On May 28, 2026, the U.S. Government designated Comando Vermelho and Primeiro Comando da Capital, two of Brazil’s largest criminal cartels, as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs). Last year, in February 2025, the U.S. similarly designated six Mexican criminal cartels as FTOs and SDGTs. Those actions have had, and will continue to have, a tremendous impact on trade and financial transactions in the Western Hemisphere and beyond. What has not been adequately discussed is the significant impact they could have on U.S. institutions of higher education.
A New Compliance Frontier for Higher Education
The recent cartel designations combined America’s war on terror and its war on drugs, bringing with them this nation’s vast military and law enforcement resources. The designations, for the first time, triggered the broad-scale application of numerous U.S. criminal and civil statutes against unsuspecting companies and individuals doing business with Mexican and Brazilian entities that are ostensibly lawful.
Cartel Networks Reach Deep into Legitimate Commerce
Brazil and Mexico are, respectively, the two largest economies in Latin America – the U.S. has annual trade in goods and services with Mexico of $976 billion and with Brazil of $126 billion. The cartels have deeply penetrated those markets. Over the years, they diversified their criminal operations by investing illicit drug trade proceeds in many legitimate businesses. Those industries include agriculture, real estate, construction, pharmaceuticals, natural resources, utilities, transportation, shipping, securities, and other financial services.
That evolution has made transacting with cartel-controlled entities and participating in cartel-dominated supply chains highly precarious for Americans, American businesses, and businesses located in the U.S. Under U.S. law, such dealings can be tantamount to transacting directly with FTOs and SDGTs and can result in severe financial penalties and serious criminal consequences. Violations of certain sanctions regimes can result in strict liability.
Why Higher Education is Particularly Exposed
The legal ramifications of dealing with designated criminal enterprises, however, extends well outside the business community. Federal anti-terrorism law, for example, prohibits a person or entity from providing “material support” to an FTO, which is defined as “any property, tangible or intangible, or service.” Executive Order 13224 also prohibits any donation of funds, property, or services[1] by an FTO to a U.S. person or entity. Those restrictions have an enormous sweep.
[1] See 18 U.S.C. §§ 3839A, 3839B.
Foreign Funding Creates Risk on Both Sides of the Ledger
American universities and other institutions of higher education receive substantial funding from abroad, including contract payments for goods and services that they provide to foreign businesses and governments, as well as donations from foreign benefactors. According to the U.S. Department of Education, in 2025, colleges and universities receiving federal funding also received approximately $72.1 billion in foreign gifts and contract payments. Of the total $72.1 billion, $582 million came from Brazil, $366 million came from Mexico, and more than $400 million came from known “counterparties of concern” to the U.S. Government, as identified by the Commerce Department, Defense Department, State Department, Treasury Department, and the Federal Communications Commission.
With the cartel designations now in the mix, money from abroad exponentially increases an institution’s FTO risk, i.e, the potential civil and criminal liability it faces when transacting with terrorist organizations. Procuring goods and services from FTO-related companies (which can constitute material support for a terrorist group) imposes the same liability on schools as receiving FTO-tainted funds by gift or otherwise.
Two Ways the Risk Has Intensified
Specifically, the FTO risk has increased in two ways.
First, the extensive network of businesses and front companies operated or controlled by the designated cartels, spanning nearly all major sectors of the economy, greatly increases the likelihood of transacting with them in either a charitable or commercial context. Historically, traditional FTOs were not so broadly and deeply integrated into legitimate industries, and, consequently, universities and colleges were much less likely to encounter them.
Second, the recent cartel designations have made American institutions of higher education much more vulnerable to government investigative and enforcement actions, which can be highly disruptive to institutional operations, costly, and reputationally ruinous.
The Federal Liability Framework
By providing FTOs with “material support,” colleges and universities can violate both criminal and civil provisions of the:
- Anti-Terrorism Act (ACA)18 U.S.C. §§ 2333, 2339B);
- International Emergency Economic Powers Act (IEEPA) (50 U.S.C. § 1701 et seq.) and the Regulatory Sanctions Regime administered by the Office of Foreign Assets Control (OFAC) (31 C.F.R. § 501 et seq.); and
- Federal False Claims Act (FCA) (31 U.S.C. § 3729 et seq.).
In addition to the collateral consequences that come with a felony conviction, violations of those laws can carry draconian monetary fines and penalties, treble damages, and debarment from receiving federal grants and contracts.
Why False Claims Act Exposure Deserves Particular Attention
FCA liability could be especially devastating in this context, given that every federal grant payment to an educational institution may constitute a false claim if the institution falsely certifies, as a condition of the grant, compliance with U.S. anti-terrorism laws and sanctions restrictions. The FCA is compounded by the law’s whistleblower remedy, which empowers individuals with undiscovered information to seek a financial reward from the government by filing an FCA action in court on behalf of the U.S. The FCA thus unleashes an army of private enforcement agents who are highly motivated financially to report a school for its dealings with an FTO.
Enforcement Is No Longer Hypothetical
In short, FTO risk in academic circles is quite real and growing. Just this past February, an elite private high school and sports academy in Florida paid OFAC $1.7 million to settle sanctions violations involving Mexican drug traffickers. The school had been accepting student tuition payments from sanctioned individuals and in 2017, the U.S. Justice Department settled an FCA case against the American University of Beirut for $700,000. The university received funding from USAID and falsely certified that it was complying with OFAC sanctions. In fact, the school had provided “material support” to sanctioned entities by providing them with journalism training and including a sanctioned entity in an NGO database.
What Should U.S. Colleges and Universities Do Now?
Colleges and universities must audit and evaluate their existing sanctions compliance procedures and update them where they find gaps. But in this new FTO environment, finding the gaps has become much more challenging. It may not be sufficient for a school to simply revise its best practices regarding economic development and the procurement of goods and services. In many cases, it will be necessary for an institution to consult with experienced intelligence professionals who know how these cartels operate and where these FTOs have infiltrated seemingly honest groups, businesses, and supply chains. It will also be necessary to consult with specialists on how best to untangle from unwanted associations. All work should be overseen by an expert legal counsel, who can assure that sensitive communications remain privileged and that necessary remedial actions serve as mitigating factors in any related investigations or enforcement proceedings.
Conclusion
The cartel designations have altered the compliance calculus for American higher education. Foreign gifts, tuition payments, research partnerships, vendor relationships, and supply chains that once seemed routine may now trigger sanctions, material support, False Claims Act, and reputational exposure. The central question will not always be whether an institution knowingly dealt with a cartel. It may be a question of whether the institution had a reasonably designed process for identifying indirect ownership, control, influence, and tainted funds before a transaction.
Colleges and universities should therefore treat FTO exposure as an institutional risk rather than a narrow legal or administrative issue. That requires clear accountability, risk-based diligence, effective escalation procedures, appropriate intelligence capabilities, and legal oversight that preserves privilege. Institutions that act now will be better positioned to identify hidden exposure, remediate problematic relationships, and demonstrate to regulators that compliance was embedded in their decision-making rather than addressed only after a questionable payment or counterparty came to light.
