Labeling Mexican cartels ‘terrorists’ could expose US companies to sanctions.

President Trump’s designation of Mexican cartels and other criminal organizations as foreign terrorists could force some U.S. companies to abandon business in Mexico rather than risk U.S. sanctions, former government officials and analysts said — an outcome that could have a major impact on both countries. In terms of deep economic ties.

The executive order Mr. Trump signed on Monday is aimed at increasing pressure on Mexico to crack down on the dangerous drug trade. The designation generally gives the administration more power to impose economic sanctions and travel restrictions, and to take military action abroad.

However, disentangling cartel operations from U.S. interests in Mexico may be more complicated. Mexico is the United States’ largest trading partner, and many American companies have manufacturing operations there.

These increasingly sophisticated criminal networks have extended their operations beyond drug trafficking and human trafficking. They are now embedded in a vast legal economy, from avocado farming to the nation’s billion-dollar tourism industry, making it difficult to be completely certain that American companies are immune to cartel activity.

“This has come from the political landscape of previous administrations and members of Congress who wanted to do this,” said Samantha Sulton, senior adviser for sanctions policy and risk finance in the Trump and Biden administrations.

“But no one did because they saw what the implications would be on trade, economic and financial relations between Mexico and the United States,” she added. Although previous administrations viewed US-Mexico relations differently than the incoming Trump administration, they all came away thinking that such a designation was actually extremely short-sighted and unimaginative.

A foreign terrorist designation can result in severe penalties for companies and individuals found paying ransom or extortion payments — including hefty fines, asset forfeiture and criminal charges. US companies can be unwittingly caught up in regular payments from cartel-controlled Mexican companies.

Some extortion payments, even if forced, can be considered “material support” for cartels, said Pablo Zarate, senior manager at FTI Consulting. Report Establishing some dangers of the designation of terrorism.

Given the tens of thousands of people involved and operating in various industries, including the hotel and agriculture sectors, it is impossible to identify which businesses are linked to cartel members, former US officials and analysts said. Cartels use the legal economy to launder money, which means unwitting workers at a resort or an avocado packing firm may technically be on the cartel’s payroll, but they don’t know it.

As a result, companies in the vulnerable U.S. financial sector simply refuse to link money to Mexican factories, such as to facilitate cross-border production and trade, or to spread money between personal accounts.

Eric Jacobstein, a former State Department official in the Biden administration, said: “Banks may turn their customers away because they don’t think they’re worth the risk if they have ties to Mexico.”

Fabian Teichmann, a Swiss lawyer and terrorist financing expert, said banks may eventually decide to avoid all sectors they perceive as high-risk. Mr. Teichmann identified Mexico’s avocado trade, where cartels have expanded their operations significantly, as an area that could be monitored more closely.

“Banks can say, ‘We don’t want to be close to what are perceived to be terrorists, so we want to eliminate that risk,'” Mr. Teichman said.

Other financial institutions that facilitate payments between the United States and Mexico could be affected, such as Venmo or PayPal, which Mr. Trump’s closest confidant Elon Musk has helped.

The terrorism label could push large parts of Mexico’s economy into the shadows, where cash is used instead of electronic transactions, making it harder for investigators to probe the cartels’ financial structures, Mr. Teichmann said.

“When people can’t bank legally, they run to the so-called underground banking system,” Mr. Teichman said.

In the year In a 2024 U.S. Chamber of Commerce survey of 218 companies, 12 percent of respondents said “organized crime has partially controlled the sales, distribution, and/or pricing of their products.”

It was Chiquita Brands, a multinational banana producer. He was found responsible in 2024 For an assassination by a Colombian right-wing military group designated as a terrorist organization. Chiquita Brands says he was robbed by the military and forced to pay to protect his Colombian workers. But plaintiffs have argued that the company paid the paramilitary group to buy off its residents at distressed prices.

The terrorism designation would hurt American companies located north of the border but relying on Mexican labor. The designation is so broad and vague that workers on farms in Texas or California could be fined if they send money to family members in Mexico who are involved in organized crime.

If money transfer companies such as Western Union stop sending transactions to Mexico because of concerns about properly vetting Mexican customers, it could affect the country’s preferred currency exchange. That would be devastating for the host Mexican economy. In 2023, 63.3 billion dollars will be sent to the countryAbout 5 percent of the country’s gross domestic product

The foreign terrorist designation could pave the way for the United States to deploy troops against criminal organizations in Mexico without the Mexican government’s consent, as it has done in Afghanistan and Syria.

But Afghanistan is occupied by the United States, and the Syrian government has lost control of much of its territory in recent years. This gave Washington some cover under international law to deploy US troops and launch special forces operations to kill or capture terrorist leaders in those countries.

But for more than 30 years, Mexico has built a partnership with the United States to counter criminals. If the United States is seen to be violating Mexico’s sovereignty, Mexico may end its cooperation. The Mexican government ended cooperation with the US Drug Enforcement Administration when the US federal prosecutor’s office arrested Mexico’s former defense secretary during Mr Trump’s first administration.

In the year “Unilateral action is terrible,” said the former US military attaché at the US embassy in Mexico in the 1990s.

“Republican and Democratic efforts to establish a defensive relationship with Mexico will destroy any cooperation and decades of effort,” he said.

On Tuesday, Mexican President Claudia Schinbaum issued a stern warning to Mr. Trump at her daily news conference. “We will always protect our sovereignty,” Ms. Sheinbaum said. “We all want to fight the drug cartels, that’s clear. So what do we do? We have to coordinate efforts; we have to cooperate,” she said.

“Know that the President of the Republic will always defend Mexico above all else,” the Mexican president added.