Client Advisory Warning For Business Owners and Executives

Date: May 2, 2025
From: Rob Ratliff, Immigration Attorney, Brennan, Manna and Diamond, LLC
To: Executives and Business Owners
Subject: Risks Associated with Designated Foreign Terrorist Organizations and Specially Designated Global Terrorists

Executive Summary

This advisory alerts executives and business owners to the risks posed by President Trump’s Executive Order 14157, issued January 20, 2025, which designates certain cartels and transnational criminal organizations as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs). It details the designated organizations, updates to the Specially Designated Nationals and Blocked Persons (SDN) list as of May 1, 2025, and implications for U.S. businesses. The advisory explains Office of Foreign Assets Control (OFAC) regulations, penalties for violations (including inadvertent ones), and examples of U.S. companies penalized for non-compliance. It also highlights how designated entities operate legitimate businesses, increasing the risk of unintentional OFAC violations. Robust compliance is critical to avoid severe consequences.

1. President Trump’s Executive Order 14157

On January 20, 2025, President Trump issued Executive Order 14157, titled “Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists” (White House, 2025). The order targets international cartels and criminal organizations threatening U.S. national security, public safety, and Western Hemisphere stability through drug trafficking, human smuggling, extortion, and violence.

The order instructed the Secretary of State, in consultation with federal officials, to recommend within 14 days the designation of specific organizations as FTOs under 8 U.S.C. § 1189 and SDGTs under 50 U.S.C. § 1702 and Executive Order 13224. On February 20, 2025, the State Department designated eight organizations, implementing EO 14157 (State Department, 2025).

2. Designated Organizations

On February 20, 2025, eight organizations were designated as FTOs and SDGTs for their roles in serious criminal activities:

Organizations

Tren de Aragua (TdA)

A Venezuelan criminal organization from Tocorón prison,   led by Héctor Guerrero Flores (“Niño Guerrero”). It conducts drug   trafficking, human smuggling, and extortion across Latin America and the U.S.

Mara Salvatrucha (MS-13)

A gang formed in Los Angeles in the 1980s, active in   Central America and the U.S. It engages in drug trafficking, murder,   extortion, and human trafficking, known for extreme violence.

Cártel de Sinaloa

A Mexican drug cartel based in Culiacán, Sinaloa. It   traffics cocaine, heroin, methamphetamine, and fentanyl into the U.S., with a   history of violence and corruption.

Cártel de Jalisco Nueva Generación (CJNG)

A Jalisco-based Mexican cartel led by Nemesio Oseguera   Cervantes (“El Mencho”). It traffics cocaine and methamphetamine   and is notorious for brutal violence.

Cártel del Noreste (CDN)

A Tamaulipas-based Mexican group, splintered from Los   Zetas. It is involved in drug trafficking, kidnapping, and extortion.

La Nueva Familia Michoacana (LNFM)

A Michoacán-based Mexican cartel led by Johnny and José   Alfredo Hurtado Olascoaga. It focuses on drug trafficking, extortion, and   illegal mining.

Cártel de Golfo (CDG)

A Matamoros-based Mexican cartel, one of Mexico’s oldest.   It engages in drug trafficking, kidnapping, and extortion.

Cárteles Unidos (CU)

An alliance of Mexican groups, including CDN and LNFM,   formed to counter CJNG. It is involved in drug trafficking and extortion.

These designations bar U.S. persons from transacting with these organizations or their affiliates, significantly affecting business operations.

3. Assessment of the May 1, 2025, SDN List

The SDN list, maintained by OFAC, was updated on February 20, 2025, to include the eight designated organizations and their associated individuals and entities (OFAC SDN List, 2025). By May 1, 2025, the list incorporates additional designations related to CJNG, including three individuals and two entities involved in drug trafficking and fuel theft, reflecting ongoing enforcement of EO 14157 (Treasury, 2025). These updates include:

• Primary Designations: The eight organizations listed above.
• Secondary Designations: Leaders, operatives, and entities owned or controlled by these organizations, such as front companies.
• Global Scope: Designations apply worldwide, impacting transactions in any jurisdiction.

Notable additions include CJNG-linked transportation companies, underscoring the risk of engaging with seemingly legitimate enterprises. Businesses must screen transactions against the SDN list, as updates frequently add new affiliates.

4. Why Business Decision Makers Need This Information

Executives and business owners must understand these designations to avoid severe legal, financial, and reputational risks from OFAC violations. Designated organizations often use legitimate businesses as fronts for money laundering, increasing the risk of unintentional violations. This is particularly critical for businesses with ties to Latin America, where these groups are active. Non-compliance can lead to operational disruptions, fines, criminal charges, and reputational harm.

5. OFAC Rules Regarding Transactions with SDN List Entities

OFAC regulations, enforced under the International Emergency Economic Powers Act (IEEPA), prohibit U.S. persons from transacting with SDN-listed entities. Key rules include:

• Prohibited Transactions: U.S. persons cannot provide or receive goods, services, or financial resources to/from SDNs.
• Facilitation: Indirectly enabling SDN transactions, such as through intermediaries, is prohibited.
• Ownership Threshold: Entities owned 50% or more by SDNs are blocked, even if not listed.

OFAC’s strict liability standard means even unintentional violations incur penalties. Compliance requires rigorous screening and due diligence to identify SDN affiliations.

6. Penalties for Violations

Violations of OFAC regulations result in severe consequences for companies and individuals:

Penalty Types

Civil Penalties

Up to $368,136 per violation or twice the transaction   value, whichever is greater, as adjusted for 2025 (OFAC Penalties, 2025).

Criminal Penalties

Fines up to $1,000,000 and up to 20 years’ imprisonment   for willful violations.

Reputational Damage

Public enforcement actions can cause loss of business,   financing issues, and reputational harm.

Executives and owners face personal liability for failing to implement compliance measures or knowingly facilitating violations. The strict liability standard emphasizes proactive compliance to avoid unintentional breaches.

7. Examples of U.S. Companies Penalized for Inadvertent Violations

U.S. companies have faced significant penalties for unintentional OFAC violations, highlighting compliance challenges:

• 3M Company (2023): Paid $9,618,477 for 54 violations of Iran sanctions. Subsidiaries in Dubai and Switzerland sold license plate sheeting to a German reseller, which 3M should have known would reach Iran’s Law Enforcement Forces. Ignored warnings led to a “reckless” finding (Treasury, 2023).
• Stanley Black & Decker (2023): Settled for $1,869,144 for Iran sanctions violations by its subsidiary GQ. Post-acquisition, inadequate controls allowed continued exports in 2013–2014. Voluntary disclosure mitigated the penalty (OFAC, 2023).
• Toll Holdings (2022): Paid $6,131,855 for over 2,000 violations involving payments to SDN-listed entities in Iran, Cuba, and North Korea. Weak screening systems caused unintentional transactions (Treasury, 2022).

These cases underscore the need for robust compliance programs, especially in complex supply chains or post-acquisition integrations.

8. Legitimate Businesses Operated by Designated Entities

Some organizations designated under EO 14157, along with individuals and entities added to the SDN list on May 1, 2025, operate or control legitimate businesses, often as fronts for money laundering, drug trafficking, or fuel theft. These businesses pose significant risks for U.S. companies, as engaging with them, even unknowingly, can lead to OFAC violations. Additionally, OFAC’s 50 Percent Rule—stating that entities owned 50% or more, directly or indirectly, by one or more blocked persons are also blocked—amplifies the risk, as these entities are considered SDNs even if not explicitly listed (OFAC, 2024). Below, we detail examples of such businesses, recent SDN additions, and how the 50 Percent Rule can result in violations.

Examples of Legitimate Businesses Linked to Designated Entities

• Cártel de Jalisco Nueva Generación (CJNG):
  • Real Estate Firms in Puerto Vallarta: CJNG has been linked to real estate companies in Puerto Vallarta, Jalisco, used for money laundering through timeshare fraud. For example, Assis Realty and Vacation Club, sanctioned in 2023, facilitated fraudulent property deals targeting U.S. tourists (EL PAÍS, 2023). Such firms may lease properties to U.S. businesses, posing violation risks if owned by SDN-listed operatives.
  • Logistics Companies: CJNG operates transportation firms to smuggle stolen fuel and drugs. The May 1, 2025, SDN additions (detailed below) include such companies, which appear legitimate but are blocked due to SDN ownership.
• Sinaloa Cartel:
  • Nieves y Paletas EVI: A frozen dessert chain in Culiacán, Sinaloa, funded by drug proceeds and owned by designated traffickers Jesus Norberto Larranaga Herrera and Karla Gabriela Lizarraga Sanchez (Treasury, 2025). This business appears as a legitimate retail operation but is blocked due to its SDN ownership.
  • Farmacia y Mini Super Trinidad: A pharmacy and supermarket in Nogales, Sonora, owned by designated trafficker Jose Arnoldo Morgan Huerta. Its retail facade masks its use for laundering cartel funds.
• Tren de Aragua:
  • Venezuelan Retail and Hospitality: Tren de Aragua controls or extorts businesses like restaurants, bars, and retail shops in Venezuela and Latin America.  Within Tocorón prison, it operated a zoo, disco, and restaurant, indicating a pattern of using legitimate fronts (Wikipedia, 2025). These businesses may be indirectly owned by SDN-listed leaders, triggering the 50 Percent Rule.
• Cártel del Noreste (CDN):
  • Tamaulipas Trucking Companies: CDN controls logistics firms in Tamaulipas to transport drugs and stolen fuel. A trucking company owned by an SDN-listed CDN operative would be blocked, and U.S. companies contracting with it for shipping could face violations without screening.

Recent SDN List Additions (May 1, 2025) and Connected Businesses

On May 1, 2025, OFAC added three individuals and two entities to the SDN list for their involvement in a CJNG-linked drug trafficking and fuel theft network, pursuant to EO 14059 and EO 13224 (OFAC, 2025; Treasury, 2025). These additions target CJNG’s operations in Tamaulipas, Mexico, and include:

• Individuals:
  • Cesar Morfin Morfin (a.k.a. “Primito,” “Primo”): Born December 31, 1987, in Colima, Mexico. A CJNG leader in Tamaulipas, previously led a Cartel del Golfo faction before aligning with CJNG due to ties with Ruben Oseguera  Cervantes (“El Mencho”). Engages in fentanyl trafficking, fuel theft, and crude oil smuggling, generating millions for CJNG. Designated as an SDGT and under EO 14059 for supporting CJNG’s illicit activities.
  • Alvaro Noe Morfin Morfin: Born December 20, 1978, in Jalisco, Mexico. Cesar’s older brother, involved in narcotics trafficking and fuel theft. Played a leadership role in the Cartel del Golfo-CJNG alliance and shifted to crude oil smuggling. Listed among the 10 Most Wanted by U.S. and Mexican authorities in 2021. Designated under EO 14059.
  • Remigio Morfin Morfin: Born October 21, 1991, in Colima, Mexico. Cesar’s younger brother, operates in Hidalgo, Mexico, overseeing plaza bosses and reporting to Cesar. Involved in narcotics trafficking and crude oil theft. Designated under EO 14059.
• Entities:
  • Grupo Jala Logistica, S.A. de C.V.: Based in Rio Bravo, Tamaulipas, Mexico. Established December 7, 2020, it operates in transportation, storage, and extraction of crude petroleum and natural gas. Operates directly or indirectly for Cesar Morfin Morfin, transporting stolen fuel and crude oil between Mexico and the U.S. Designated as an SDGT and under EO 14059.
  • SLA.  Servicios Logisticos Ambientales, S.A. de C.V.: Based in Reynosa, Tamaulipas, Mexico. Established October 14, 2014, it focuses on transportation and storage, particularly hazardous materials. Supports  CJNG’s fuel theft by transporting stolen crude oil for Cesar Morfin Morfin. Designated as an SDGT and under EO 14059.
• Potential Connected Businesses:
  • Gas Stations and Fuel Retail: Grupo Jala Logistica and SLA. Servicios Logisticos Ambientales may supply stolen fuel to gas stations in Mexico or the U.S. southwest border. A U.S. fuel distributor purchasing from these stations risks violations if the stations are owned or controlled by SDN-listed entities or their affiliates.
  • Logistics and Freight Partners: These companies may subcontract with U.S.-based  logistics firms for cross-border transport of legitimate goods alongside illicit fuel. A U.S. shipping company partnering with Grupo Jala  Logistica could inadvertently engage with a blocked entity, triggering penalties.
  • Wholesale Distributors: CJNG-linked firms may distribute fuel or related products through wholesale companies in Mexico, which then export to U.S. retailers. A U.S. importer sourcing from such a distributor could violate OFAC rules if the distributor is 50% owned by an SDN, even if not listed.
  • Construction  and Real Estate: CJNG operatives like the Morfin Morfin brothers may invest fuel theft proceeds in legitimate businesses, such as construction firms in Tamaulipas used to launder money. A U.S. contractor collaborating on a project with such a firm risks violations if it is blocked under the 50 Percent Rule.

These additions highlight CJNG’s reliance on fuel theft (known as “huachicol”) as a major non-drug revenue source, costing Mexico billions annually (Treasury, 2025;). The involvement of transportation companies underscores the need for U.S. businesses to screen partners in high-risk sectors like logistics and energy.

OFAC’s 50 Percent Rule and Violation Risks

OFAC’s 50 Percent Rule stipulates that any entity owned 50% or more, directly or indirectly, in the aggregate by one or more blocked persons is itself considered a blocked entity, regardless of whether it appears on the SDN list (OFAC, 2024; OFAC, 2014). This rule significantly increases the risk of OFAC violations for U.S. companies, as follows:

• Direct Ownership:
  • If Cesar Morfin Morfin owns 50% or more of Grupo Jala Logistica, the company is blocked. A U.S. logistics firm contracting with Grupo Jala for fuel transport would violate OFAC regulations, even if unaware of Cesar’s  ownership, due to the strict liability standard.
• Indirect Ownership:
  • The rule applies to complex ownership structures. For example, if Alvaro Noe Morfin Morfin owns 50% of Entity A (a holding company), and Entity A owns 50% of Entity B (a fuel distribution firm), Entity B is blocked because  it is indirectly owned 50% by Alvaro. A U.S. retailer purchasing fuel from Entity B would face penalties, even if Entity B is not on the SDN list.
• Aggregate Ownership:
  • If multiple blocked persons collectively own 50% or more of an entity, it is blocked. For instance, if Cesar Morfin Morfin and Remigio Morfin Morfin each own 25% of a Tamaulipas-based gas station chain, the chain is blocked because their aggregate ownership is 50%. A U.S. company supplying equipment to this chain would violate OFAC rules, even if the transaction appears legitimate.
• Violation Scenarios:
  • Unscreened  Partners: A U.S. energy company partners with SLA. Servicios Logisticos Ambientales for fuel transport, unaware that it is controlled by Cesar Morfin Morfin. Payments to SLA constitute a prohibited transaction, incurring civil penalties up to $368,136 per violation.
  • Supply Chain Risks: A U.S. importer buys fuel from a Mexican distributor later found to be 50% owned by Remigio Morfin Morfin. The transaction violates OFAC rules, potentially leading to fines or asset freezes, even  without prior screening.
  • Intermediary  Transactions: A U.S. bank processes payments for a client to a construction firm indirectly owned by the Morfin Morfin brothers. The  bank’s failure to screen the recipient results in a violation, as facilitating SDN transactions is prohibited.
• Due Diligence Challenges:
  • The 50 Percent Rule requires U.S. companies to investigate ownership structures, which can be obscured through shell companies or       intermediaries. For example, Grupo Jala Logistica may use a front company to hold shares, making it difficult to detect SDN ownership without enhanced due diligence. OFAC urges thorough screening to avoid dealings with such entities, as they may become subject to future designations or enforcement actions (OFAC, 2014).

The 50 Percent Rule’s broad scope means that U.S. companies must implement robust screening processes to identify not only SDN-listed entities but also their unlisted affiliates. Failure to do so risks severe penalties, even for inadvertent transactions, due to OFAC’s strict liability standard.

Implications for U.S. Companies

The operation of legitimate businesses by designated entities and the May 1, 2025, SDN additions, combined with the 50 Percent Rule, create a complex compliance landscape. U.S. companies, particularly those in logistics, energy, or retail with ties to Mexico, must conduct enhanced due diligence to avoid engaging with blocked entities like Grupo Jala Logistica or SLA. Servicios Logisticos Ambientales. The CJNG’s use of transportation firms to smuggle stolen fuel highlights the need for rigorous screening in high-risk sectors. Regular checks against the SDN list and investigation of ownership structures are essential to mitigate these risks.

9. Recommendations for Compliance

To mitigate risks, businesses should:

1. Screen Regularly: Use automated tools to check partners, suppliers, and transactions against the SDN list in real time (OFAC Sanctions Search).
2. Implement Compliance Programs: Develop programs with training, risk assessments, and audits.
3. Conduct Due Diligence: Enhance scrutiny for transactions in high-risk regions like Mexico and Venezuela.
4. Stay Updated: Monitor OFAC announcements and Federal Register updates (OFAC Recent Actions).
5. Consult Experts: Engage sanctions compliance professionals for complex transactions.

These steps help businesses avoid violations and protect operations and reputation.

10. Conclusion

Executive Order 14157 and the designation of eight criminal organizations as FTOs and SDGTs create significant compliance challenges for U.S. businesses. The SDN list inclusions, including the May 1, 2025, additions targeting CJNG’s fuel theft network, combined with OFAC’s strict liability standard, demand vigilant screening and due diligence. The operation of legitimate businesses by groups like CJNG and the Sinaloa Cartel heightens risks of unintentional violations. Executives and business owners must prioritize robust compliance to avoid fines, imprisonment, and reputational damage. Proactive measures are essential to navigate this complex regulatory environment.