With the event focusing on Compliance Convergence: Where Fraud, ESG and Corruption Intersect, Emily participated in the panel to explore how compliance professionals can navigate the evolving regulatory landscape. Among others, the discussions highlighted the growing importance of supply chain due diligence and the need for a dynamic approach to managing emerging AML and ESG-related reputational risks.

Along with her expertise, Emily shared insights and use cases from Sqope Intelligence’s experience to highlight the importance of supply change due diligence.

Under the theme “The New Era of Compliance”, the event focused on the evolving landscape—covering topics such as geopolitical risks, ESG, human rights, data protection, and AI.

Our Managing Director for Europe, Roi Lavi, and COO, Miriam Goldman, shared insights on the use of AI in the due diligence space, with Roi participating in a panel addressing the same. Both focused on where the technology adds value and when human expertise remains irreplaceable.

We are looking forwarding to participating in Compliance Management Day 2026!

Institutions should begin by treating proliferation financing as a distinct risk in their Business Risk Assessments (BRAs), much like they do terror financing, political exposure, and other risk. Indeed, while many indicators might be similar, it is key to also place them within the context of proliferation financing.

This means monitoring financial activity that relates to jurisdictions and sectors of concern, the involvement of dual-use goods — on top of existing monitoring of diversion risk — and overly complex ownership structures. Onboarding processes must go deeper than surface-level checks. Understanding where client funds come from, how wealth is generated, whether declared business activities align with financial behaviour, and how proliferation risk manifests in different industries where such issues are more likely to appear, particularly logistics, trade finance, shipping, and chemicals, is essential.

Risk assessments should be tailored and multifactorial. A single red flag does not always signal a high-risk client, but the accumulation of minor concerns might.

Context is key and documentation of every decision strengthens internal controls while mitigating the risk of sanctions by the regulator due to a lack of well-documented justification of decision-making.

Why Guernsey Firms Cannot Afford Complacency

While Guernsey is not considered a high-risk jurisdiction for proliferation financing, indirect exposure remains a concern. Global fund flows, international client structures, and opaque supply chains can all serve as unintended conduits for this type of risk.

As mentioned above, boards must be informed, risk frameworks updated, and documentation consistent and defendable. Most importantly, managing proliferation financing risk must go beyond checklist compliance. Regulators expect firms to demonstrate reasonable, well-considered decision-making when it comes to assessing and mitigating exposure.

Final Thoughts

Proliferation financing is no longer a niche compliance concern but a serious issue that reflects the complexity of global financial crime. In 2025, Guernsey firms have a strategic opportunity to get ahead of the curve, not by starting from scratch, but by refining and reinforcing the systems already in place.

At Sqope Intelligence, we believe in clarity where it matters most. Our enhanced due diligence process integrates key proliferation financing indicators to help firms detect both obvious and more obscure risks alongside potential mitigating factors so they can be addressed before they escalate. Because in today’s regulatory landscape, anticipating risk is no longer optional: It’s the standard for resilient and responsible compliance.

This move has sparked sharp criticism, particularly from Mexico’s President Claudia Sheinbaum, who objected to the lack of consultation and announced constitutional reforms aimed at defending national sovereignty and cracking down on arms trafficking. She proposed, for example, to include a paragraph in the Mexican Constitution affirming that Mexico would not accept any intervention, intrusion, or other foreign action that undermines its national integrity, independence, or sovereignty.

Although not fully unprecedented, given the designation of the Nordic Resistance Movement (NRM) in June 2024, which is classified as a terrorist or criminal organization depending upon the country, most FTO designations target more “traditional” terror groups. Until now, no companies were targeted for materially supporting the NRM under the FTO designation, but this and the listing of the cartels certainly open the door to such action.

Moreover, beyond the political back-and-forth, the designations have far-reaching implications—particularly for the compliance and due diligence sectors.

What Does FTO Status Mean in Practice?

An FTO designation significantly broadens US enforcement capabilities by making it a federal crime to provide any form of “material support” to these organizations—including funding, logistics, housing, training, weapons, or even seemingly unrelated business services. Before such designation, US agents needed to justify a specific threat to a US citizen: Now any link to an FTO is grounds for investigation with such designation allowing authorities to use tools typically reserved for fighting more traditional terror groups, including freezing assets, whether traditional or cryptocurrency wallets, blocking financial networks, and ramping up surveillance and intelligence-sharing.

While likely intentionally vague, “material support” can encompass a wide range of activities from logistical assistance and financial aid to training, shelter, weapons, and forged documents. However, how that definition is applied often hinges on political will. This has serious consequences, particularly given how embedded cartel activity is in certain countries, particularly Mexico, including:

Broader Liability: Individuals and businesses not directly involved in illegal activities could face prosecution for knowingly or unknowingly aiding cartels and their affiliates. For example, a trucking company or a real estate agent could be targeted for unknowingly transporting cartel-linked goods or facilitating property purchases with illicit funds.

Similarly, US and multinational firms operating in cartel-dominated areas, whether geographical locations or business sectors, may face asset freezes or other charges given that many routinely pay extortion fees and other payments to cartel affiliates to produce, transport, and sell goods. Such payments now mean engagement with an FTO and not “only” an organized criminal group.

For the same reason, migrants, who are also often forced to pay cartels for safe passage, could now face prosecution. It is unclear if this threat may be utilized as part of the ongoing efforts to reduce illegal crossings into the US, but the possibility is clearly there to use.

Economic Impact: Given the cartels’ previously noted deep entanglement with the Mexican economy, legitimate businesses may find themselves inadvertently exposed or unable to do business. This would significantly broaden the pool of defendants given the material support clause and place many in the uncomfortable position of choosing not to pay, which can risk violence or the general inability to do business, or continuing to do so and facing potential legal ramifications as a result of the FTO designations.

What has changed?

Before cartels were designated as FTOs, their criminal liability was primarily addressed through laws targeting organized crime, drug trafficking, and related offenses such as money laundering, homicide, and kidnapping. The focus was on their involvement in common criminal activities, with penalties imposed mainly under national or international statutes aimed at combating organized crime. Authorities pursued these groups chiefly for drug trafficking, smuggling, corruption, and acts of violence.
However, once a cartel is officially designated as an FTO, the scope and severity of their criminal liability expand significantly. They become subject to anti-terrorism laws, which carry harsher penalties and allow for special legal procedures alongside enhanced investigative and prosecutorial powers. The violent acts committed by these groups are no longer seen solely as organized crime but can be classified as acts of terrorism. This shift enables authorities to implement stronger measures to freeze assets, limit funding sources, and target not only cartel members but also their supporters and financiers. Investigations may now include charges related to international terrorism, which can severely undermine the cartel’s ability to operate on a global scale.

Geopolitical Challenges

While the FTO designation is intended to elevate pressure on transnational criminal networks and expand the legal toolkit for disrupting cartel operations, it also introduces a complex array of geopolitical risks. These risks extend beyond law enforcement and counter-terrorism into the realms of international diplomacy, regional stability, legal norms, and global security.

One of the most immediate and consequential challenges arising from the FTO designation is the strain it places on US relations with Mexico. The latter strongly opposes the designations, viewing them as an infringement on its national sovereignty and a potential pretext for unilateral US military action within its territory. This tension could threaten ongoing bilateral cooperation on critical issues such as border security, immigration, and counter-narcotics, while further strain already increased tensions related to trade. It also could complicate intelligence-sharing and joint enforcement operations at a time when such coordination is perceived as essential for effectively combating organized crime, drug trafficking, and illegal entry into the US.

Indeed, concern of such designation providing a legal basis for direct US military action against these groups is not necessarily an exaggerated concern. Targeted strikes against targets on the FTO list is far from unprecedented globally since the war on terror expanded but would be in Mexico or in the territory of other “friendly neighbors”. Unilateral action, even if confined to the immediate border area, could provoke diplomatic fallout that exacerbates the potential ramifications from only increased tensions that were noted above, as well as retaliatory violence from cartels that could destabilize already fragile areas and even unintentionally empower rival criminal organizations.

At the same time, given that FTO status has been traditionally reserved for ideologically motivated groups with political or religious goals, applying this label to more profit-driven criminal enterprises like drug cartels blurs the conceptual and legal lines between criminality and terrorism. While both may use violence and coercion and although terror groups often find themselves involved in criminal enterprises as a means of fundraising, their motivations and organizational structures often differ significantly. While many terrorist groups engage in drug trafficking and organized crime as a means to raise funds, these are primarily driven by ideological, political, or religious goals, i.e. seeking to change or influence governments, societies, or policies through fear and violence. Criminal organizations, on the other hand, tend to be primarily motivated by profit and economic gain, and are typically structured on efficient control of illegal markets, prioritizing secrecy, and minimizing exposure to law enforcement.

While Mexican cartels are not ideologically aligned with global terrorist movements, they are adaptive and opportunistic. In the face of increased pressure and potential decreased revenue, they may seek or expand existing ties that can counter such losses, including those with state or non-state actors that have a vested interest in undermining US influence, such as arms traffickers, corrupt regimes, or terror-linked organizations. Moreover, the FTO label is likely to motivate cartels to adopt an even more decentralized and clandestine structures, making them harder to track and dismantle.

Cartel Reach

Today’s cartels are no longer just drug traffickers but are economic and political players with diversified portfolios ranging from illegal mining, fuel theft, and extortion, to money laundering and even infiltration of government infrastructure.

Take the Sinaloa Cartel, for example. Alongside controlling a significant portion of the fentanyl trade, often via Chinese chemical suppliers and laundering networks, it has embedded itself in Mexico’s agricultural and water management sectors. Cartel-linked “taxes” — protection payments, for example — are levied on basic staples like avocados and tortillas, with violent consequences for non-compliance.

Their reach extends from small-town tortilla shops to multinational logistics chains, making it extremely difficult to distinguish cartel-linked businesses from legitimate ones—especially in sectors like construction, farming, hospitality, and trucking. In other words, the likelihood that companies operating in certain countries and certain sectors have exposure to the cartels without being aware of the fact is exceedingly high, with ignorance not a particularly strong argument to make when confronted with potential prosecution by the US government.

Implications for Compliance and Due Diligence

This evolving threat landscape demands a complete rethink for financial institutions, compliance teams, and risk managers. Here’s what’s at stake:

1. Expanded Liability and Litigation Risk

As mentioned above, the relatively broad definition of “material support” under the FTO designation can open a range of businesses operating in certain countries and sectors to potential prosecution. Financial institutions, for example, could face lawsuits under the Anti-Terrorism Act (ATA) for facilitating transactions, whether intentionally or not, with FTO-linked entities. While historically aimed at foreign banks tied to Middle Eastern or Russian groups, the new designations expand that risk to US institutions and regional and local partners.

One of the key risks is likely to be the level of exposure to the more obvious and known sectors in which these organizations operate. Traditionally, cartels controlled limited territories and specialized on a single product, usually cocaine. The new criminal elites now traffic multiple products across extensive markets and regions. These illicit activities are less profitable than drug trafficking but they have become increasingly attractive because they generate relatively stable incomes at lower risk. In other words, cartels are playing a growing role in the region’s economies, from infiltrating seaports to extorting small businesses and expanding their political power.
The Sinaloa Cartel, for example, which is one of the two cartels believed to be primarily responsible for drug trafficking into the US, wields influence that goes beyond just narcotics and human smuggling to extortion, illegal mining, and oil theft, as well as legitimate businesses as a means to launder money.
Criminal groups have reportedly even infiltrated the public water system in Sinaloa, placing members or those with connections to their organization into offices that oversee irrigation. On Mexican farms, as another example, criminals are embebed in all stages of the supply chain, from production and processing to storage, transportation, and distribution.
Even at a more localized level, cartels have their hands in various sectors, including, among others, fishermen, chicken vendors, construction companies, trucking services, gas stations, and those that produce a staple food in the country: the corn tortilla. Reports suggest that tortilla shops that refuse to comply with payment demands can face violent repercussions, including becoming the target of arson or gunfire.

2. Review of Compliance

When it comes to enforcement and prosecution related to such new designations, the simplest and most cost effective method of sending a message that the Trump administration is serious about utilizing the FTO label to pursue criminal organizations is to target the “low-hanging fruit”. In other words, finding large, known corporations who have clear and expansive exposure to the known sectors or regions with cartel involvement, such as agriculture, and placing the bullseye on them.

For these reasons, companies and institutions that fail to adapt will increase their risk exposure, including to criminal and civil ligation (the latter under the ATA). Even for those with already robust compliance frameworks, a review to ensure that potential cartel exposure is sufficiently considered should be prioritized. Indeed, even when cartel-affiliated individuals or businesses are not explicitly named, their previously-discussed entrenchment in certain regions and sectors means that increased scrutiy should be levied across all stages of the supply chain and for all transactions that carry cartel-specific red flags.

This includes, but is not limited to, identifying high-risk geographical areas, such as border cities of Mexico and other regions where cartel activity is extensive, integrating this understanding of higher risk locations with known higher risk sector, and mapping out complex ownership structures to ensure no connections to designated entities and to allow for thorough vetting of any connections to such higher risk sectors and regions.

Conclusions and insights for the sector

By labeling cartels as FTOs, the U.S. government has expanded the tools at its disposal—transforming what were once complex criminal investigations into matters of national security. The designation empowers authorities to treat financial or logistical interactions with these groups as federal crimes, even when no clear criminal intent exists. The burden of compliance, therefore, no longer rests solely on avoiding direct involvement in illicit trade; it now includes avoiding any form of “material support,” however indirect or unintended.
For the compliance sector, this reclassification means that businesses with even tangential exposure to high-risk sectors and locations must now consider how deeply cartel influence may run through their operations, clients, or supply chains. Indeed, the notion that legitimate companies can operate in cartel-dominated areas must be reconsidered with the new lens of FTO designation.

On May 21 in Baar, Switzerland, Roi Lavi and Lev Yuriditsky participated in a panel discussion hosted by the Commodity Trading Club and WISTA Switzerland. They explored how global shifts are transforming commodity trading and trade finance and concluded the evening with a networking event, where lively conversations continued among industry peers.

We extend our sincere thanks to Sqope board member and ESG Advisor Roger H. Hartmann, and to Murat Seitnepesov of the Greater Caspian Association, whose support helped make the event a success.

In the article titled “Rethinking Risk”, Nadia argues that proliferation financing (i.e. financing that can contribute to the spread of weapons of mass destruction) deserves its own dedicated spot in risk frameworks and regulatory assessments. She highlights that while Guernsey may not be considered “high-risk” in this arena, the indirect exposures—from global supply chains, international clients, and opaque structures—create vulnerabilities. Key themes include:

• Embedding proliferation financing into Business Risk Assessments (BRAs) alongside terror financing and sanctions risk.

• Enhancing onboarding, documentation, and dual-use goods monitoring.

• Stronger, better documented decision-making when risk indicators are present—exposure via trade, logistics, ownership, etc.

• The regulatory expectation that firms must move beyond checking boxes; they should show well-considered mitigation strategies.

The article serves as a call to action: for firms to update risk frameworks, ensure their teams are aware, and treat compliance with proliferation financing not just as regulatory compliance, but essential to responsible business practices.

Please click here to read the full article “Rethinking Risk” by Nadia A. Ziani in Business Brief.