New US anti-terror designations targeting certain Latin American and Caribbean transnational criminal cartels as Foreign Terrorist Organizations (FTO), or Specialty Designated Global Terrorists (SDGT), are causing companies of all sizes in the region to re-examine how funds flow through their supply chains. Although many established businesses and financial institutions operating there are well informed about established anti-money laundering (AML) obligations, this new anti-terrorism overlay imposes a more urgent level of compliance review. This scrutiny is especially important given the severity, broad interpretation, and extraterritorial sweep of the US regulatory dragnet. The US Treasury and Justice Departments have allocated significant resources to enforcing these new rules and have announced their enforcement as a clear priority for the national security of the United States.
Businesses operating in this expansive trade region are now subject to significant new US extraterritorial criminal and civil liabilities by continuing to do business with suppliers, third party vendors and financial institutions that may have been coerced into working knowingly with the cartels or have become unintentionally intertwined with those criminal organizations through negligent AML compliance. Key aspects of the new anti-terror designations are the broad interpretation of what constitutes “providing material support or resources” to an FTO and the secondary sanction risks for “conducting or facilitating” transactions on behalf of SDGT’s – and willful blindness is not a defense to violating the rules.
The full ramifications of those Latin American cartel designations are not entirely clear yet. For example, US Government vendors that have reasonably discernible entanglements (although not necessarily obvious ones) with FTOs or SDGTs in their supply chains could also violate the False Claims Act (FCA), which carries its own criminal exposure and draconian financial penalties. Consequently, a vendor’s erroneous representation to the Government that it is free of any such tainted associations could – under the FCA – subject a business to an army of private whistleblowers seeking crippling monetary awards.
These new risks are far from speculative. Shortly after the US Department of State designated the FTO’s and the US Treasury Department designated the SDGT’s, the Treasury Department’s Office of Foreign Assets Control imposed secondary sanctions on numerous Mexico-based companies for their alleged support of FTO’s. Those companies operate in a wide array of industries, ranging from household goods, pharma and other wholesale consumer items to oil and petrochemicals.
That seismic shift was quickly followed by the US Treasury Department designating three Mexican financial institutions, CIBanco, Intercam, and Vector, as “primary money laundering concerns.” According to the US Government, those organizations were assisting Mexican FTO’s to launder illegal, cross-border transfers. Those designations immediately severed each of those financial institutions from the US banking system, compelling the Mexican Government to restructure them under its direct supervision. As a result, honest businesses have been derailed, face real reputational injury, and have been barred from accessing necessary capital and critical banking services.
The problems get even worse. Many Latin American and Caribbean middle market businesses rely on new fintech platforms to process their cross-border payments and remittances. Given the region’s wide disparity in AML compliance requirements, it is often difficult for many of those fintechs to ensure best-in-class compliance standards, let alone on-going and timely implementation of updated US anti-terrorism designations. Given the entrenched practice of bad actors, who launder illicit proceeds through crypto exchanges used by many of these same financial service providers, legitimate businesses remain considerably exposed to unwanted and pernicious associations with designated cartels.
Recognizing that problem, however, is only the first step in solving it. Several major law firms have already studied the operational fallout from those designations for regional and multinational companies. Many of those firms have come away recommending that clients undertake heightened AML compliance reviews and implement more nuanced risk assessment protocols. Fair enough, but most of that advice is overly generic and bookish. As Pablo Escobar once said, “the streets will teach you more than any classroom.”
To overcome these new hurdles, clients need hands-on help from experts who have lived their professional lives on the right side of the “street.” Those are people who, from experience, know the bad guys and their tricks. They must also know how to purge corruption thoroughly from both an organization’s mundane and complex operations.
In short, the extensive penetration of supply chains and financial institutions by designated terrorist entities is a cancer that threatens business in the Caribbean and Latin America. Prevention and treatment require an integrated team strategy. Led by experienced legal counsel – which has close and longstanding relationships with seasoned intelligence, law enforcement, forensic, diplomatic, and financial professionals – can effectively and confidentially inoculate a commercial enterprise against cartel risk.
Broadfield is uniquely qualified and ready to help.
