the risk is not abstract; it is immediate and substantial. The institutions that adapt to this executive order now by auditing contracts, revising compliance frameworks, and training personnel will be far better positioned to weather this new era of enforcement.
For employees, awareness is equally critical. Every cross-border transaction must be viewed through a new lens: one that sees not just money laundering, but potential terrorist financing.
As recent enforcement actions show, this is no longer a theoretical risk. The U.S. government has signaled that it intends to apply the law vigorously and publicly. For banks and their employees, the time to act is not next quarter, or even next month. The time is now.
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