We have some new vernacular to bring into the compliance arena — companies need to address risks of interacting with cartels and transnational criminal organizations (TCOs).  Companies need to understand the laws used to designate cartels and other organizations as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs).

Under current criminal and sanctions laws, FTOs and SDGTs create criminal and civil risks for companies that provide “material support” to designated entities.  It is a criminal offense to provide “material support” to FTOs under 18 U.S.C. §2339B.  Title 18 includes civil liability as well under 18 U.S.C. §2333(a),(d). If a company conducts business with a SDGT, the company faces similar penalties to dealing with an SDN — civil penalties for violation and potentially criminal for a “willful” violation.

Companies that operate in cartel or TCO areas have to be especially careful.  In reviewing a company’s operations, it is important to conduct an end-to-end analysis.  In other words, from which regions does a company’s supply chain reach and how far does its distribution channel extend.  In reviewing this picture, sources of raw materials and end users of finished products need to be identified.  A geogrphic end-to-end picture is essential. 

Cartels and TCOs extend their influence and economic reach into the economies, communities and local or regional governments.  Extortion or bribery demands can occur but even more “passive” interactions can occur — payments for “legitimate” goods or services.  In this case, know your customer principles apply with equal force to these potential risks.

An extreme example was the 2022 LaFarge case in which the company paid a fine of $778 million for providing material support ISIS and the al-Nusrah Front (ANF) both of which were designated FTOs.  LaFarge’s subsidiary plead guilty to the criminal offense.  Lafarge acknowledged that it paid ISIS and ANF for permission to operate a cement plant in Syria, from which Lafarge earned $70 million in revenue. Lafarge paid these terrorist organizations not only for permission to operate in Syria but to cause economic harm to Lafarge’s competitors.  Another example is the well-known Chiquita Banana case in which Chiquita was accused of making illegal payments to AUC, an FTO, and eventually agreed to pay a $25 million criminal penalty.

These are extreme examples.  But they make a point that companies have to understand.  Companies have to manage a new set of third-party risks, where the service providers may be directly or indirectly linked to SDGTs or an FTO.  This is not common but it has come up on occasion.  Beneficial ownership inquiries will become even more important since SDNs, SDGTs, and FTOs often maintain tentacles and relationships that appear legitimate but in fact may be a convenient mechanism to launder funds or earn illegal proceeds.

This risk is particularly acute in supply chains — where payments may be made to producers or suppliers of various raw materials and other items that can be incorporated into a company’s productions. Such payment arrangements can involve front organizations for cartels and TCOs.  Again, these risks point to the need to KYC principles.

Another significant area of risk is interacting with banks and money service businesses.  AML compliance is critical in this area.  For banks and other financial institutions, have to maintain Bank Secrecy Act (BSA) compliance programs to address all AML risks. DOJ and FinCEN are likely to focus on prominent FTOs and sanctioned countries like Iran and North Korea. In addition, DOJ and FinCEN will focus on Hamas and its related organizations.