Developments in the Financial Services Industry

The second Trump administration has launched numerous efforts to deregulate certain industries and cut government spending. However, the administration’s intense focus on Mexico and border control –and the intensified crackdown on drug cartels from that region – underscores the financial sector’s growing role in national security and foreign policy enforcement and its increased regulatory, civil, and potentially, criminal, exposure.
 
On his first day in office, President Trump signed Executive Order 14157 initiating the designation of certain international drug cartels as Foreign Terrorist Organisations (FTOs). The stated rationale for this order was a rise in violence across the western hemisphere and the proliferation of drugs, criminals, and gangs into the U.S. through the southern border. In response, on 20 February 2025, the State Department formally classified eight cartels under these designations, triggering sweeping legal and financial consequences.
 
Additionally, on 11 March 2025, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a Geographic Targeting Order (GTO) aimed at disrupting drug trafficking and money laundering along the southwestern border of the United States. The 11 March GTO lowered the Currency Transaction Reports (CTR) threshold from $10,000 to $200 for money service businesses operating in 30 zip codes across California and Texas. The significant reduction of the CTR threshold reflects the Administration’s concern that cartels have been able to launder illicit drug proceeds through small but frequent transactions that evade traditional detection mechanisms. The GTO affects money service businesses (MSB), including check cashers, money transmitters, and foreign exchange dealers, rather than traditional banks. However, its implications extend far beyond MSB and may soon reach more traditional banking institutions.
 
These moves significantly expand the enforcement scope of the Treasury’s Office of Foreign Assets Control (OFAC), which oversees sanctions, as well as the Department of Justice (DOJ) National Security Division, which oversees federal counterterrorism prosecutions in the U.S. Under U.S. law, the FTO designation prohibits financial institutions from transacting with these organisations and mandates the immediate blocking or freezing of assets linked to them. The new FTO designations carry an increased risk of regulatory investigations, civil litigation and forfeiture risk, and criminal exposure for the financial sector.
 
Compliance and investigations
 
This change requires a fundamental reassessment of Bank Secrecy Act (BSA), Anti-Money Laundering (AML) and OFAC compliance strategies. Financial institutions, especially those operating in high-risk regions, must update risk management frameworks, refine their sanctions screening processes, and bolster due diligence measures to ensure they do not inadvertently facilitate transactions tied to cartels. Even transactions that do not explicitly list cartel-affiliated individuals or businesses may pose risks, necessitating enhanced scrutiny of financial flows originating from cartel-controlled regions. Financial institutions must prepare for a rapidly evolving regulatory environment and should focus on assessing whether their operations and systems are reasonably designed and implemented to mitigate and address money laundering, terrorism financing, and other illicit financial activity risks.
 
DOJ has recently bolstered and made more certain the benefits for companies that voluntarily disclose criminal violations, which include declinations of any prosecution and significant reduction in monetary penalties. DOJ has also stated that it will shift its focus to crimes involving the following activities, among others:
 

• Financial institutionsand their insiders that commit sanctions violations orenable transactionsby cartels, transnational criminal organisations, hostile nation-states, and/or foreign terrorist organisations;
• Material support by corporations to foreign terrorist organisations, including recently designated cartels;
• Organisations involved in laundering funds used in the manufacturing of illegal drugs; and
• Crimes involving use of digital assets which involve cartels, terrorist groups, or facilitating drug money laundering or government sanctions evasion shall receive highest priority.[1]

 
These enforcement policy changes highlight the need for companies to conduct effective internal investigations and have in place strong and adaptive compliance controls and programs.
 
Civil litigation and forfeiture risk
 
In addition to shifting compliance strategies, the new FTO designations carry an increased risk for civil litigation under the Anti-Terrorism Act (ATA). Federal courts throughout the country have seen an increase in civil matters against banks for providing financial services to FTOs and/or their affiliates, and therefore “aiding and abetting” acts of terrorism. While these claims ordinarily involve foreign banks, these new designations could result in similar lawsuits against U.S. depository institutions should the factual circumstances give rise to a plausible allegation that a financial institution has knowingly provided substantial assistance to any organisation designated as an FTO.
 
Additionally, any change in currency thresholds for filing CTR reports with FinCEN, like those set forth in the recently issued GTO, has the potential to increase forfeiture risk to many companies in the financial sector. The government may look to seize assets held by money transmitters or MSB as either proceeds of a crime or to use for evidence of money laundering or drug trafficking crimes, in which, unbeknownst to the MSB, may have been used as part of a money laundering or drug trafficking scheme.
 
Criminal exposure
 
The new designations create heightened risk of DOJ scrutiny for businesses operating in countries where these cartels have a presence or for businesses that cartels use in furtherance of their illegal activities. For example, financial institutions and companies may face criminal investigation and prosecution for allegedly providing “material support or resources” to a designated FTO under 18 U.S.C. Section 2339B and/or sanctions violations under IEEPA.
 
The DOJ has brought such criminal prosecutions of corporate entities in the past. In 2022, for example, Lafarge S.A., a French cement company, and its indirectly-owned Syrian subsidiary pleaded guilty to conspiring to provide material support and resources to FTOs ISIS and the al-Nusrah Front (ANF). They admitted to negotiating with and paying these armed groups in Syria for protection, continuing operations in areas they controlled, and gaining economic advantages. As part of their sentence, they were ordered to pay $777.78 million in financial penalties. Shortly thereafter, victims of the FTOs sued Lafarge civilly under the ATA.
 
Additionally, in 2007, DOJ prosecuted Chiquita Brands International for sanctions violations under IEEPA in connection with “security payments” the company made to a Colombian organisation designated as a FTO that were intended for protection and to prevent physical harm or damage to company personnel and property. Chiquita ultimately pled guilty and paid a $25 million penalty. As with Lafarge, Chiquita subsequently faced civil liability for this conduct as well. These prosecutions under prior administrations provide a roadmap for the current administration should it follow through on its promise to significantly increase its enforcement efforts against corporations with operations abroad that have exposure to cartels, terrorists, or hostile nation-states.
 
Therefore, the federal government has significant regulatory and enforcement tools at its disposal and has made clear that it will now leverage those tools against cartels and other terrorist organisations and any corporation that facilitates those groups. The financial industry, particularly those in geographic regions or who provide services to cartel-controlled areas, now face heightened risk of regulatory, civil and/or criminal investigation and prosecution.