The reality is that legitimate companies in Mexico sometimes pay cartels protection money to keep employees safe and the companies’ businesses open. Joaquin 'El Chapo' Guzman, the head of Mexico's Sinaloa Cartel, is escorted to a helicopter in Mexico City on Feb. 22, 2014.Eduardo Verdugo/The Associated Press
John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.
Unintended consequences are a risk whenever implementing regulatory change. The U.S. decision to designate Mexican drug cartels as Foreign Terrorist Organizations (FTOs) and Ottawa’s decision to do the same to appease U.S. President Donald Trump creates new legal jeopardy for Canadian financial institutions and our companies that do business in Mexico, where the U.S. military estimates a third of that country is under cartel control.
The problem was spelled out in a recent report produced for anti-money-laundering professionals: FTO designations “require financial institutions to… determine whether any funds they hold or transactions they facilitate – even indirectly or unintentionally – could benefit a designated party. Banks could … face criminal liability if they fail to detect material support for an FTO.”
Determining what businesses or individuals qualify as agents of a designated Mexican cartel is properly the work of intelligence and policing organizations. If left to Canadian banks, it will, in many instances, cause debanking – the closing of accounts of firms and individuals because they may expose the bank to criminal prosecution in the United States or at home.
Canada must proactively manage the rules designating Mexican cartels as FTOs and the identification of their agents.
Targeting Mexican cartels using a regulatory framework originally designed for ideologically motivated terrorist groups could potentially push Mexico into the same category of high-risk jurisdictions for business as Afghanistan, Yemen, Pakistan, Somalia and Qatar.
When the first Trump administration designated Yemen’s Houthis as an FTO in January, 2021, global banks headed for the exits.
According to former chief counsel to the U.S. Office of Foreign Asset Control, Jason Prince, “Banks treated any and all activities in Yemen as potentially bringing material support to an FTO, and … simply did not engage in any banking activities or process any transactions.”
Cartels, however, are profit-oriented rather than ideologically motivated organizations such as the Houthis. Their goal isn’t to destroy Western democracies but to maximize profit, which is then hidden within legitimate financial and business sectors around the globe.
They are extortionists, and they use the threat of deadly violence to extract cash from small and large businesses in areas of Mexico that the cartels control, which is different from bribery in which firms pay money to corrupt public officials to win contracts, a practice Canadians became familiar with during the SNC-Lavalin corruption case several years ago.
Canada and Mexico trade roughly $50-billion annually. Many of our largest corporations have active interests in Mexico with assets that run from the millions to the billions in value, think Bank of Nova Scotia BNS-T, Magna International Inc. MG-T, Goldcorp Inc. GG, TC Energy Corp. TRP-T and Bombardier Inc. BBD-B-T.
The reality is that legitimate companies in Mexico sometimes pay cartels protection money to keep employees safe and the companies’ businesses open. Under the new U.S. and Canadian rules designating cartels as FTOs, such payments would likely be deemed terrorist financing activity.
There are precedents. In 2022, France’s Lafarge SA, a building materials maker, pleaded guilty and paid almost $US800-million in fines and forfeiture to the U.S. Department of Justice for “terrorism crimes” after paying protection money to U.S.-designated FTOs ISIS and the al-Nusrah Front in Syria, where Lafarge’s subsidiary had a cement factory.
Then there is the banana company Chiquita Brands International, which pleaded guilty in 2007 to making payments to a Colombian paramilitary group that the U.S. had designated an FTO. Chiquita was fined $US25-million.
The good news is that U.S. banks and businesses are in the same boat and face similar risks that Canada’s firms do. Coming to terms with the unintended consequences of designating cartels FTOs should be addressed by the Canada-U.S. Joint Strike Force to combat organized crime that Prime Minister Justin Trudeau announced on Feb. 3.
This task force’s mandate must include identifying the cartels that will be designated as FTOs as well as the organizations’ associated agents and business interests. This work can be supported through the new $200-million intelligence directive on organized crime Prime Minister Trudeau has promised.
The outcome would be a common database between Canada, Mexico, and the U.S. that makes the rules plain for Canadian banks and companies to follow – all those on the designated cartel list, their identified associates and cartel businesses that must be excluded from the legitimate economy.
Addressing the scourge of Mexican cartels is a laudable goal. Its success will be determined by more than the short reprieve on U.S. tariffs it helped win. It will be measured by the ability of Canadian banks and businesses to continue to efficiently facilitate our trading relationship with Mexico in the years ahead.