Clifford Chance

One of President Trump's first Executive Orders directed the US State Department to recommend the designation of drug cartels as Foreign Terrorist Organizations ("FTOs") and Specially Designated Global Terrorists under US law. The State Department quickly complied. While much of the ensuing focus has been on what this means for the cartels, designation as an FTO brings a host of other consequences under US law – including the authorization of private treble-damages suits by US persons who allege injury at the hands of the FTOs, under the Anti-Terrorism Act ("ATA"), as amended by the Justice Against Sponsors of Terrorism Act ("JASTA"). In part because FTOs are hard to sue, victims in past terrorism cases have brought lawsuits against corporations and financial institutions alleging that the FTOs' reliance on their business services such as bank accounts and telecommunications entitled the victims to relief against those corporations. Does the designation of drug cartels as FTOs open new areas of risk for companies and financial institutions? 

US persons are prohibited from transacting with designated FTOs through a variety of legal frameworks, including economic sanctions and criminal "material support" prohibitions, and violations are subject to civil and criminal enforcement by, among others, the Treasury, Commerce, and Justice Departments. In addition, the US Treasury and State Departments have the authority to impose sanctions on individuals, entities and/or financial institutions that have dealings with Office of Foreign Assets Control ("OFAC") Specially Designated Nationals.The Trump Administration's goal in enhancing these restrictions, as well as redirecting prosecutorial resources to cartel activity, is to cut off the cartels' financial support and choke their supply chains. To mitigate regulatory and criminal risk, companies and financial institutions should ensure that their sanctions and ATA controls are updated to flag any potential dealings with the designated cartels and their affiliates. 

The scope of civil risk to companies and financial institutions under JASTA for dealings with FTOs is not yet clear, but because successful plaintiffs are entitled to triple the calculated damages, plus costs and attorney's fees, such cases will likely be attractive to plaintiffs impacted by FTOs. As such, potential litigation risk gives additional incentive to pay careful attention to these controls.

Cause of Action Under JASTA

The ATA creates a private cause of action for US nationals and their families who are injured in their person, property, or business by an act of international terrorism. JASTA expands the scope of liability to include those who aid and abet an FTO in the act of international terrorism by knowingly providing substantial assistance to the FTO. 18 U.S.C. § 2333(a), (d)(2). The Supreme Court recently clarified (in a case involving the alleged use of a common social media platform to plan terrorist acts) the high degree of conscious, voluntary, and culpable participation in the terrorist act that this standard requires. Twitter, Inc. v. Taamneh, 598 U.S. 471, 506 (2023).

What might this mean for companies and financial institutions located or doing business in regions where the designated cartels operate? The cartels are big business, and they use financial systems, communications systems, transportation systems, equipment, supplies, real estate, and raw materials as they manufacture and produce drugs, engage in trafficking, launder the proceeds of their criminal activity, and engage in violence and extortion to support their trade. Should providers of those products and services be concerned about civil liability under the ATA and JASTA?  Although primary liability under the ATA may be alleged, allegations of secondary liability under JASTA potentially capture much broader activity.

There are a number of hurdles to a successful lawsuit. To prove a claim, the plaintiff must show that the FTO cartel's act that caused the injury was an "act of international terrorism" and that the company "knowingly" provided "substantial assistance" to the cartel in the commission of that act. Both will be difficult to show. First, an act of international terrorism is defined in the ATA. The act must be (i) dangerous to human life and a crime in the U.S.; (ii) intended to intimidate civilians, influence government policy by intimidation, or affect the conduct of a government by mass destruction, assassination, or kidnapping; and (iii) primarily outside the U.S. or transcend national boundaries in its execution or desired effect. See 18 U.S.C. § 2331(1)(A)-(C). We expect that plaintiffs' lawyers will argue that trafficking drugs, and in particular acts of violence connected to that trafficking, would satisfy these basic elements. Whether a US court will ultimately accept this argument is an open question. However, the characterization of cartel activity as a threat to national security, more than a simple drug crime, is not unique to the new Administration. In 2023, the US Department of Justice did exactly this when it announced an investigation into the Sinaloa Cartel spanning multiple districts and dozens of defendants, and charging cartel members and associates with serious federal crimes for fentanyl trafficking activity that endangered the lives of millions of Americans.  The allegations included facilitation of the trafficking by violence, threats of violence, bribery, murder, kidnapping, assault, battery, and money laundering.

Second, a plaintiff also must show that the defendant aided and abetted the act of international terrorism by knowingly providing substantial assistance, though direct assistance of the act is not necessarily required. The analysis is highly fact dependent, but the plaintiffs will need to establish that the company and/or financial institution consciously, voluntarily, and culpably participated in the wrongdoing. Relevant factors include the nature of the act assisted, the amount of assistance, whether the company was present at the time of the act, the company's relationship to the cartel, the company's state of mind, and the duration of the assistance. Twitter, Inc., 598 U.S. at 502 (citing Halberstam v. Welch, 705 F.2d 472, 477 (D.C. Cir. 1983)). These factors would likely rule out the activities of most law-abiding entities, as the Supreme Court did in Twitter, Inc. v. Taamneh, holding that Twitter's provision of social media services to ISIS, a designated FTO, without more, was too attenuated to support culpability, because "ISIS’ ability to benefit from these platforms was merely incidental to defendants’ services and general business models; it was not attributable to any culpable conduct of defendants directed toward ISIS." Id. at 504. Nonetheless, the Supreme Court noted that other facts might lead to a different result, such as "where the provider of routine services does so in an unusual way or provides such dangerous wares that selling those goods to a terrorist group could constitute aiding and abetting a foreseeable terror attack." Id. at 502. The Court pointed to a case in which it had held that a registered morphine distributor could be liable as a coconspirator of an illicit operation to which it mailed morphine far in excess of normal amounts. Id. (citing Direct Sales Co. v. United States, 319 U. S. 703 (1943)).

In another case involving pharmaceuticals, plaintiffs sued several pharmaceutical companies for allegedly aiding and abetting an FTO by paying bribes of cash and medical goods to do business with Iraq's Ministry of Health when it was connected to Hezbollah-linked Jaysh al-Mahdi. In this case, the plaintiffs alleged that the companies aided and abetted Jaysh al-Mahdi terrorist attacks against them in Iraq because the bribes were diverted to fund the attacks. Originally dismissed by the district court, the US Court of Appeals for the DC Circuit revived the case, in part based on a finding that plaintiffs' secondary liability claims were strong enough to survive dismissal. Atchley v. AstraZeneca UK Ltd., 22 F.4th 204, 210-14 (D.C. Cir. 2022). The Supreme Court then remanded the case for reconsideration in light of the Twitter decision. In oral argument on remand, the plaintiffs argued that the pharmaceutical companies' assistance was more than passive nonfeasance, the companies knew the bribes were used to support terrorism, and the terror attacks were the foreseeable result of the support, which was so pervasive that the companies should be liable for all of the FTO's actions. The case is still pending.

Another example of allegations of routine services provided in a potentially unusual way is Kaplan v. Lebanese Canadian Bank, SAL (a pre-Twitter decision), where the bank is alleged to have allowed FTO-related customers to deposit large sums at different branches without requiring disclosure of the source of funds. The court held that it was "plausible" that the bank could have inferred its customers' identities and FTO status based on available media reporting and the bank's KYC requirements. 999 F.3d 842, 866-67 (2d Cir. 2021).

Victims of drug cartels will seek to distinguish the general provision of social media services at issue in Twitter from companies' and financial institutions' activities relating to the cartels, including through creative allegations such as those in Atchley and Kaplan. Plaintiffs may allege that companies that do business or are located in the regions in which the FTO cartels operate, or which trade in materials capable of use in the illicit drug trade, can reasonably foresee that their goods and services (which may be dangerous wares) will be used by the cartels. For financial institutions, plaintiffs have and will continue to point to Know-Your-Customer (KYC) and Anti-Money Laundering (AML) requirements to show that banks know or should know their FTO clients' identities and activities. 

What can companies do to manage this risk?

Companies and financial institutions that are located or doing business in high-risk jurisdictions where the cartels operate or source materials can mitigate the risk of enforcement, litigation under JASTA, and other measures by developing and administering risk-based controls to assess whether they have dealings with FTOs or their affiliates. Of course, many of the cartel FTOs were already sanctioned entities, and so controls may already exist to mitigate most risks. However, because the FTO designation expands the pool of potential plaintiffs, and because the geographic nexus of the cartels is much closer to the US, companies and financial institutions should reassess.

This assessment should include a documented effort to identify existing or potential exposure to the FTO cartels as well as individuals and entities with links to these organizations. For manufacturers and suppliers of goods and services, supply chain analysis, customer due diligence and transaction screening programs are key to identifying and preventing dealings with the FTO cartels, as are strong vendor diligence programs. Financial institutions will benefit from strict adherence to KYC requirements and regular review of their AML compliance programs. Continuing to focus on anti-corruption controls will help to manage the risk of certain payments. Finally, companies should stay up to date on US counterterrorism policy for further designations of organizations that, like cartels, have not traditionally been considered terrorist organizations.