In a significant move to combat illicit financial activities focused on cartels, the U.S. government has intensified its scrutiny of cross-border payments, particularly those linked to Mexico. This development follows the designation of several Mexican cartels as Foreign Terrorist Organizations (“FTOs”) and Specially Designated Global Terrorists (“SDGTs”). These actions, coupled with the expanded use of the U.S. Treasury’s Terrorist Finance Tracking Program (“TFTP”), signal a new era of regulatory oversight for financial institutions and payment processors.
Key Developments
- Cartel Designations and Legal Implications: On February 20, 2025, the U.S. Department of State designated eight cartels, including six based in Mexico, as FTOs and SDGTs. These designations expand criminal liability for knowingly providing material support to these organizations and authorize the U.S. Treasury to block financial transactions involving designated entities and their affiliates.
- Southwest Border Geographic Targeting Order (“GTO”): The Financial Crimes Enforcement Network (“FinCEN”) has issued a Southwest Border GTO, requiring money services businesses (“MSBs”) in 30 ZIP codes across California and Texas to report cash transactions exceeding $200 but not more than $10,000 within 15 days effective from April 14 through September 9, 2025. This measure increases recordkeeping or reporting requirements and aims to enhance monitoring of financial flows near the United States-Mexico border. FinCEN also encourages the filing of SARs to report transactions conducted to evade the $200 threshold despite the SAR regulation dollar threshold (i.e., transactions that involve or aggregate to at least $2,000).
- Enhanced Role of TFTP: The TFTP will play a pivotal role in monitoring and enforcing these new sanctions. By leveraging financial intelligence tools, U.S. regulators aim to identify potential sanctions violations, even in routine business transactions.
- Penalties for Failing to Report: If a business or its representatives willfully violate a GTO as of March 14, 2025, they may face: (1) Civil Penalties: The higher of $71,545 or the transaction amount, up to $286,184, with separate penalties for each violation; or (2) Criminal Penalties: Fines up to $250,000 and/or up to five years of imprisonment.
FinCEN released FAQ’s on the GTO on April 16, 2025.
Implications for Financial Services and Payment Processors
- Increased Recordkeeping or Reporting Requirements: Financial institutions are now required to block funds in which a designated cartel or its agents have an interest. This will test already existing compliance frameworks, including enhanced due diligence and transaction monitoring systems. The Southwest Border GTO further intensifies these requirements by mandating Currency Transaction Reports for cash transactions exceeding $200 in designated regions. Institutions also face strict liability for sanctions breaches under the SDGT designations.
- Regulatory Risks: Companies engaged in cross-border transactions, particularly with Mexico, may face greater regulatory scrutiny. This includes industries or entities directly or indirectly linked to designated organizations. The TFTP enables regulators to flag routine transactions for additional review, increasing the risk of enforcement actions.
- Technology: Payment processors and MSBs must adapt to new reporting requirements and should consider implementing advanced analytics to detect potential sanctions violations. This includes leveraging financial intelligence tools to identify suspicious patterns and mitigate risks.
- Data Privacy and Security: The TFTP’s reliance on financial transaction data raises questions about data privacy and security. Institutions should balance compliance with privacy regulations while ensuring the integrity of their systems.
To navigate the evolving regulatory landscape shaped by the U.S. Treasury’s Terrorist Finance Tracking Program (TFTP) and related measures, financial services and payment processing companies should take proactive steps to monitor and react to these changes.
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