Latin America Risk Report - 5 December 2019
Designating Mexico's cartels as terrorists will increase the cost of doing business
Welcome to the Latin America Risk Report - 5 December 2019.
In this edition:
The implications of the terrorism designation for Mexico’s cartels
Nicaragua’s repression to continue into 2020
Paying subscribers this week received two additional reports:
The implications of the terrorism designation for Mexico’s cartels
The Trump administration appears likely to place several Mexican drug cartels on the list of Foreign Terrorist Organizations, or FTOs. Most experts believe this is a bad idea. That probably won’t stop it from occurring. The designation of terrorist groups in Mexico has implications on Mexico and the businesses operating there.
Legally, here is what the designation does according to the Congressional Research Service:
It is unlawful for a person in the United States or subject to the jurisdiction of the United States to knowingly provide “material support or resources” to a designated FTO.
Representatives and members of a designated FTO, if they are aliens, are inadmissible to, and in certain circumstances removable from, the United States.
The Secretary of the Treasury may require U.S. financial institutions possessing or controlling any assets of a designated FTO to block all transactions involving those assets.
Many of the individuals and organizations who will be named in the terrorist designation are already on various other sanctions lists including the Kingpin sanctions. Companies shouldn’t be doing business with these organizations right now. For that reason, some analysts have argued that the FTO designation is redundant because it is too similar to sanctioning the groups under the Transnational Criminal Organizations (TCO) and Kingpin designations.
However, there is a significant difference in scope. The terrorism designations are generally seen as more expansive, prohibiting business with every member of a group from the top to the bottom including those who are only tangentially tied to the terrorist group. There is a perception that businesses and individuals are more likely to be prosecuted if they accidentally work with individuals at any level of a terrorist group. In contrast, it generally takes a clearly negligent or malign action working directly with a named entity to be hit with an indictment related to a violation of the Kingpin Act.
One challenge will be determining who is a member of a specific cartel. These terrorism designations will go well beyond cartel leadership to include the foot soldiers and related businesses to each cartel. Given the cartels’ significant bribery of Mexican politicians and their large role in the broader Mexican economy, the edges of where the cartel stops are not as clear cut as someone who declares allegiance to ISIS. There are also questions about where to draw the line on the financing chain for cartels going all the way to street level dealers and drug users in the United States. This will be a challenge for the US government, Mexican government and businesses attempting to comply with the sanctions.
This creates new compliance challenges. The terrorism sanctions will create yet another bureaucratic hurdle to doing business in Mexico. The costs of compliance will increase. Companies should rightfully be concerned that investigations and enforcement of sanctions will increase once this becomes a counter-terrorism issue.
This also creates the likelihood of significant over-compliance by US companies. One of Mexico’s biggest concerns is that some companies may limit or even halt business in Mexico as an act of extreme caution. Some banks have already cut ties to Mexico due to the costs and challenges of compliance. If more financial companies reduce their presence in Mexico or if other sectors reduce their activities, it could be a significant hit on Mexico’s economy.
For companies that continue operations, the fallout from the terrorism designations could create delays at the border. Of course the Trump administration will use the terrorism listing to justify its wall. More important in the real world, the terrorism listing may be used to expand border inspections and increase delays at certain border checkpoints.
What won’t this designation do?
There is a lot of misinformation on social media and WhatsApp in Mexico. To clear that up, there are two things that this designation does not do:
This designation does not name Mexico a “state sponsor of terrorism.”
This designation does not authorize or signal any military activity by the US inside of Mexico’s borders.
Finally, these terrorism designations, once in place, are unlikely to be removed any time soon. Even if there is a new president in January 2021, that new president is unlikely to snap his or her fingers and delist the cartels as foreign terrorist organizations. There will need to be a formal interagency process and the next president may want to keep the designations to use the bureaucratic tools that they create.
While it’s unlikely that the Trump administration will do this, the terrorism designation would give the next president greater authority to crack down on US companies providing material support to cartels. That goes for companies that are found to have cartel money or personnel in their supply chains. The designation could also lead to the prosecution of gun shops or weapons manufacturers that are found to have sold to straw buyers or failed in their due diligence about customers who ended up trafficking weapons to the cartels.
For more on this topic, Adam Isacson and Ioan Grillo both wrote on the implications as well.
Nicaragua’s repression to continue into 2020
Asked about Nicaragua’s protests and the role of the Catholic Church, I provided the following comment to the Latin America Advisor:
Prior to April 2018, Daniel Ortega spent more than a decade in power by cautiously manipulating the institutions of democracy and cultivating a friendly relationship with the business community. Post April 2018, Ortega maintains a hold on power due to his willingness to engage in brutal and bloody repression of his political opponents and the population at large. While excessive force often backfires on the leaders of democratic countries, for authoritarians such as Ortega who are willing to go all the way, harsh repression is often a successful tactic in defeating protest movements. Sanctions against Ortega and other Nicaraguan officials who have engaged in corruption and human rights abuses have hit their pocketbooks, but have yet to weaken the regime’s hold on power. The hemisphere has a difficult time focusing on Nicaragua due to the even greater crisis in Venezuela as well as the domestic protests that have occurred in many of the other countries in the region. The Nicaraguan Catholic Church remains an important voice, but its impact is limited due to the repression. However, as a global institution, the Catholic Church can and should play a greater role in convincing citizens and governments in Latin America to pay attention to the human rights abuses in Nicaragua and coordinate their pressure on Ortega to promote a transition back to democracy.
Corruption Corner
Venezuela - An investigation by Armando.info demonstrated several legislators in the Guaido coalition used their positions to provide support to Carlos Lizcano, an ally of Alex Saab and Alvaro Pulido. Those men are accused of massive corruption and money laundering for his role in the CLAP process. The investigation by Armando.info has forced several political parties to remove the legislators from their parties, created tensions within the Guaido coalition and led to negative media coverage of Guaido’s efforts to push Maduro to power.
The journalist who broke the story, Roberto Deniz, spoke at an event about organized crime in Bogota this week. On a panel about organized crime in Venezuela, Deniz said that the investigation shows how organized crime has infiltrated and undermined all of the country’s institutions including the Guaido-controlled National Assembly. This helps keep Maduro in power and will make it much more difficult to rebuild the country’s democracy in a post-Maduro environment.
Brazil - The Bolsonaro government has spent over US$100,000 on spreading “fake news” on social media about its political opponents including those within the president’s own party. The allegations come from Congresswoman Joice Halssemann of the PSL. She also claimed that Bolsonaro and his son Eduardo work with an organization that operates nearly two million bot accounts on social media to promote its propaganda.
Guatemala - An article in Nomada provides an overview of the networks around President-elect Giammattei. There are drug traffickers, money launderers and former officials convicted of corruption. Manuel Baldizon, a former presidential candidate allegedly linked to organized crime, appears to have moved close to the new administration.
Reading List
InSight Crime - Conference Talks Trends, Perspectives on LatAm Organized Crime
IADB - Getting to Net-Zero Emissions: Lessons from Latin America and the Caribbean
AFP - Amazon fires 'quicken Andean glacier melt'
Washington Post - The anti-indigenous politics that still fuels Latin America’s right
Perfil - No es que los militares vuelven, nunca se fueron
Bloomberg - Latin America’s Chaos Is an Opportunity for the U.S.
Bloomberg - Latin America’s Big Three Skirt Chaos For Now After Voter Revolt
Amnesty International - The human rights situation in Mexico one year into AMLO’s term
Caracas Chronicles - What Is Happening in Venezuela’s Protected Capital?
NYT - Venezuelans’ Struggle to Survive, Told in Pictures
Nuevo Herald - Huyeron de la pesadilla de Maduro para terminar en prisiones migratorias de EEUU
El Tiempo - La disparada que se pegó el tráfico ilegal de oro en la región
WSJ - Veteran President’s Rift With Bolivian Military Helped Drive His Early Exit
El Salvador Perspectives - Of foreign trips and transparency (on Bukele’s investment deal with China)
The Guardian - Berta Cáceres murder: seven convicted men sentenced to up to 50 years
Bloomberg - Billionaire’s Presidential Legacy Swept Away by Tide of Unrest (Chile)
NYT - Abolish Immigration Prisons
Thanks for reading!
Thanks to everyone who responded to my call for feedback on this newsletter. I’m working through the responses and will share them with the audience soon. I’m always eager for more comments, questions, and feedback, so please feel free to contact me any time.
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