Background on the Issue
On January 20, 2025, U.S. President Donald Trump issued an Executive Order instructing the designation of certain drug cartels as Foreign Terrorist Organizations (FTOs). Following this, the intervention of three financial institutions accused by the U.S. Department of the Treasury of money laundering for drug cartels has put the Mexican financial sector under scrutiny.
Expert Insights and Implications
Alyssa Iyer, Director of Anti-Money Laundering Prevention at Lynx Tech, a firm specializing in fraud and financial crime detection, explains that this designation implies any interaction, even unintentional or minimal, with these groups could be considered material support for terrorism. This includes business links with companies that appear legal but may be connected to criminal organizations.
“This poses a significant risk for most Mexican businesses, as these organizations often operate through seemingly normal and compliant companies. With this designation, any company or financial institution doing business with an entity owned, controlled, or used by these groups could be deemed as a terrorism collaborator. Therefore, thorough due diligence processes and the ability to identify red flags are crucial to avoid unintended involvement,” warns Iyer.
Challenges for the Mexican Financial Sector
Despite having a robust regulatory framework and extensive supervision mechanisms, according to Álvaro Vértiz, a financial sector specialist and partner at consultancy DGA Group, Mexico faces complex challenges.
“Mexico has historically been a reference in preventing such conduct. However, institutions must ensure their staff strictly adheres to established processes. Regulation can always be refined (…), and the focus should primarily be on each institution’s internal compliance programs,” Vértiz emphasizes.
Key Questions and Answers
- What is the significance of designating drug cartels as FTOs? This designation implies that any interaction, even unintentional, with these groups could be considered material support for terrorism.
- How does this impact Mexican businesses? Most Mexican businesses face significant risk due to the cartels’ tendency to operate through seemingly legitimate companies. Any business link with entities owned, controlled, or used by these groups could be deemed as terrorism collaboration.
- What measures should Mexican financial institutions take? Institutions must strengthen their monitoring and control processes. They should ensure staff strictly follows established procedures, with a primary focus on internal compliance programs.
