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Trump’s Bid To Seize Cartels Might Spell Trouble for Banks and Crypto Startups

The president of the United States, Mr. Donald Trump is considering to label Mexican cartels as a Foreign Terrorist Organization (FTO). If the shift in policy does take place, it would Hughley cost the banking sector as well as the upcoming crypto startups as believed by many policymakers.

The plans of labeling these cartels as a terrorist organization is being fuelled by the ambition to aggregate the funds for the walls on the US-Mexico border. After a failed attempt to gain some leverage and collect funds for the wall with the declaration of State emergency, which lasted for the longest period of time, in the US history, the recent statement might spell trouble for the banks.

What is the Exact Definition of Foreign Terrorist Organization (FTO)

As per the state department definition, any foreign organization which either engages in or has the means to engage in terrorism and threaten the security of United States citizens or the national security of the country are termed under FTO.

the legal ramifications of the FTO designation require:

“Any U.S. financial institution that becomes aware that it has possession of or control over funds in which a designated FTO or its agent has an interest must retain possession of or control over the funds and report the funds to the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury.”

On the one hand the increased violence and atrocious, caused by drug cartels surely needs to be considered under the FTO. But, the result of such branding could run havoc on the country’s banking systems. The cause of worry also increases given the fact that the banking sector is already spending around $25 billion yearly on anti-money laundering compliances.

Andrew Lewis, a former deputy director of the Counter Narco-Terrorism Task Force at the Department of Defense (DoD) says that when it comes to financial crime enforcement, the government goes behind the easiest target, which makes it easier for big fish to operate and continue to run mayhem. Its the bank which suffers the most as they have to pay penalties.

Lewis explains the aftermath of FTO designation,

“I think you would see a lot of concern in the banking industry if this moved forward, because, from a risk compliance standpoint, they would have to spend so much time and money addressing potential concerns like – would the fact that individual A has an account or transfer money to individual B or business C be enough to drag that bank into court for material support to a drug cartel/terrorist if those entities were later determined to be drug dealers/terrorists and the bank didn’t do sufficient AML/KYC?”

How the Move Can Spell Trouble For Crypto Industry

The United States has been known for its tough stance over the use of crypto in the States. Add the increased use of cryptocurrencies by the cartels to launder their illegal money, if the Trump administration to move ahead with its plan, it might prove disastrous for the already suffering crypto space in the country.

As per a 2018 report, Mexican cartels are heavily dependent on Chinese crypto launderers to get their drug money out of the hands of authorities. If these drug trafficking cartels are branded as a terrorist organization, then the crypto space and crypto transactions in the country would fall under the  OFAC sanctions.

Malcon Wright, the chief compliance officer of blockchain firm Diginex explains the impact of such imposition on the crypto space.

“If cartels end up on OFAC then it does require proper screening to be done by crypto exchanges – something that currently has a huge disparity from nothing through to bank-grade,”

Thus, the policymakers need to find a common ground where the United states crypto market does not suffer due to the indulgence of drug traffickers and their use of crypto to launder their money.