OFAC Sanctions Risks and Cartel Designations

JD Supra Trade Law

Published March 11th, 2026

Detected March 12th, 2026

Summary

OFAC has settled a $1.7 million case with IMG Academy for sanctions violations related to cartel-linked entities. This highlights increased compliance risks for entities with international touchpoints due to heightened cartel designations and sanctions enforcement.

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What changed

The Office of Foreign Assets Control (OFAC) recently settled with IMG Academy, LLC for $1.7 million due to apparent violations of counternarcotics sanctions. The violations involved contracts with entities tied to a sanctioned Mexican Drug Trafficking Organization, despite payments being made by third parties. OFAC cited IMG Academy's "reckless disregard" for sanctions and noted that minimal due diligence would have identified the sanctioned customers. This case underscores the significant sanctions risks for any entity, even those within the U.S., that has "international touchpoints" and emphasizes OFAC's expectation for entities to leverage available information for sanctions compliance, including sanctions screening.

Companies operating internationally, particularly in regions with active cartels, face heightened compliance and enforcement risks. The administration's aggressive use of national security tools and focus on "total elimination" of cartels means that entities must enhance their due diligence and sanctions compliance programs. This includes rigorous screening of customers and counterparties, and proactive identification of potential sanctions risks associated with international business dealings. Failure to do so can result in substantial penalties, as demonstrated by the IMG Academy settlement.

What to do next

Review and enhance sanctions screening processes for all international transactions and counterparties.
Update due diligence procedures to identify potential links to sanctioned entities, especially those involved in drug trafficking or organized crime.
Develop or refine a comprehensive sanctions compliance program, incorporating lessons learned from recent OFAC enforcement actions.

Penalties

$1.7 million settlement

Source document (simplified)

March 11, 2026

Three Recent Developments Highlighting Continued Compliance Risks From Terrorism Designations and Other Cartel-Related Sanctions

Margot Benedict, Rachel Miras Fiorill, Brandon Van Grack, Brian Michael, David Newman Morrison & Foerster LLP + Follow Contact LinkedIn Facebook X Send Embed

Over the past year, as discussed in our prior alerts, the Administration’s terrorism designations of narcotics cartels operating in Latin America, its novel and aggressive use of national security tools to pursue cartels, and its enforcement emphasis on the “total elimination” of cartels have heightened compliance and enforcement risks for companies that operate in Mexico and in other regions in which cartels are active. Three recent developments illustrate the different and evolving facets of risk that companies now face.

Sanctions Risks for Entities with “International Touchpoints”

In one of its latest enforcement releases, the Office of Foreign Assets Control (OFAC) in February announced a $1.7 million settlement with IMG Academy, LLC, a school and athletic training facility in Florida, for its apparent violations of OFAC counternarcotics sanctions involving transactions with two entities tied to a sanctioned drug cartel. As recounted in the OFAC Enforcement Release, IMG Academy repeatedly entered into contracts with two Specially Designated Nationals (SDNs) who had been sanctioned for providing financial support and services to a sanctioned Mexican Drug Trafficking Organization and/or its principal leader.

Though the payments for these contracts—which represented tuition enrollment agreements for the children of the SDNs—were made by non-designated third parties, OFAC highlighted the fact that the contracts themselves were made and signed by the SDNs using their full name details matching their entries on the SDN List. Citing IMG’s “reckless disregard” for U.S. sanctions as an “aggravating factor,” OFAC noted that “[m]inimal due diligence at any point throughout this process would have revealed that these customers were sanctioned.” [1] Although IMG Academy sought to inform OFAC of the apparent violations, OFAC had already initiated an investigation such that IMG Academy did not receive voluntary self-disclosure credit. OFAC credited as mitigating factors IMG Academy’s timely cooperation and “immediate remedial steps,” to include developing and implementing a sanctions compliance program. As OFAC emphasized in the release, this case highlights the sanctions risks present for any entity—even entities operating within the United States typically not perceived to be at risk for sanctionable activities—with “international touchpoints,” regardless of the sector in which that entity operates. Consistent with other OFAC enforcement actions in recent years, OFAC also stressed its expectation that entities leverage information in their possession for sanctions compliance purposes, including through sanctions screening.

Corporate Disclosures Noting Increased FTO Compliance Risks

As noted above, the risk of significant enforcement actions is especially pronounced for companies with operations in Latin America, particularly in regions dominated by cartels and other transnational criminal organizations (TCOs). A recent indicator of the significance of these risks is the corporate disclosures some entities have begun making in their U.S. Securities and Exchange Commission (SEC) filings.

In a short span following the designations in 2025, five different companies with operations in Mexico incorporated the Trump Administration’s designation of certain international cartels as Foreign Terrorist Organizations (FTOs) as “Risk Factors” in their annual report filings. One such filing, by Petróleos Mexicanos (PEMEX), noted that the “designations expand the tools available for U.S. authorities to prosecute members of FTOs or individuals or entities alleged to have provided them ‘material support.’” [2] All of the filings discuss the increased risk of enforcement actions or potential criminal and civil liability posed by the designations.

In November 2025, as part of its 10-Q, an additional company in the oil & gas industry disclosed that it had conducted an internal investigation into payments made prior to the company’s acquisition of a Mexican business and determined “certain payments likely were made to persons associated with an organization designated as an FTO or SDGT.” [3] The filing states that such payments were made to protect employees and ensure access to work sites, and adds that the matter was self-reported to authorities in the United States, including the Department of Justice (DOJ), the SEC, and OFAC. The disclosure goes on to say that the company subsequently sold its operations and legal entities in Mexico.

Given the abundance of companies with operations in cartel-dominated areas across Latin America, more disclosures of this kind should be expected.

New Risks for Entities Interested in Doing Business in Venezuela

While much of the attention to date appears to have focused on Mexico, the enforcement risks—like cartel activities—apply to other jurisdictions, as well. Notably, companies considering doing business in Venezuela in light of the post-Maduro environment should keep in mind that, separate and apart from applicable sanctions imposed by OFAC, there remain a myriad of risks associated with groups designated as FTOs known to operate in and around Venezuela.

While OFAC continues to update its licensing posture related to oil or gas sector operations in Venezuela—and has done so at least five times just in the month of February—as noted in a previous alert, DOJ does not issue any similar guidance with regard to the scope and application of the statutes it may use as part of its enforcement regime. Thus, companies seeking to conduct business in Venezuela should take into account the added risk of potential exposure to criminal investigation for material support to terrorism, and bear in mind that an OFAC license (while a strong statement of U.S. policy) does not as a matter of law confer immunity from the provision of material support to designated terrorist entities.

Best Practices Amidst Heightened Focus

The Trump Administration is making novel and more fulsome use of the national security toolbox to go after cartels and TCOs, increasingly ensnaring companies doing business in and with entities in the regions in which they operate.

Any company that conducts operations in Latin America should proactively assess their compliance program to identify its risk and whether there is insufficiently addressed exposure, especially with regard to vendors, suppliers, and customers in these regions. Following that risk assessment, it would be prudent to update compliance programs and protocols to reflect this new enforcement landscape and implement appropriate compliance enhancements and controls. Companies that identify potential sanctions violations should also consider, with the advice of experienced counsel, the potential advantages of submitting a voluntary self‑disclosure to OFAC, DOJ, and/or other relevant regulators.

Even without a presence in Latin America, all companies would be wise to pay close attention to their due diligence processes, as the Administration’s increased focus on cartels and related activities does not appear to be waning any time soon. Proactive action will help protect against being caught in the crosshairs and the risk of sanction.

Sydney Schauer, an associate in our Washington, D.C. office, contributed to the writing of this article.

[1] Department of the Treasury Office of Foreign Assets Control, “ IMG Academy, LLC Settles with OFAC for $1.7 Million Related to Apparent Violations of Counternarcotics Sanctions,” February 12, 2026.

[2] Petróleos Mexicanos, SEC Filing, April 29, 2025.

[3] Kodiak Gas Services, Inc., SEC Filing, November 5, 2025.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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