The designations expand US tools and jurisdictional reach, and raise the stakes for foreign financial institutions and non-US companies to avoid dealing with designated entities.

By Eric Volkman and Lucas Baker

On February 20, 2025, the US Department of State designated eight drug cartels as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs). This action implements Executive Order 14157 and is also in accordance with the US Attorney General’s February 5, 2025, Memo (“Total Elimination of Cartels and Transactional Criminal Organizations”), both of which instructed relevant agencies to use their powers under the Immigration and Nationality Act (INA) and the International Emergency Economic Powers Act (IEEPA) to combat drug trafficking and dismantle transnational criminal organizations (TCOs).

The designations include these entities on the list of Specially Designated Nationals (SDNs) maintained by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC). US persons are prohibited from any dealings with SDNs and all property and interests in property of designated individuals or entities that are in the United States or that come within the United States, or that come within the possession or control of US persons are blocked.

While some of the designated entities were already SDNs, their re-designations as FTOs and SDGTs have two significant consequences — particularly for non-US persons that may come into contact with these organizations or their network of controlled companies.

First, designation as a SDGT can trigger “secondary sanctions” on foreign financial institutions that deal with these organizations. Specifically, Executive Order 13886, issued during President Trump’s first administration, authorizes the Secretary of the Treasury to prohibit or impose strict conditions on foreign banks opening or maintaining US correspondent accounts if such banks have knowingly conducted or facilitated any significant transaction on behalf of an SDGT.

Second, designation as an FTO exposes persons that deal with these organizations to the risk of criminal prosecution, under 18 U.S.C. § 2339B, for providing “material support or resources” to FTOs. Courts have defined “material support” very broadly, and violations can lead to severe penalties, including fines and imprisonment of up to 20 years, or a life sentence if death results from the support. In addition, the statute’s broad extraterritorial reach extends well beyond the “US person” standard applicable to most sanctions programs, and can reach conduct by foreign persons that occurs outside of the United States.

Together, these designations unlock a number of powerful new tools the government can employ to target these criminal organizations. They also raise the stakes for foreign financial institutions and non-US companies to ensure that they are not dealing with these designated entities.

Latham & Watkins’ White Collar Defense and Investigation teams offer guidance to US and international clients navigating these compliance challenges.