RISK EVALUATION LTD Analysis for Decison Makers MEXICO - LONDON How serious is the threat of organized crime in Mexico? www.risk-evaluation.net
RISK EVALUATION LTDAnalysis for Decison Makers
MEXICO - LONDON
How serious is the threat of organized crime in Mexico?
www.risk-evaluation.net
RISK EVALUATION LTDAnalysis for Decison Makers
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.
RISK EVALUATION LTDAnalysis for Decison Makers
MEXICO - LONDON
Routes are a combination of technology, logistics and enforcement
Organized crime is based on logistics
RISK EVALUATION LTDAnalysis for Decison Makers
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
RISK EVALUATION LTDAnalysis for Decison Makers
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
RISK EVALUATION LTDAnalysis for Decison Makers
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?
RISK EVALUATION LTDAnalysis for Decison Makers
MEXICO - LONDON
Violence is concentrated in 161 of 2,500 municipalities
Homicides
Nationwide
RISK EVALUATION LTDAnalysis for Decison Makers
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
RISK EVALUATION LTDAnalysis for Decison Makers
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.
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.
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
RISK EVALUATION LTDAnalysis for Decison Makers
MEXICO - LONDON
How serious is the threat of organized crime in Mexico?
www.risk-evaluation.net
RISK EVALUATION LTDAnalysis for Decison Makers
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
RISK EVALUATION LTDAnalysis for Decison Makers
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……
RISK EVALUATION LTDAnalysis for Decison Makers
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$
RISK EVALUATION LTDAnalysis for Decison Makers
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
RISK EVALUATION LTDAnalysis for Decison Makers
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
RISK EVALUATION LTDAnalysis for Decison Makers
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.