RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDON

The Dimension of Mexican Organized Crime

September 2011

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDON

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.

The lack of a national security and crime policy, has been a fertile ground for corruption in law enforcement agencies, government and society.

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 45,000 murders that include police, military, prosecutors, elected officials and politicians as well as innocent civilians.

The risk

At times urban and large cities, in the country have been controlled for up to two days by the DTO’s.

The Mexican government does not have a consistent strategy due to a lack of institutional capacity and bureaucratic infighting, the result is an incoherent public policy and failed attempts to deal with the problem.

This analysis will provide an overview of the situation based on a market explanation and the possible scenario if the current policy is not changed.

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDON

Supply in Colombia Innventory Price Efficiency Distribution

1Kg. Cocainein Meta Guaviare$900 USD 1 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

Trafficking is based on a logistic business model

Mexican DTO’s have the biggest profit share of the market, and are able to determine prices worldwide

$18,000 USD

1 kg. Cocaine in MIlan wholesale price without dilutions$33,500 USD

Money Laundering

1 USD = .90 USDIn MexicoCasas de CambioCasinosReal StateConstructionEscrow accounts

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDONWhy did Mexicans become the no 1 player in the drug market?

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

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDONThe rise of global influence

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDON“social unrest”, by traffickers

Demonstrations against military presence in Monterrey, a very organized civil society……. 20% of the population has a neighbor

that is involved in drug trafficking, poll conducted by Gabinete de Comunicación Estratégica (Nov. 08)

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDONBorder fragility is a serious threat

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDON

Estimated revenue for Mexican Organized Crime

$161 billion USD

More weapons Sophisticated telecoms More Intelligence Flexible organization

Merida Initiative$400 million USD

Mexican budget to fight crime $3 billion USD

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

Largest cash seizure 200 million USDBut, not from a money laundering operation

216 airplanes impounded,But, no pilots or traffic operators are in jail

Drug war? Really……

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDONA violent environment

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.

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDON

IMPLICATIONS FOR THE MEXICAN PRIVATE SECTOR

RISK EVALUATION LTDAnalysis for Decison Makers

MEXICO - LONDONImplications for the Mexican economy / politics

RISK EVALUATION LTDAnalysis for Decison Makers

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 and routes.

But there are limits:1. Credible risk to life or imprisonment of top members 2. Extradition

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

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