When a terrorist designation lands on the desk of a compliance team with significant operations in Latin America, it’s far more than a routine update; it’s an immediate, costly emergency. Rafael Antal, an attorney and anti-corruption scholar, argues that the true test lies not in reacting to a crisis, but in proactively assessing whether existing compliance frameworks are robust enough to absorb such designations without triggering all-night emergencies. This critical question looms larger than ever as the landscape of regulatory risk in the region continues to evolve.
The recent designation by the U.S. Department of State in June of Brazil’s most prominent criminal organizations, Primeiro Comando da Capital (PCC) and Comando Vermelho (CV), as Foreign Terrorist Organizations (FTOs) marked a significant shift. This was the first time Brazilian criminal entities of this scale received such a label, a development that many compliance officers at U.S. mid-sized contractors operating in Latin America may have initially categorized as a mere legal update. However, Antal contends that this framing significantly understates the profound implications. The underlying assumption is that existing compliance programs, built around vendor screenings, training protocols, and red-flag escalation procedures, were designed to address a narrower spectrum of risk than what these high-level terrorist designations now indicate.
For many U.S. contractors with Brazilian operations, the compliance environment is already a complex tightrope walk. They are routinely tasked with navigating the stringent requirements of the U.S. Foreign Corrupt Practices Act (FCPA) alongside Brazil’s own robust anti-corruption legislation, the Clean Company Act. When a UK-linked lender or parent entity is introduced into the ownership structure, the labyrinthine demands of the UK Bribery Act also become a factor. In this multi-jurisdictional environment, numerous compliance programs have adopted ISO 37001, an international standard for anti-bribery management systems, as their foundational audit backbone.
The terrorist designation, however, introduces an entirely new layer of scrutiny that most of these established programs were not explicitly engineered to address. U.S. federal law broadly defines "material support or resources" to include a wide array of assets and services, encompassing currency, financial services, and even payments made under duress. Crucially, this definition extends to conduct occurring entirely outside the United States, meaning a single transaction routed through a correspondent account can be sufficient to establish jurisdiction for federal prosecutors. The Justice Against Sponsors of Terrorism Act (JASTA) further bolsters this legal framework by introducing civil claims alongside criminal penalties.
Once the U.S. Treasury Department added the PCC and CV to its Specially Designated Nationals (SDN) list, it imposed obligations that effectively block certain transactions and dealings for any entity owned at least 50% by a designee. For publicly traded companies, this triggered a Section 13(r) disclosure duty under the Securities Exchange Act of 1934, a requirement that carries no materiality threshold. The gravity of such designations is underscored by historical precedents. Lafarge, the global building materials company, pleaded guilty and paid over $778 million in fines for conspiring to provide material support to foreign terrorist organizations. Similarly, Chiquita Brands International paid $25 million for material-support findings related to payments made to protect its operations, not to directly fund a terrorist cause. In both instances, the intent behind the payments—whether to facilitate operations or to actively bankroll an organization—did not shield the companies from severe penalties.
Despite the daunting implications, there is a glimmer of positive news: addressing these new risks does not necessarily equate to immediate hiring sprees. In an era of flat budgets and expanding risk registers, compliance officers often face resistance to proposals requiring increased headcount. The more pragmatic approach, according to Antal, involves integrating a new operational lane within the existing compliance program. This lane would be managed by the same personnel already conducting third-party due diligence. The key enhancement would be the implementation of a more comprehensive questionnaire and an expanded screening list that now explicitly includes foreign terrorist organizations (FTOs) and Specially Designated Global Terrorists (SDGTs), alongside the traditional checks for sanctions lists and politically exposed persons (PEPs).
Where Existing Programs Fall Short
The fundamental inadequacy of many current compliance programs lies in the scope of their due diligence questionnaires. Bribery questionnaires, for instance, are typically designed to probe for payments made to government officials. They rarely extend to investigating whether a subcontractor’s ownership traces back to a newly designated terrorist group, nor do they adequately differentiate between a protection payment extorted under duress and a standard vendor dispute. A vendor could meticulously pass a typical anti-bribery audit, yet still expose a company to significant material support liability if its financial records reveal payments made solely to maintain operational access within territories controlled by groups like the PCC or CV. These territories are predominantly concentrated in and around major Brazilian urban centers such as São Paulo and Rio de Janeiro.
This scenario is not an isolated incident; it represents a recurring pattern where regulatory designations outpace the adaptive capabilities of compliance programs. Earlier waves of such designations targeted Mexican cartels like MS-13, the Venezuelan criminal syndicate Tren de Aragua, and various organized crime groups operating in Haiti and Ecuador. The trend is expected to continue and potentially expand throughout the hemisphere, inevitably ensnaring additional companies whose compliance frameworks were previously calibrated for a narrower risk profile.
Training protocols often lag behind these evolving threats in a similar fashion. The majority of anti-bribery training modules focus on educating personnel to identify illicit payments to government officials. This skillset, while crucial, does not inherently equip individuals to recognize payments coerced by armed groups. An employee who has spent years mastering the nuances of flagging improper gifts and hospitality may not automatically detect a wire transfer that appears routine on paper but is, in reality, a protection payment. This deficit represents both a training and a policy challenge, one that typically only becomes apparent after a compliance failure has already occurred – a costly method of risk discovery.
Proactive Fixes: Adapting to an Expanding Threat Landscape
To address these critical gaps for compliance teams operating with exposure in Latin America, a series of strategic adjustments can be implemented without necessitating the creation of entirely new, parallel compliance structures. The existing framework possesses the capacity to encompass a broader spectrum of risks. The ongoing trend of increasing designations suggests that this is not a fleeting concern but an evolving regulatory reality. This marks roughly the fourth or fifth significant round of such designations since the underlying policy began its expansion, and there is little indication that this pace will decelerate.
One of the most pressing needs is to enhance third-party due diligence questionnaires. These should be revised to explicitly inquire about any connections, direct or indirect, to entities or individuals designated as terrorists or involved in organized crime. This includes asking about any payments made under duress or for the purpose of ensuring safe passage or operational access in regions with a significant presence of such groups.
Furthermore, the screening process needs to be broadened. Beyond the standard checks against sanctions lists and PEP databases, compliance teams must incorporate screening against lists of Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs). This requires access to comprehensive and up-to-date databases and the ability to interpret the results effectively.
Training programs require a significant overhaul to address the specific risks posed by terrorist designations. Modules should be developed to educate employees on recognizing the indicators of extortion, protection rackets, and payments made under duress. This involves shifting the focus from simply identifying illegal payments to understanding the context in which payments are made, particularly in high-risk environments. Scenario-based training, using real-world examples where possible, can be particularly effective in building this awareness.
The escalation procedures within compliance programs also need reevaluation. When red flags are raised related to potential material support for terrorist organizations, the escalation path must be clear, swift, and involve individuals with the expertise to assess the gravity of the situation. This might include involving legal counsel specializing in national security and anti-terrorism laws, as well as senior management.
Companies should also consider incorporating geopolitical risk assessments into their compliance frameworks. Understanding the political and security landscape of the regions in which they operate is crucial for anticipating and mitigating risks associated with terrorist designations. This involves monitoring news, intelligence reports, and engaging with local experts to gain a nuanced understanding of the operating environment.
Finally, regular review and updating of compliance policies and procedures are essential. The dynamic nature of terrorist designations and the evolving tactics of criminal organizations necessitate a proactive approach to compliance. Policies should be reviewed at least annually, or more frequently in response to significant events or changes in the regulatory landscape.
These adjustments are not about creating a separate compliance program but about augmenting the existing one to effectively manage a wider array of threats. The goal is to build resilience and ensure that the organization can absorb the impact of future designations without incurring catastrophic financial and reputational damage. As the U.S. government continues to expand its efforts to combat terrorism and organized crime through designations, companies with operations in vulnerable regions must prioritize adapting their compliance strategies to meet these escalating challenges. The time for reactive measures is past; proactive adaptation is the only viable path forward.
