Bordering On Risk: How Trump's Executive Order On Cartels Creates New Challenges For Cross-Border Firms
Bordering On Risk: How Trump's Executive Order On Cartels Creates New Challenges For Cross-Border Firms
Scrambling to secure a border legacy, the Trump administration’s Executive Order 14157, Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists entered force on January 20, 2025, ushering in a new era of third-party risk. Given the US’s hard line on direct or indirect ‘material support’ to a foreign terrorist organization (FTO), the Executive Order creates new risks for US firms using third parties in regions where cartels are wholly interlaced with state operations.
For organizations with supply lines across the US-Mexico border, the cartel’s multifaceted involvement with Mexican and Latin American society means the risks of unintentionally engaging in material support exceeds scopes once considered reasonable by most TPRM metrics. This is not a new phenomenon: NGOs operating in Syria in December 2024 faced a grey area of risk when refuelling their vehicles. With the FTO-designated Hay'at Tahrir al-Sham now in government and collecting VAT on petrol, questions swelled around the extent to which operational expenditure could be seen as material support.
In the case of E.O. 14157, the overnight designation means many existing TPRM frameworks are suddenly ill-equipped to properly assess the scope of third-party risks in regions of Mexico where the cartel’s influence stretches into political, economic and industrial spheres. While this influence has always been a largely dormant element of third-party risk management (firms tacitly accepted that an extremely minor proportion of fees paid to Mexico-based suppliers may be absorbed by cartels), the Trump administration’s framework has elevated this issue into a significant external threat. Now, unless proactive mitigation strategies are undertaken, organizations risk exposure to sanctions, reputational damage and legal liability.
What should organizations do? Third-party due diligence assessments must rapidly expand to begin tracking supplier interactions with regional entities who could be under some cartel control. Any platforms used for this will now need to coordinate alongside counterparties to ensure screening procedures are properly implemented throughout the supply line. Transport and logistics providers are among the top risks here: vehicles used by third parties create one of the easiest triggers of aiding and abetting allegations if registered to or legally kept by cartel affiliated persons. Anti-money laundering (AML) and know-your-customer (KYC) procedures should also be bolstered internally, giving chief risk officers critical insight into potential links between suppliers and illicit networks, and whether there are discrepancies in transactions or ownership structures that could signal cartel activity. Enhanced training for red flags and substandard transparency reports within value chains should take priority.
While this change largely entails a compliance risk, it’s reputational too. It’s fair to say that the fallout from being labelled a ‘terrorist-financer’ sits at the extreme end of brand harm – a metric that extends far beyond sanctions and liability alone. E.O. 14157 and its atomization of risks across the value chain highlights a trend that is here to stay: if any firm with supply lines across Mexico is still without a TPRM platform, this is their wake-up call. For more information on TPRM software, see Verdantix Buyer’s Guide: Third-Party Risk Management Software and stay tuned for our upcoming Smart Innovators in this space.
