Last September, Mexico dismantled one of the pillars that had long made it a reliable destination for foreign investment: an independent judiciary. A last-minute constitutional reform pushed through by outgoing hard-left President Andrés Manuel López Obrador required all 7,000 of the country’s judges to run for election and reduced the qualifications required to serve.
Mexican President Claudia Sheinbaum, López Obrador’s protégé and successor, implemented his judicial revolution with the first round of judicial elections on June 1, 2025. The results were a huge victory for their leftist governing party, Morena. Minuscule turnout, confusing ballots, and corrupt election practices resulted in a virtual sweep by Morena’s hard-left slate of judges.
Even worse, an anti-cartel watchdog group has identified several judicial candidates with direct ties to criminal syndicates—including the Sinaloa and Los Zetas cartels—which were designated as Foreign Terrorist Organizations (FTOs) by President Donald Trump in February. A lawyer who represented the imprisoned Sinaloa cartel leader, El Chapo, was elected a criminal court judge in Ciudad Juárez.
The consequences have been swift. Financial markets have been rattled, the peso has been sent into a tailspin, and the door has been opened to politicized, corrupt, and cartel-influenced decision-making by the judiciary that threatens to upend Mexico’s international legal obligations regarding arbitration of commercial disputes.
Binding international arbitration of commercial disputes is perhaps the most critical protection for international investors in Mexico, who often settle disputes by agreeing to binding arbitration between themselves. This puts their disagreements in front of neutral, international arbitrators at institutions like the International Chamber of Commerce Court on Arbitration (ICC) and keeps the decision about that dispute out of local courts, where prejudice and corruption can prevent fair adjudication. But by itself, an arbitration agreement among two parties is worthless unless it can actually be enforced in local courts.
Until recently, Mexico built a reputation for honoring cross-border arbitration rulings as a party to these trade and investment treaties. For example, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) was adopted in 1958 and ratified by Mexico on April 14, 1971. The convention requires Mexican courts to recognize and enforce foreign arbitral awards. Mexico is also a party to the Inter-American Convention on International Commercial Arbitration (also known as the Panama Convention), adopted in 1975 and ratified by Mexico in 1978, which provides similar commitments for arbitrations within the Americas.
The resulting legal certainty and protections these treaties provide from local legal prejudices are a major reason why U.S. firms have invested hundreds of billions in Mexico and why the United States has entered into various free trade agreements with its southern neighbor. All of these activities were carried out under the assumption that if disputes arose and were resolved by neutral arbitral tribunals, those decisions would be respected in local Mexican courts.
Now, however, with these courts vulnerable to political pressure and outside influence, some companies are seizing the opportunity to revisit such decisions. Citigroup, for example, understands the radical transformation López Obrador has imposed on the Mexican judiciary. After the June judicial elections, Citigroup petitioned a local Mexican court to nullify a $53 million ICC arbitration award that its Mexican pensions unit lost last December. But international arbitration is supposed to be final. The local court is obligated by treaty to enforce that award.
When a losing party seeks to overturn a binding international arbitration award by turning to domestic courts—especially those newly politicized and potentially compromised—it breaches the principle of good faith and signals to others that treaty protections can be bypassed for convenience or profit.
This kind of forum shopping poses a systemic risk to U.S. investors. The erosion of arbitration protections in Mexican courtrooms and, by extension, the infringement of the rights of investors seeking restitution should be a consideration in the U.S. Department of Commerce’s evaluation of current and future trade agreements with Mexico.
This point becomes even more important as this broader institutional crisis opens the door for potential cartel influence over the Mexican judiciary. In this context, reinforcing the integrity of international legal norms is not just about safeguarding investors—it is about drawing a line against the normalization of lawlessness in a country that remains central to U.S. trade and security.
Experts have long documented how Mexican cartels use violence and bribery to influence local elections. Now that judges in the country will no longer be selected through legislative deliberation or a professional career track, but instead by popular vote, those tactics have found a more powerful and lasting point of entry.
In his executive order establishing the FTO designation process for Mexican cartels, President Trump noted that “in certain portions of Mexico, they function as quasi-governmental entities, controlling nearly all aspects of society.” If judges sympathetic to the cartels are now embedded in the judiciary, it would affect far more than just domestic stability in Mexico. Even unsympathetic judges will inevitably succumb to the money and power the cartels will exercise on their reelection.
Structural collapse of the rule of law in a country that remains one of America’s top trading partners poses serious risks for any injured U.S. entity now forced to pursue restitution through a legal system that may be manipulated. As the Center for Strategic and International Studies has warned, some companies may already be using political connections to “resolve disputes informally”— a euphemism for resolving them through backchannels and corruption. Citigroup’s case could be just the first in a wave of attempts by politically connected corporations to use politicized Mexican courts to sidestep adverse decisions issued by neutral arbitrators, inviting a race to the bottom.
However, any attempted manipulation of the Mexican legal system could eventually backfire on companies that seek to exploit this compromised legal integrity, creating a lose-lose situation. Far from being a “get out of jail free card,” U.S.-based firms contemplating such forum shopping of their Mexican business disputes should also be wary of the scrutiny such actions may bring from American enforcement authorities tasked with combating cartel-linked corruption.
And it’s not just cartel bosses who may be targeted under U.S. sanctions laws anymore. The enforcement landscape is shifting accordingly. In March, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) invoked the Foreign Narcotics Kingpin Designation Act (Kingpin Act) to sanction several Mexican businesses for their links to cartels, one of which also has the FTO designation. This action by OFAC had a narrow scope and took place before the June 1 judicial elections, but demonstrates how any foreign officials or private actors—including American companies—who knowingly aid, abet, or collaborate with FTOs or with institutions they control could be swept up in a dragnet.
The United States cannot afford to look the other way while important foundational protections for U.S. investment and trade, such as binding arbitration, are eroded. Mexico is an immensely important trading partner—in 2024 alone, trade between the U.S. and Mexico was almost $1 trillion, comprising nearly 13% of all U.S. trade with foreign nations.
We must push to protect American companies doing business there, especially where foreign terrorist organizations and hard-left ideology can wield significant influence over those who interpret and apply the law. Companies and individuals that collude with FTO-captured judges may also face legal consequences. This isn’t simply about protecting arbitral awards or punishing bad actors—it’s about preserving a system that safeguards billions in U.S. investment, ensures reciprocity abroad, and maintains America’s standing as a champion of rule-of-law standards.
The consequences of allowing captured courts to decide the fate of American investors go far beyond Mexico. They extend all the way to Wall Street.
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