Cross-border acquisitions in higher-risk jurisdictions increasingly require a form of diligence that goes beyond financial statements and standard compliance questionnaires. For private equity sponsors and strategic buyers evaluating targets operating in regions influenced by organized crime, the core question goes beyond whether a company has complied with anti-corruption laws. They now must ask if the business has operated in ways that could expose them to liability for providing material support to a terrorist organization.
That risk has become more acute as U.S. policymakers increasingly view certain transnational criminal groups through a counterterrorism lens. When a cartel or affiliated entity is designated by the U.S. Department of State as a Foreign Terrorist Organization, payments or assistance that might previously have been understood locally as extortion or “security costs” can implicate the material-support prohibition under 18 U.S.C. § 2339B, which carries severe criminal penalties.
This shift means that traditional anti-corruption diligence must be complemented by a more investigative approach, one that examines how the target has operated in environments where criminal groups exert influence.
Start with the Target’s Response Framework for Criminal Pressure
Traditional diligence reviews examine the target’s financial performance, accounting controls, and compliance with applicable laws and regulations, including anti-bribery, sanctions, and money laundering requirements. In cartel-affected regions, however, an equally important question is how the company responds when criminal groups attempt to interfere with operations.
Acquirers should seek to understand whether operations depend on extortion payments and whether key suppliers, those that would be difficult to replace, are tied to criminal organizations. In addition, diligence should examine whether the target maintains written guidance for responding to extortion demands, threats to employees, cargo theft, or other criminal interference. Have employees received training on how to respond to such situations? Are there defined escalation channels? Are incidents documented and reported to senior-most management?
The existence of a formal response framework can be an important indicator that the company has attempted to resist or manage criminal pressure in a structured way. By contrast, informal practices or undocumented arrangements likely signal greater legal risk for an acquirer.
Reevaluate Compliance Controls Through a Cartel-Focused Lens
Foreign Terrorist Organization designations expand the scope of compliance. Anti-corruption controls that traditionally focus on government officials must now also address the possibility that payments could flow to criminal intermediaries.
This calls for a review of practices relating to: vendor vetting; cash payment and expense reimbursement; logistics routes and cargo-handling; and third-party intermediaries in high-risk regions.
Payments routed through intermediaries — including routine service providers such as cleaning companies, catering vendors, or internet and telecommunications providers — can create exposure if those actors maintain relationships with criminal organizations. Organizations such as labor unions or community groups, which are often not covered during traditional due diligence exercises, may present heightened risk.
Even payments arising from extortion pressures may raise legal questions for an acquirer subject to U.S. law.
As a result, diligence teams increasingly test whether the target’s compliance program meaningfully addresses these operational realities.
Conduct Deeper Background Research on Principals and Affiliates
Background work on company principals, shareholders, and key partners should extend well beyond basic compliance screenings and reviews of corporate and litigation records.
Thorough open-source research can identify potential risk indicators such as media reporting linking individuals to organized crime investigations, past law enforcement actions involving affiliated entities, or regulatory enforcement histories. In cartel-affected regions, such research can also reveal patterns of association — for example, business partnerships with individuals who have been named in indictments or investigative reporting concerning cartel influence.
While such findings do not necessarily establish wrongdoing, they can identify reputational risks or areas requiring deeper diligence before a transaction proceeds.
Supplement Research with Discreet Source Inquiries
Public records rarely capture the reality of how organized crime operates within specific industries or regions. For that reason, sophisticated acquirers increasingly supplement documentary diligence with discreet reputational inquiries among trusted sources familiar with the local business environment.
These inquiries may involve discussions with industry experts, former regulators, law enforcement professionals, or other knowledgeable individuals who understand how criminal organizations operate. Such conversations can illuminate problems that remain invisible in documents: whether a company has a reputation for accommodating cartel demands; how extortion pressures affect logistics routes or port operations; and whether principals are viewed locally as credible operators.
In one recent engagement, for example, a private equity firm evaluating the acquisition of a marine logistics company operating in Mexico sought to understand how cartel activity affected the regional maritime sector and, in particular, the target’s operation. In addition to reviewing the company’s books and records and internal compliance policies and conducting extensive open-source research on its principals and affiliates, investigators conducted discreet inquiries. Their conversations with industry specialists and present and former government officials provided critical context about how cartels operate in the region and offered insight into the reputation of the company’s leadership. But more than that, these sources identified areas for deeper scrutiny, singling out suspect transactions or operational practices that could reflect exposure to cartel-related pressures.
The resulting intelligence helped clarify not only the legal risks associated with the transaction but also the realities the acquirer would face in operating the company.
Integrating Investigative Insight into Transactional Risk Assessment
Ultimately, cartel-related diligence is not simply about identifying red flags. It is about developing a realistic understanding of how a business operates within challenging environments and whether its practices create unacceptable legal exposure under evolving U.S. enforcement frameworks.
In navigating complex cross-border acquisitions, acquirers and their advisors need to integrate investigative research, reputational intelligence, and sector-specific expertise into the diligence process in order to obtain a complete, accurate, and detailed picture of the situation. This fuller picture can make the difference between a manageable compliance challenge and an unforeseen legal liability.
