The security climate in Mexico since the government began its crackdown on drug trafficking organizations (DTOs) under the administration of President Felipe Calderon in the mid-2000s has been challenging, to say the least. Tens of thousands of people have died as cartels have battled government security forces and each other in the various cities and states throughout the country as they have sought to exert their dominance in regions key to the drug trade. In addition to the ongoing threat of potential collateral damage to personnel and assets as a result of the continuing drug violence, DTOs have also expanded their operations into illegal mining and logging, as well as good old-fashioned extortion, kidnapping and theft schemes that help fund their illicit activities.
While there was a brief lull in the violence after President Calderon left office at the end of 2012, a new report from risk management services firm iJET finds that DTO-related crime is once again on the rise. In fact, according to “iJET's Quarterly Report: Organized Crime and Drug-related Violence in Mexico,” the homicide rate in Mexico increased by 15 percent during the first six months of 2016 over 2015, as approximately 9,400 hundred people were murdered across the country.
Some areas of the country continue to be more adversely impacted by cartel violence than others. For example, the report notes that “severe insecurity” continues to plague business operations in the states of Guerrero, Sinaloa, Tamaulipas and Colima, where the cartels continue to engage in turf wars among themselves as they fight for supply chain and distribution channels while also battling law enforcement and auto-defense groups. In Guerrero state, for instance, Justin Kersey, intelligence manager for iJET’s Americas Team, said there are no less than 50 DTOs operating in the area which has led to a variety of clashes between rival groups and the proliferation of their criminal activity into the tourist and business districts within the resort town of Acapulco. Owners of small and mid-sized businesses in Acapulco have even been killed by some of these gangs after refusing to make extortion payments.
“Guerrero state really serves as an extreme example of drug trafficking-related violence. The state actually has a very high level of homicide, kidnapping, and extortion but I think that it serves as a good example of how turf wars can develop within individual states and affect business operations,” said Kersey this week in a webinar discussing the findings of the report.
Impact of Drug Crime on Businesses
According to a study conducted last year by the Institute for Economics and Peace, Mexico lost 13 percent of its GDP in 2015 due to DTO-related crime. According to Kersey, this was largely caused by companies deciding to either scale back their operations in the country or completely shut down and move somewhere else to avoid the threats posed to their businesses by kidnapping, extortion, and violent crime, as well as theft to a lesser extent.
Extortion: Although small, local businesses tend to be the ones primarily impacted by cartel extortion schemes, Sean Wolinsky, an intelligence analyst for iJET’s Americas Team, said during the webinar that multinational companies with operations in the country are not immune. Wolinsky said these types of companies are typically targeted through their distributors, subsidiaries or even the transportation firms they use.
“Any business in Mexico can obviously become a target of DTO extortion techniques but we’ve noticed there are certain types of industries that tend to experience a higher number of extortion cases, such as the transportation industry, raw materials – extractives, oil, gas and mining, consumer goods, and even into the tourist industry,” Wolinsky explained.
One of the most prominent examples of the repercussions a company that doesn’t pay an extortion demand can face happened in May 2012, when PepsiCo subsidiary Sabritas had several warehouses and between 30 to 40 trucks damaged in a firebomb attack.
Kidnapping: Wolinsky said they expect kidnapping to remain a significant problem for businesses in Mexico moving forward. The two most prominent forms of kidnapping in the country include express and virtual kidnapping. Express kidnappings are those in which the victim is taken and held anywhere from a few hours to a few days for relatively small amounts of money or forced to go from ATM to ATM and withdraw money. Virtual kidnapping involves a perpetrator calling someone and pretending to have taken a family member hostage for ransom. One of the biggest challenges in tracking just how prevalent kidnapping is throughout Mexico is a lack of reliable data due to underreporting.
“Unfortunately, statistics on kidnappings throughout Mexico are very unreliable and this is mainly due to rampant underreporting but we have seen abductors usually kidnap in rural areas and smaller cities. This does not mean that businesspeople in larger cities like Monterrey and Reynosa and even Mexico City are immune to becoming a victim of kidnapping,” said Wolinsky.
Theft: Issues surrounding theft have been a major challenge for businesses in Mexico for a number of years and DTOs have played a major role in that. According to Wolinsky, drug gangs have been known to steal goods from distribution facilities and supply chain networks including maritime ports, warehouses, storage facilities, and even rail cars. Cargo theft, be it stealing parked trucks or hijacking them with the driver inside, also remains a common problem.
“Thieves have typically stolen items that they can quickly sell on the black market, such as clothing, food and beverages, and high-end consumer goods,” said Wolinsky. “We’ve also seen an uptick in the number of fuel thefts across the country. These DTOs target state-owned petroleum pipelines and fuel tankers and when we’re monitoring local news we’ll sometimes see a leak or an explosion along a rural pipeline and that can be an indicator there was an attempted fuel theft in the area.”
Violent crime: With the aforementioned turf battles between different cartels continuing to ravage different parts of the country, anyone who is operating within Mexico is at risk of becoming collateral damage from this violence, according to Wolinsky. And though incidents of assault, armed robbery and homicide are all on the rise in the country, the vast majority of DTO-related crime is internal. Moving forward, however, businesses who continue to operate in Mexico are going to have to have risk mitigation strategies in place to address the various threats posed to their businesses by the drug cartels.
“We feel that through 2016 and 2017, drug trafficking-related activity in Mexico will likely continue to strengthen due to weakening levels of police response to drug trafficking-related crime and to worsening economic and geopolitical conditions,” Kersey said.
