how serious is the threat of organized crime in mexico? problem in mexico.pdf · risk evaluation...

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDON

How serious is the threat of organized crime in Mexico?

www.risk-evaluation.net


MEXICO - LONDON

Assessments by the USG, briefs from the intelligence community ,as well as independent analysis, have concluded that Mexico faces a serious threat from Drug Trafficking Organizations (DTO’s).

Mexican DTO’s have gained extraordinary power in the last ten years, due to shifts in the drug market and the availability to use Mexico’s logistical infrastructure at a very low risk, due to the lack of a national security and crime policy, that has been a fertile ground for corruption in law enforcement agencies.

Internal disputes among the Cartels, the competition for entry points into the U.S. and increased revenues from local markets (drugs, prostitution, extortion and black market activities), have resulted in over 28,000 murders.

The risk

Violet events are still contained in Chihuahua and Sinaloa however organized crime presence is new in Monterrey, Cancun and Mexico City.

There has been a change in the strategy of the Government of Mexico (GOM´s) that will create an emphasis in money laundering and regional cooperation.

Increased violence and new regulation regarding money laundering and commercial transactions will have an impact on certain sectors of the economy.


MEXICO - LONDON

ORGANIZED CRIME ECONOMICS


MEXICO - LONDON

Routes are a combination of technology, logistics and enforcement

Organized crime is based on logistics


MEXICO - LONDON

Supply in Colombia Innventory Logistics Distribution

1Kg. Cocainein Meta Guaviare$900 USD1 kg. Cocaine in Galapagos$3,500 USD

1 kg. Cocaine in Michoacán$7,500 USD

1 kg. Cocaine in Laredo$15,500 USD

1 kg. Cocaine in Atlanta wholesale price without dilutions$22,000 USD

$4,000 USD $8,000 USD $6,500 USD

The bottom line is always accounted for

Mexican DTO’s have the biggest profit share of the market

Diversified

Products

Price advantage

Logistics

platformLow risk

Global Influence


MEXICO - LONDON

Why did Mexicans become the player in the drug market?

•Colombian DTO’s are divided from 2 organizations to more than 25 groups

•Mexican DTO’s determine the price due to their volume

•Control the traffic and distribution in the US

•On 1999 54% of cocaine is shipped to the US passed through Mexico, today that number is 90%.

Cocaine

•Colombia is left out of the meth market

•Lack of control and corruption in customs facilitate the transport of pseudoephedrine to Mexico

•Mega labs are set up in Mexico, in areas controlled by the Sinaloa Federation–Zapopan and Tijuana.

•50% of meth in the US is produced in Mexico.

•Revenues surpass cocaine

Meth•After 9/11 poppy production is destroyed in Afghanistan

•Production increased from 6.6 tons in 2002 to 18 tons in 2007, mainly in areas of the Sinaloa Federation

•Mexican black tar is of lower quality, but gains market share in the east coast of the US

•Asian gangs loose turf to “La M” who distribute heroine , coke and meth

Heroine

•NAFTA

•Corrupt institutions in customs

•No control over borders

•Low security standards in airport and marine installations

•Lack of investment in police and public security

Logistics base

Shifts in the supply structure of cocaine, the increased demand of meth and the conflict in Afghanistan, gave the Mexican DTO’s a unique position in the market


MEXICO - LONDON

Mexican DTO´s

Arellano Félix

Guerro Palma /Chapo Guzman

La Federación

Beltarn Leyva

La Barbie CPS

Nacho Coronel / Mayo Zambada

Chapo Guzmán

Familia Carrillo Fuentes

Los Valencia

Vicente Carrillo Fuentes

Sergio Villareal “El Grande”

Garcia Abrego / Osiel Cárdenas

GuillenCartel del Golfo

Ezequiel Cárdenas Guillen

Zetas

La Familia

Violence erupted from a boardroom dispute, between shareholders, and shifts in market trends.

The new composition of groups is a result of disagreements over routes, production and local markets.

Why is there a violent environment?


MEXICO - LONDON

Violence is concentrated in 161 of 2,500 municipalities

Homicides

Nationwide


MEXICO - LONDON

Organized Crime has a direct control over

Tax collection

Guarantying security

Authorizing commercial permits

Press censorship

It has overpowered local, state and federal authorities

9

Ciudad Juárez the local picture

30 3314

133110

New York Chicago Sicily Medellin Ciudad Juárez

Homicides per 100,000

1990 1992 1989 1991 2009


MEXICO - LONDON

The change in strategy

Change in strategy

announced by FCH

New National Security Advisor

New laws against money

laundering

1. Reduction in cocaine seizures.

2. Large cash seizures, but no money laundering operations compromised.

3. Increased violence and methods to create terror in the population.


MEXICO - LONDON

DTO’s prefer to have a quiet atmosphere, because this is good for business. However violence is tolerated by DTO’s if it increases revenue or protects market share.

There is room for more violence……their cost is still low and there is no credible risk of being captured.

DTO’s are “outsourcing” violence to local criminals and specialized groups to isolate the “business unit” from the “protection unit”.

“Going after the hitman” will not reduce the size or revenue of DTO’s.

Violence outlook in Mexico

Additional regulation

Financial sector

Gambling outlets

Cash intensive businesses

Organized Crime Targets

Tourism

Cash intensive businesses

Press / Media

Political Impact

High profile assassination

Terrorist event

Costs

Human Capital

2% to 4% in operational costs for security


MEXICO - LONDON

How serious is the threat of organized crime in Mexico?

www.risk-evaluation.net


MEXICO - LONDON

DRUG REVENUE ESTIMATESANNEX


MEXICO - LONDON

What is their size of the economic power?

Marihuana 2° world producer

12,000 tons less 3,000 seizures =

7,000 exports

2,000 local

Heroin market share up after 9/11

production increased from 6 to

18 tons in 2007

Marihuana has a low margin but is a steady source of

cash

Meth – Imports from China, India through changing maritime routes

50 tons

Production cost by Mexican DTO’s

$100 per gram

$180 wholesale price average

Production in Tijuana and

Zapopan have achieved

economies of scale

360 Tons of Cocaine, arrive in México

US demand is estimated at 260 tons

by USG

World traders,

Culiacan is Rotterdam

Mexican drug market

Growth at 20% AGRY

Prostitution

Protection

Piracy

Alien Smuggling

BM shifted from a

Transactional venture to a

territorial enterprise

$13 billion USD

$4 billion USD

$2 billion USD

$1 billion USD


MEXICO - LONDON

DTO’s revenue are 10 times the size of law enforcement agencies in Mexico

Estimated revenue for the Mexican drug

trafficking organizations per year

$20 billion USD

More weapons Sophisticated

telecoms More Intelligence Flexible

organization

Merida Initiative$400 million USD

Mexican budget to fight crime

$1.6 billion USD

Government needs to be very assertive and efficient in order to confront the cartels.

This is why you need to increase their costs (hamper their logistic base) and reduce their sales volume (prevention) in order to level the fight.

Drug war? Really……


MEXICO - LONDON

Marihuana Price per Kilo Tons Revenue

Marihuana for export $ 1,800 7,000 12,600,000$

Marihuana for local market $ 100 2,000 200,000$

Estimated revenue (thousands) 12,800,000$

Heroine Price per Kilo Tons Revenue

Heroine for export 50,000$ 18 900,000$

Heroine for local market 20,000$ 0.5 10,000$

Estimated revenue (thousands) 910,000$


MEXICO - LONDON

Cocaine Price per Kilo Tons

Average price paid by Mexican DTO

in the Pacific Coast $ 8,000 360

Average price paid by Mexican

Mafia members (wholesale) $ 16,000 260

Spread $ 8,000 260

Estimated Revenue (thousands) $ 2,080,000

Meth Price per gram Price per Kilo Tons

Estimated cost to produce meth in a

Mexican Superlab $ 100 $ 100,000.00 50

Estimated average US street price

(wholesale) $ 180 $ 180,000.00 50

Spread $ 80 $ 80,000.00 50

Estimated Revenue (thousands) $ 4,000,000


MEXICO - LONDONP

rod

uct

ion Acquire a satellite to

determine the size, location and yield of marihuana and heroin

Elaborate an eradication program with a social component in Guerrero and Oaxaca in order to incentive crop substitution

Elaborate a national trucking registry to reduce the capability of transporting large quantities of Marihuana

Increase controls in Mexican Customs

Traf

fic Build a fence in the

south border of Mexico to control the flow of migrants, cocaine, and bulk cash

Increase inspection controls in shipments from the US

Enforce the use of transponders in Mexican airspace

Only sell Jet Fuel with Credit Card or bank account

Public registry of ships and airplanes has to be public

Install controls in f flight schools

Co

nsu

mp

tio

n Develop a drug prevention policy

There is no legal framework for drug consumption or retail sale

No certified process to treat addicts

Develop incentives to reduce consumption at the workplace

Establish a national antidoping mechanism

Po

lice Eliminate local police

– and apply a state police model

Increase wages and benefits of police officers – credit.

Establish a Mexican DEA to isolate corruption

Develop a framework to provide intelligence and policy to fight crime

The way to reduce their size is not with police raids alone

If you combat the DTO’s only with police force, losses will be incorporated in the revenue model, but you will not drive them out of business


MEXICO - LONDONOur Fields

Risk Evaluation is composed by a diverse team of consultants who are experts in their respective fields, offering consultancy, advice and assistance to a wide range of corporations in Latin America, United States and Europe.

Risk Assessment: risk management systems are designed to address what went wrong yesterday, not what might go wrong tomorrow. We help our clients to identify the risks they face and design a strategy to establish a tolerance level that can be incorporated into the organization.

Crisis Management: we take control of the crisis by following four steps:1. Assess the situation from inside and outside the organization.2. Reduce and contain the damage spread, to restore operational capacity.3. Reduce the impact of public opinion on legal and regulatory investigations.4. Prevent future events.

Regulatory Compliance: we assist organizations in designing and implementing governance and compliance programs to ensure that the corporation, governments and NGO's operate within the boundaries of relevant legislation both at the national and international level. We help build the values inside the organization to assure compliance at all levels.

Policy Research: we research client-specific reports regarding country and industry assessments to identify the political and security risks associated with their venture and recommend ways of mitigating those risks.

how serious is the threat of organized crime in mexico? problem in mexico.pdf · risk evaluation...

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