Strat for Cartel Report 2010

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STRATFOR 700 Lavaca Street, Suite 900 Austin, TX 78701 Tel: 1-512-744-4300 www.stratfor.com

MEXICAN DRUG WARS:Bloodiest Year to Date

D e c . 2 0 , 2 0 1 0

This analysis may not be forwarded or republished without express permission from STRATFOR.For permission, please submit a request to [email protected].

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Mexican Drug Wars:Bloodiest Year to Date

Editors Note:In this annual report onMexicos drug cartels, we assess the most

significant developments of 2010 andprovide updated profiles of the countrys

powerful drug-trafficking organizations as

well as a forecast for 2011. The report is aproduct of the coverage we maintain on a

weekly basis through our Mexico SecurityMemo and other analyses we produce

throughout the year.In 2010,Mexicos cartel warshave produced unprecedented levels of violence throughout the country.

No longer concentrated in just a few states, the violence has spread all across the northern tier ofborder states and all along both the east and west coasts of Mexico. This years drug -relatedhomicides have passed the 11,000 mark, a 60 to 70 percent increase from 2009.

The high levels of violence in 2010 have been caused not only by long-term struggles, such as the

fight between the Sinaloa Federation and the Vicente Carrillo Fuentes Organization (the VCF, or Juarezcartel) for control of the Juarez smuggling corridor, but also by new conflicts among various players inan increasingly fluid cartel landscape. For example, simmering tensions between Los Zetas and theirformer partners in the Gulf cartel finally boiled over and quickly escalated into a bloody turf war in the

Tamaulipas border region. The conflict spread to states like Nuevo Leon, Hidalgo and Tabasco and

even gave birth to analliance among the Sinaloa Federation, the Gulf cartel and La Familia Michoacana(LFM).

Additionally, the death of Arturo Beltran Leyva in a December 2009 Mexican marine raid led to avicious battle between factions of the Beltran Leyva Organization (BLO) for control of the organization,

pitting Arturos brother, Hector Beltran Leyva, against Arturos right-hand man,Edgar La BarbieValdez Villarreal. New conflicts this year have clearly added to the carnage from previous yearsbattles, such as those pitting the Sinaloa Federation against the Juarez cartel and LFM against theBLO.

The administration of Mexican President Felipe Calderon has also made strides against these cartels,

dismantling several cartel networks and taking down their leaders over the course of 2010, most

notably Sinaloa No. 3Ignacio El Nacho Coronel Villarrealand Valdez. However, while such operationshave succeeded in capturing or killing several very dangerous people and disrupting their

organizations, such disruptions have also served to furtherupset the balance of poweramong Mexicos

criminal organizations and increase the volatility of the Mexican security environment. In effect, theimbalance has created a sort of vicious feeding frenzy among the various organizations as they seek topreserve their own turf and seize territory from rival organizations.

Calderon has also taken steps to shift the focus from the controversial strategy of using the Mexican

military as the primary weapon in the conflict against the cartels to using the newly reformed FederalPolice. While the military still remains the most reliable security tool available to the Mexicangovernment, the Federal Police have been given more responsibility in Juarez and northeasternMexico, the nations most contentious hot spots. Calderon has also planted the seeds for reforming the

states security organizations with a unified command in hopes of professionalizing each statessecurity force to the point where the states do not have to rely on the federal government to combatorganized crime. Additionally, the Mexican Congress has taken steps to curb the presidents ability to

deploy the military domestically by proposing a National Security Act that would require a state

governor or legislature to first request the deployment of the military rather than permitting the

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federal government to act unilaterally. There is simply not enough federal military manpower torespond to all requests and deploy to all trouble spots, a position in which the federal government isincreasingly finding itself.

Cartel Membership and Organization

Los Zetas

Los Zetas are a relatively new power on the drug-trafficking scene, having only recently become an

independent organization. Although Los Zetas were characterized as an aggressive and ascendantorganization in our 2009 cartel report, the group has experienced some major setbacks in 2010. Los

Zetas have had a roller-coaster year, beginning with the severing of relations with their former parent

organization, the Gulf cartel, in January 2010. Though Los Zetas have been operating more or lessindependent of the Gulf cartel for almost three years now, things finally came to a head with the Jan.18 death of one of Los Zetas top lieutenants, Sergio El Concord 3 Mendoza Pena, at the hands of

Gulf men under cartel leader Eduardo El Coss Costillo Sanchez. Mendoza was reported to be theright-hand man of Los Zetas No. 2 Miguel Z-40 Trevino Morales, and in response to his associatesdeath, Trevino demanded that Costillo hand over the men responsible for Mendozas death. WhenCostillo refused, Trevino ordered the kidnapping of 16 known Gulf cartel members. Tit-for-tat

operations escalated into all-out war between the two groups throughout the spring. It is no secretthat Los Zetas are operationally superior to their former parent organization, which is why, once thefighting escalated, the Gulf cartel reached out to the Sinaloa Federation and LFM, two of their formerrivals, for assistance in fighting Los Zetas. This new alliance was called theNew Federation.

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Since the formation of the New Federation, Los Zetas have been on the defensive, fighting both Gulfcartel advances on traditional Los Zetas territory and the direct targeting of the groups regionalleadership by Mexican security forces. Los Zetas were pushed out of their traditional stronghold of

Reynosa, Tamaulipas state, and were forced to retreat to other strongholds such as Nuevo Laredo and

Monterrey, Nuevo Leon state (even so, both Monterrey and Nuevo Laredo have been contested atvarious times during 2010). Despite losing key areas of their home territory, Los Zetas have continued

to expand their operations throughout Mexico by working with other criminal organizations, such asthe Cartel Pacifico Sur (or CPS, which is Hector Beltran Leyvas faction of the BLO), and arepenetrating deeper into Central America, South America and Europe.

Los Zetas top-tier leadership has remained unchanged, with Heriberto El Lazca Lazcano Lazcano

atop the organization followed by his No. 2, Trevino, but the regional leadership of the group belowLazcano and Trevino has suffered tremendous setbacks in a number of locations, none more

pronounced than in the Monterrey metropolitan area. The June 9apprehension of Hector El Tori RaulLuna Luna, Los Zetas Monterrey regional leader, in a Mexican military operation set in motion a stringof operations over the next three months that netted at least five senior regional leaders of Los Zetas

in Monterrey who were designated as replacements for Luna. Additionally, regional Los Zetas leadershave been apprehended in Hidalgo and Veracruz states, and at least three leaders have been capturedin Tabasco state.

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However, events in the second half of 2010 have placed Los Zetas in a position to possibly regainsome of the territory lost to the Gulf cartel and the New Federation earlier in the year. This opportunity

has been presented by the apparent weakening of the New Federation alliance and the death of a key

Gulf cartel leader. In response, Los Zetas appear to be preparing for an assault to regain lost territory,though a recent deployment of federal security forces to the region may delay or alter their plans foran anticipated offensive.

Gulf Cartel

In the early half of the decade, the Gulf cartel was among the most powerful criminal organizations inMexico and served as an effective counterbalance in the east to the Sinaloa Federation, whichdominated the western coast of Mexico. However, after the arrest of charismatic Gulf leader Osiel

Cardenas Guillen in 2003, the group found itself on the decline while its enforcement wing, Los Zetas,gradually became the dominant player in their relationship. During times of intense conflict, the

warriors in a criminal organization tend to rise above the businessmen, and this dynamic was seen in

Los Zetas ascension. Fissures began to emerge between Los Zetas and their Gulf cartel masters inlate 2008, when Los Zetas began contracting their enforcement and tactical services out to othercriminal organizations such as the BLO and the VCF. These fractures were widened in 2009 when Gulf

cartel leaders Costillo and Eziquiel Antonio Tony Tormenta Cardenas Guillen (Osiels brother) refused

offers to be integrated into the Los Zetas organization by its leader, Lazcano. The situation finallyboiled over into all-out war between the Gulf cartel and Los Zetas in February 2010, after Costillos

men killed the Los Zetas lieutenant in January during a heated argument.

The Gulf cartel had relied on Los Zetas for its enforcement operations for the past several years andknew exactly what Los Zetas were capable of. Because of this, the Gulf cartel knew, with its current

capabilities, that it could not take on Los Zetas alone. So the cartel reached out to its main rivals inMexico: the Sinaloa Federation and LFM. These organizations held an intense hatred for Los Zetas

because of their long-running battles with the group, a hatred that amounted, in many ways, to a

blood feud. With the added resources of the so-called New Federation, the Gulf cartel was able to takethe fight to Los Zetas and actually force its former partners out of one of their traditional strongholdsin Reynosa and to take its offensive to other regions traditionally held by Los Zetas, namely the city of

Monterrey and the states of Nuevo Leon, Hidalgo and Veracruz.

This resulted in Los Zetas being pushed back on their heels throughout the country, and by June it

looked as if the groups days might be numbered. However, events transpired outside of the NewFederation-Los Zetas conflict in July that weakened the alliance and forced the other members to

direct attention and resources to other parts of the country, thus giving Los Zetas room to regroup.The lack of commitment from the Sinaloa Federation and LFM left the Gulf cartel exposed to a certain

degree, exposure that was soon exacerbated when Mexican security forces began dismantling the cellsassociated with Gulf leader Antonio Cardenas Guillen in the Matamoros region beginning in August.

This operation culminated when Mexican marines launched an assault to capture the Gulf leader onNov. 5 that resulted in a three-hour fire fight that killed Tony Tormenta and several of his toplieutenants. While Antonio Cardenas Guillen was not the driving force behind Gulf cartel operations, hedid lead several of the organizations enforcement cells, and his absence from the Tamaulipas border

area prompted both Los Zetas and Mexican federal security forces to make preparations to move intothe region.

Sinaloa Federation

The Sinaloa Federation is, as its name implies, a true cartel comprised of several different drug-

trafficking organizations that all report to the head of the federation, Joaquin El Chapo GuzmanLoera, who is the worlds second-most wanted man behind Osama bin Laden. Guzman is flanked in

leadership by Ismael El Mayo Zambada Garcia and Juan El Azul Esparragoza Moreno, each havinghis own independent trafficking network. The Sinaloa Federation has been an active participant onnearly every front of the cartel wars in 2010, including, with its involvement in the New Federation,

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the conflict in northeastern Mexico. But perhaps its most notable (and to date under-recognized)success has been in gaining a clear tactical advantage in the battle for control of the Ciudad Juarez

smuggling corridor. AnFBI intelligence memorevealed that a large majority of the narcotics seized in

the El Paso sector, directly across the border from Juarez, belonged to the Sinaloa Federation. The FBIreport also noted that the Sinaloa Federation had gained control of key territory in the region, givingthe group clear business and tactical advantages over the Juarez cartel. Still, the Sinaloa Federation

remains focused on the Juarez region as Sinaloa seeks to consolidate its position, defend itself from

Juarez cartel counterattacks and exert total control over the smuggling corridor. This effort hasdemanded the vast majority of the organizations enforcement resources.

The Calderon administration scored one of its greatest victories against the drug cartels this year when

members of the Mexican military shot and killed Sinaloa Federation No. 3 Ignacio El Nacho CoronelVillarreal on July 29 in his home in Guadalajara, Jalisco state. Coronel oversaw the Sinaloa

Federations operations along much of the Central Pacific coast as well as the organizationsmethamphetamine production and trafficking, earning Coronel the nickname King of Ice (thecrystallized form of methamphetamine is commonly referred to as ice). Intelligence gathered from

the house where Coronel was killed, along with other investigative work by Mexican militaryintelligence, quickly led to the capture of nearly all the leadership cadre of Coronels network in theJalisco, Colima, Nayarit and Michoacan areas.

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The death of Coronel and the dismantlement of his network, along with a continued focus on theconflict in Juarez, have forced the Sinaloa Federation to pull back from other commitments, such as its

operations against Los Zetas as part of the New Federation. While it appears the Sinaloa Federation

has once again pulled its enforcers out of northeastern Mexico at least for now the organizationhas made inroads on the business operations-side in other regions and on other continents. TheSinaloa Federation has apparently made progress toward extending its control over the lucrative

Tijuana, Baja California region, and has established at least a temporary agreement with what is left of

the Arellano Felix Organization (AFO) to move loads of narcotics through the area. Additionally,STRATFOR sources continue to report a sustained effort by the Sinaloa Federation to expand its

logistical network farther into Europe and its influence deeper into Central America and South America.

Even though the Sinaloa Federation has experienced a few setbacks, such as the defection of the BLO

and the loss of Coronel and his network, the group has control of, or access to, smuggling corridors all

along Mexicos northern border from Tijuana to Juarez. This means that Sinaloa appears to be thegroup that has fared the best over the past few increasingly violent years. This applies even more

specifically to Guzman and his faction of the federation. Indeed, Guzman has benefited greatly from

some events. In addition to the fall of his external foes, such as the AFO, Gulf and Juarez cartels, hehas also seen the downfall of strong Sinaloa Federation personalities who could have risen up tocontest his leadership, men like Alfredo Beltran Leyva and Coronel. Sinaloa members who attract a lot

of adverse publicity for the federation, such as Enrique El Cumbias Lopez Acosta, also seem to runinto bad luck with some frequency.

La Familia Michoacana

After being named the most violent organized-crime group in Mexico by then-Mexican Attorney

General Eduardo Medina Mora in 2009, LFM has been largely a background player in 2010. The groupholds to a strange pseudo-religious ideology unique among Mexican drug cartels, and though it is still

based out of Michoacan state, it has a presence and, in some cases, substantial influence in the

neighboring states of Guerrero, Guanajuato, Jalisco, Colima and Mexico. Until the Dec. 10 death ofLFM spiritual leader NazarioEl Mas Loco Moreno Gonzalez, the groups leadership had been sharedby Moreno and Jose de Jesus El Chango Mendez Vargas; Servando La Tuta Gomez Martinez, whose

media profile has greatly expanded in recent months, had held the No. 3 spot in the organization. Justprior to Morenos death, several LFM regional plaza bosses were captured in the sustained FederalPolice operation against the group.

LFM has remained active on two main fronts in Mexico in 2010. One is the offensive against Los Zetas

as part of the New Federation with Sinaloa and the Gulf cartel in northeastern Mexico, and the other isthe fight against the CPS and their Los Zetas allies in southern Michoacan and Guerrero states,

particularly around the resort area of Acapulco. LFM and the CPS have been locked in a heated battlefor supremacy in the Acapulco region for the past two years, and this conflict shows no signs of

stopping, especially since the CPS appears to have recently launched a new offensive against LFM insouthern Michoacan. Additionally, after the death of Coronel in July and the subsequent dismantlementof his network, LFM attempted to take over the Jalisco and Colima trafficking corridors, whichreportedly strained relations between the Sinaloa Federation and LFM.

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In mid-November,LFM reportedly proposed a trucewith the Mexican government. In narcomantas

banners hung throughout Michoacan (narcomantas are messages from an organized criminal group,usually on a poster in a public place), the group allegedly announced that it would begin the truce the

first week of December. That week was dominated by the arrests of several LFM operatives, includingJose Antonio El Tonon Arcos Martinez, a high-ranking lieutenant with a $250,000 bounty on hishead, and Morelia plaza boss Alfredo Landa Torres. It is unclear whether LFM will stick to its truce or

engage in retaliatory attacks as it has done in the past when high-ranking members have been

arrested. It is equally unclear whether LFM still has the ability to conduct high-profile attacks. LFM is a

relatively small and new organization compared to the older and more established drug-traffickinggroups that operate in Mexico, and while it remains a potent organization in the greater Michoacanregion, it appears the group is becoming increasingly isolated. Its truce offer, if legitimate, may be a

sign that a combination of turf battles with rival cartels and government pressure is more than the

organization can bear. Adding the death of the groups spiritual leader to the equation means thatMendez may be facing a great challenge in merely keeping the group together. We will be watchingLFM closely over the next several weeks for signs of collapse.

Beltran Leyva Organization

Founded by the four Beltran Leyva brothers Arturo, Alfredo, Carlos and Hector the BLO was

originally part of the Sinaloa Federation. After Alfredo was arrested in January 2008, the brothers

accused Sinaloa Federation leader Guzman of tipping off Mexican authorities to Alfredos location, andthey subsequently broke away from Sinaloa to launch a bloody war against their former partners. The

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BLO even went as far as tokill one of Guzmans sonsin a brazen assassination in the parking lot of agrocery store in Culiacan, Sinaloa state, where gunmen allegedly fired more than 200 rounds of

ammunition and used rocket-propelled grenades. The organization quickly aligned itself with Los Zetas

in an effort to gain military reinforcement. Their combined resources and mutual hatred of Guzmanand the Sinaloa Federation helped the BLO and Los Zetas to become one of the most formidablecriminal organizations in Mexico. But their fast rise to one of the top spots in 2008 was perhaps

indicative of their volatile existence and could help explain their rapid degradation in 2010.

Indeed, the BLO has had perhaps its most tumultuous year since STRATFOR began publishing itsannual cartel report. On Dec. 16, 2009, only a few days after our report was published last year,Mexican marines stormed a luxury apartment complex in Cuernavaca, Morelos state, and killed the

BLOs leader,Arturo Beltran Leyva, along with several of his top bodyguards. It was very apparent in

the following weeks that Arturo was the glue that held the BLO together as a functioning criminalorganization. His death sent shockwaves throughout the organization, causing a vicious blame-game

for allowing Arturo to be killed. His brother Carlos was arrested Dec. 30 in Culiacan, leaving Hector as

the only brother at large. Hector was the obvious choice for succession, if the reins of the organizationwere to stay within the founding Beltran Leyva family. However, many within the BLO felt that controlof the organization should be given to Arturos right-hand man,Edgar La Barbie Valdez Villarreal.

The BLO was quickly divided into two factions: those who supported Hector to lead the organizationand those who supported Valdez.

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Hector Beltran Leyva Faction/Cartel Pacifico Sur

It appears that most of the BLO operatives and networks sided with Hector Beltran Leyva and his

deputy and top enforcer, Sergio El Grande Villarreal Barragan. The group renamed itself CartelPacifico Sur (CPS), or the South Pacific Cartel, to distance itself from the elements associated with

Valdez that still clung to the BLO moniker. The CPS remained allies with Los Zetas and continued to

cultivate their working relationship, largely due to the hatred between Valdez and Los Zetas. Theanimosity between Valdez and Los Zetas dates back to 2003, when the Sinaloa Federation dispatched

BLO gunman to wage an offensive in Nuevo Laredo against the Gulf cartel (and Los Zetas) in an

attempt to take control of the Nuevo Laredo smuggling corridor following the arrest of Gulf cartelleader Osiel Cardenas Guillen. Valdez, a U.S. citizen born in Laredo, Texas, was one of the leaders ofthe BLOs Los Negros enforcement unit.

The CPS heavily engaged the Valdez faction in the states of Guerrero, Morelos and Mexico while

maintaining control of the traditional BLO territories in parts of Sinaloa and Sonora states. As the

fighting with the Valdez faction escalated, the two groups exchanged executions and gruesome publicdisplays of mutilated bodies. However, Mexican authorities continued their pursuit of the BLOremnants and arrested Villarreal on Sept. 12, 2010, without incident inside a luxury home in Puebla,

Puebla state. Several weeks later, Mexican federal authorities believed they were close to capturing

Hector Beltran Leyva as well. They launched a few operations to nab the cartel leader but came upempty-handed.

The CPS, with the help of Los Zetas, is currently engaged in an offensive against LFM in the southern

portions of Michoacan, as the CPS attempts to push beyond its traditional operating territory inAcapulco, Guerrero state, and farther up the west coast of Mexico toward the port of Lazaro Cardenas.

Additionally, the CPS and Los Zetas have staked a claim to the Colima and Manzanillo regions followingthe death of Sinaloas No. 3, Coronel, and after fending off fairly weak advances by LFM and a

lackluster attempt to maintain control of the territory by the Sinaloa Federation.

Edgar Valdez Villarreal Faction

The Valdez faction found itself fighting an uphill battle for control of the BLO after the death of Arturo

Beltran Leyva in December 2009. While the Valdez faction was very capable and quite potent, it simply

did not have the resources to mount a successful campaign to take over the BLO. Valdez wassupported by his top lieutenants, Gerardo El Indio Alvarez Vasquez and his father -in-law, Carlos

Montemayor, along with their cells and networks of enforcers. The Valdez faction was relativelyisolated and confined to the states of Guerrero, Mexico and Morelos, but even in those states its

presence was contested by Mexican security forces and, in southern Guerrero, by the CPS and LFM aswell.

Mexican security forces wasted no time in going after the leadership of the Valdez faction. On April 21,

Mexican military intelligence, with the help of the U.S. Drug Enforcement Administration,tracked

Alvarez to a safe-housein Huixquilucan, Mexico state. After a several-hourlong firefight, military forceswere able to surround the area and capture Alvarez as he attempted to flee in a small car under a

volley of bullets. The safe-house provided Mexican officials with a wealth of information about thegroup and jump-started the hunt for Valdez.

The arrest of Valdez on Aug. 30 is enveloped by conflicting reports. The Mexican governmentannounced that a huge Federal Police operation overwhelmed the kingpin at a rural vacation home in

Mexico state and that Valdez surrendered without a shot being fired. However, several weeks later

reports began emerging that Valdez had turned himself in to authorities at a local municipal policecheckpoint near his vacation home, simply identifying himself and telling the local police that he was

there to surrender to them. The second scenario made much more sense when it was revealed thatValdez had been an informant for the Mexican government since 2008. He had reportedly been

responsible for the apprehension of many of his rivals and those who worked closely with him, most

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notably Arturo Beltran Leyva. This possibility was raised by some BLO members at the time of Arturosdeath when it was reported that Valdez had been in the apartment mere minutes before the Mexicanmarines launched the raid that killed Arturo.

After the arrest of Valdez, Montemayor took the reins of the Valdez faction. One of his first moves was

to order the kidnapping and execution of 20 tourists from Michoacan in Acapulco, which garnered

headlines across Mexican and international media. Montemayor believed that the tourists were actuallyLFM operatives who had been sent to the Acapulco region to seize control of the lucrative port. A short

while later, on Nov. 24, Montemayor himself was arrested, essentially decapitating the leadership of

the Valdez faction. It is unclear who, if anyone, has replaced Montemayor at the helm of theorganization, but given the blows the Valdez faction has suffered in 2010, it is likely that the remainingoperatives have either gone their own way or now work for some other organization.

Arellano Felix Organization

The AFO, formerly known as the Tijuana cartel, is led by Fernando El Ingeniero Sanchez Arellano,

nephew of the founding Arellano Felix brothers. This organization has experienced numerous setbacksin recent years, including a major split and vicious factional infighting, and is only a shell of its former

self. These hindrances have impacted not only the groups leadership but also its operational capabilityas a trafficking organization. The most significant loss the AFO has experienced this year has been the

disappearance of Jorge El Cholo Briceno Lopez. Reports of both his death and his arrest have swirled

around the media this year, but we have been unable to determine what exactly has happened toBriceno, other than the apparent fact that he is no longer involved in the Tijuana drug-trafficking

scene. After fighting a brutal internal conflict with the AFOs Eduardo El Teo Garcia Simental faction(which had defected to the Sinaloa Federation), and bearing the brunt of a Mexican military-led

operation, the AFO has only a fewoperational cells left, most of which have

kept an extremely low profile in 2010.

After the arrest of Garcia in January andthe dismantlement of his organization inthe Baja Peninsula, violence subsided

significantly in the Tijuana region a farcry from the upward of 100 murders perweek that the region experienced during

one period in 2008.

The biggest threat the AFO has facedsince its initial fall from power in the

early part of the decade has been theaggressive actions of the Sinaloa

Federation. For the past two years, theGarcia faction of the AFO had been theSinaloa proxy fighting for control of theTijuana smuggling corridor against the

AFO faction led by Sanchez. In recentmonths, however, there have been signs

that the two long-time rivals may havecome to some form of a business

agreement, allowing the SinaloaFederation to move large shipments ofnarcotics through AFO territory.

Generally, some sort of tax is levied uponthese shipments, and it is likely that theAFO is gaining some sort of monetary

benefit from the arrangement. Some

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sources are reporting that the AFO continues to exist only because of the largesse of the SinaloaFederation and because the AFO is paying Sinaloa to allow the AFO to operate in Tijuana. Either way,

these sorts of agreements have proved only temporary in the past. At the present time it is unclear if

or when the Sinaloa Federation will decide to resume the offensive against the AFO and whether theAFO will be able to do anything about it.

Vicente Carrillo Fuentes Organization/Juarez Cartel

The VCF, also known as the Juarez cartel, continued its downward spiral from 2009 into 2010. The VCF

continues to lose ground to the Sinaloa Federation throughout Chihuahua state, most notably in theCiudad Juarez area. The VCFs influence has largely been confined to the urban areas of the state,Juarez and Chihuahua, though it appears that its influence is waning even in traditional VCF

strongholds. The organization is headed by its namesake, Vicente Carrillo Fuentes, and has remained

functional largely because of the groups operational leader, Juan El JL Luis Ledezma, who also headsthe VCF enforcement wing, La Linea. The VCF has been able to remain relevant in the greater Juarez

area because of the relationship it has with the local street gang Los Aztecas, led by Eduardo Tablas

Ravelo. Los Aztecas serve as the primary enforcers for the VCF on the streets of Juarez. However,several Federal Police operations have netted some high-level operatives for Los Aztecas and La Linea,particularly after a few high-profile attacks conducted by the two groups.

With its sustained losses, the VCF has done what many other criminal organizations in Mexico have

done after falling on hard times it has expanded its tactics and diversified its criminal operations.Extortion and kidnapping-for-ransom (KFR) operations have increased dramatically in the greaterJuarez area, largely because of activities by Los Aztecas and La Linea. (More on the cartels expanding

tactics below.) The March murders of

U.S. consulate worker Leslie Enriquez and

her husband were ordered by La Linealieutenants because she was believed to

have supplied visas to members of the

Sinaloa Federation while denying visasfor people associated with VCF. And on

July 15, La Linea became the firstmodern-day Mexican criminal

organization tosuccessfully deploy an

improvised explosive device(IED). Theblast killed four people and woundedseveral more (all first-responders). It

appeared that the group confined itstargeting only to first-responders, namely

Mexican security forces, and despite its

very public threats, La Linea has yet to

deploy the tactic against innocentcivilians.

The fallout from both the assassination of

a U.S. government employee and the

deployment of an IED has resulted in theloss of several operatives and, in a few

cases, senior leaders of La Linea and LosAztecas, in addition to increased scrutiny

by Mexican security forces and U.S. law

enforcement on the other side of theborder in El Paso, Texas. These scenarios

have only worked to further inhibit the

VCFs ability to move narcotics and

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continue to remain relevant on the Mexican drug-trafficking scene. It will remain the focus of intenseSinaloa Federation and Mexican government operations in 2011, but it can also be expected tocontinue its desperate fight for survival on its home turf.

A Fluid Landscape and Hints of Success

Four years after President Calderon launched an offensive against the countrys major drug -trafficking

organizations (DTOs) in December 2006, the security landscape in Mexico remains remarkably fluid.

Not everything has changed, however. The two main struggles in Mexico are still among the cartelsthemselves for lucrative turf and between the cartels and the Mexican government. Governmentoffensives have continued to weaken and fragment several of Mexico s largest DTOs and their splinter

groups and are continuing to disrupt the power balance throughout Mexico as DTOs try to seize control

of key smuggling corridors held by weakened rivals. There have also been hints of success inCalderons countercartel strategy, with 2010 proving to be one of the most productive years for theCalderon administration in terms of toppling cartel leaders and dismantling their networks.

To recap: In 2010 we saw tensions between the Gulf cartel and Los Zetas boil over into open warfarethroughout the eastern half of Mexico, primarily in Tamaulipas and Nuevo Leon states. The Gulf cartel,

knowing it could not sustain an effective campaign against Los Zetas on its own, reached out to two ofLos Zetas main rivals the Sinaloa Federation and LFM for support in fighting Los Zetas. For much

of the first half of 2010, this so-called New Federation dominated the battlefield in northeasternMexico, pushing Los Zetas from their traditional stronghold of Reynosa and forcing the group to retreat

to Nuevo Laredo and Monterrey. However, alliances and agreements such as the New Federation are

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often fleeting, especially as the Mexican government continues to apply increasing pressure to criminalorganizations throughout the country.

While there was some indication of strained relations between New Federation partners when LFM triedto move in on Coronels turf, the alliance fell by the wayside when other situations made it no longer

beneficial for Sinaloa or LFM to contribute resources to the fight in northeastern Mexico. The Sinaloa

Federation lost control of one of its most lucrative points of entry into Mexico and Colima states afterthe death of Coronel and the dismantlement of his network in Colima, Jalisco and Nayarit. Additionally,

Sinaloas conflict with the VCF in Juarez, despite having a tactical advantage throughout much of the

region, has dragged on and continues to drain a significant amount of attention and resources fromthe organization. As for LFM, the organization was facing the threat of an offensive on its core territoryin southern Michoacan by the CPS and Los Zetas, as well as a business opportunity to fill a power

vacuum in the methamphetamine market in the neighboring region to the north in the wake ofCoronels death in July.

One way to look at all this is to consider that the group that dominated the Mexican cartel scene foralmost half of 2010, the New Federation, was disrupted by the Mexican government in July, whichindirectly and perhaps purposefully made the cartel landscape very fluid. It has been the mission

of the Calderon administration to deny any Mexican criminal organization an uncontested region of the

country in which to freely operate. Since the Mexican government has not ever been able to fullycontrol theterritory outside the countrys geographic core around Mexico City, disruption has been a

key tactic in Calderons war against the cartels. Several factions of many different organizations havebeen hit tremendously hard in campaigns by the Mexican military and the Federal Police. Here is a listof the major cartel leaders and their networks brought down in 2010:

Eziquiel Antonio Tony Tormenta Cardenas Guillen and several Gulf cartel cells associated withhim

The Eduardo El Teo Garcia Simental faction of the AFO Sergio El Grande Villarreal Barragan The Edgar La Barbie Valdez Villarreal faction of the BLO Ignacio El Nacho Coronel Villarreal and his network Eight plaza bosses for Los Zetas (four of whom were in charge of operations in Monterrey) Two plaza bosses for LFM Nazario El Mas Loco Moreno Gonzalez of LFM

Using disruption as a measure, 2010 has been a successful year for the Calderon administration.

However, despite some successful countercartel operations, the countrys security situation continuesto degrade at a rapid rate and violence continues to rise to unprecedented levels.

Expanding Tactics and Escalating Violence

At the time this report was being written, there had been 11,041 organized crime-related murders in

Mexico in 2010, with nearly three weeks left in the year. At the same time in 2009, the death toll forthe year had reached a new high, ranging from 6,900 to 8,000 (depending on the source andmethodology used for tracking organized crime-related murders). The degrading security environment

in Mexico has been exacerbated by the development of new conflicts in Tamaulipas, Nuevo Leon,

Morelos, Mexico, Colima and Jalisco states, as well as by persisting conflicts in Chihuahua, Sinaloa,Durango, Michoacan and Guerrero states. This geography of violence has changed quite a bit since

2009, when the violence was concentrated mainly in five states: Chihuahua, Sinaloa, Guerrero,Michoacan and Baja California.

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One reason for the tremendous increasein violence in 2010 is the conflict between

the Gulf cartel and Los Zetas. This

conflict spread violence throughout theeastern half of the country, commonterritory where the two groups have

significant influence given their past

relationship. And the conflict thatstemmed from the BLO split has become

a new source of violence in the southernstates of Morelos, Mexico and Guerrero.All this, combined with the ongoingconflicts between the VCF and the Sinaloa

Federation in Chihuahua state; LFM and

the CPS in Michoacan and Guerrerostates; and the persistent low-level

fighting between the CPS and the Sinaloa

Federation in Sinaloa state, has producedthis years unprecedented death toll forthe country as a whole.

Groups that have borne the brunt offighting, namely Los Zetas and the VCF,

have found it harder and harder toengage in their core business of drug-trafficking and have been forced to

diversify their income streams, mainlyfrom other criminal activities. Cash flow isimportant for the cartels because it takes a lot of money to hire and equip enforcer units to protect

against incursions from rival cartels and the Mexican government. It also takes money to purchase

narcotics and smuggle them from South America into the United States. A reliance on other criminalenterprises to generate income is not a new development for either Los Zetas or the VCF. Los Zetashave been active in human smuggling, oil theft, extortion and contract enforcement, while the VCF has

engaged in extortion and kidnap-for-ransom operations. But in 2010, as these groups found

themselves with their backs against the wall and increasingly desperate, they began to further expandtheir tactics.

Los Zetas found themselves in the crosshairs of Mexican military and Federal Police operations inMonterrey beginning in June with the arrest of Zeta leader Hector El Tori Raul Luna Luna in a

Mexican military operation. Less than a month later, on July 7, Hectors brother, Esteban El ChachisLuna Luna, who had taken over the leadership position in Monterrey, was captured in yet anotherMexican military operation. A senior lieutenant in Los Zetas, known only as El Sonrics, was chosen to

be the third leader in Monterrey in as many months after the arrest of Esteban Luna Luna. El Sonrics

tenure lasted about as long as his predecessors, however. On Aug. 14 in Monterrey, El Sonrics waskilled in a firefight with members of the Mexican military along with three Los Zetas bodyguards. A

month and a half later, on Oct. 6, Jose Raymundo Lopez Arellano was taken down in San Nicolas de

las Garza in yet another Mexican military operation. In other operations in the Monterrey area duringthis period, Mexican authorities also seized several large weapons caches belonging to Los Zetas andkilled and arrested numerous lower-level Los Zetas operatives.

In their weakened state, Los Zetas began to increase the number ofKFR operationsin the Monterreyarea. Previously, KFR operations conducted by Los Zetas typically targeted people who owed the

organization money, but as the group became increasingly pressured by Mexican security forces andthe New Federation, they began targeting high-net-worth individuals for quick cash to supplement

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their income. This wave of kidnappings in Monterrey led the U.S. consulate there to order thedeparture of all minor dependents of U.S. government personnel.

The VCF, which had already been engaged in large-scale extortion and KFR operations, reverted tolashing out at perceived injustices in its targeting and tactics, not for financial gain, but rather to gain

room to maneuver in the increasingly crowded Juarez metropolitan area. Largely due to the continuing

high levels of violence in the area, Juarez boasts the highest concentration of federal Mexican securityforces in the country, with the Federal Police operating in the urban areas and the Mexican military

operating on the outskirts and in surrounding rural areas. The VCF has made it no secret that it

believes the Federal Police are working for and protecting the Sinaloa Federation in Juarez. The IEDdetonation on July 15 was in response to the arrest of high- ranking VCF lieutenant Jesus El 35Armando Acosta Guerrero. La Linea, the VCF enforcement arm, had killed a rival and placed the corpse

in a small car with the IED and phoned in a report of a body in a car, knowing that the Federal Police

would likely respond. At about 7:30 p.m. local time, as paramedics and Federal Police agents arrivedon the scene, the IED was remotely detonated inside the car using a cell phone. The blast killed two

Federal Police agents and two paramedics and injured several more first-responders. The exact

composition of the device is still unknown, but the industrial water-gel explosive TOVEX was used asthe main charge. In the hours following the incident, a narcomanta appeared a few kilometers fromthe crime scene stating that La Linea would continue using car bombs.

La Linea tried to deploy another device under similar circumstances Sept. 10 in Juarez, but Federal

Police agents were able to identify the IED and called in the Mexican military to defuse the device.There were also three small IEDs deployed in Ciudad Victoria, Tamaulipas state, in August. On Aug. 5,a substation housing the rural patrol element of the Municipal Transit Police was attacked with a smallIED concealed inside a vehicle. Then on Aug. 27, two other IEDs placed in cars were detonated outside

Televisa studios and a Municipal Transit Police station in Ciudad Victoria. The Ciudad Victoria IED

attacks were never claimed, but Los Zetas are thought to have been responsible. The geographic andcartel-territorial disparity between Ciudad Victoria and Juarez makes it unlikely that the same

bombmaker is responsible for all the devices encountered in Mexico this year.

Marking the first successful deployment of an IED by a Mexican organized criminal group in the

modern day, the July 15 incident in Juarez was a clear escalation of cartel tactics. While the devicessuccessfully deployed so far in 2010 have been small in size, they did show some degree ofcompetency on the part of the bombmakers. The La Linea and Ciudad Victoria bombers also showed

some discretion in their targeting by not detonating the devices among innocent civilians. However,should these groups continue to deploy IEDs, the imprecise nature of the tactic does increase the riskof innocent civilians being killed or injured.

Rising levels of violence, combined with IEDs and the targeting of people not involved in the drug warin extortion and kidnapping-for-ransom operations, are taxing the civilian population. The trends have

also begun to affect business operations in parts of Mexicos industrial core, particularly Monterrey,where industrial executives live in gated and fortified compounds, travel in armed convoys and sendtheir children to the United States or Europe to escape the kidnapping threat. In many parts of Mexico,the threat of violence has had an adverse impact on small businesses such as restaurants, since

people are afraid to go out at night. And those business owners are impacted even more when theyare forced to pay protection money to cartel gunmen.

Changing Roles

The organized-crime problem in Mexico has always been perceived as a domestic law-enforcement

issue, but the country has always lacked a competent and trustworthy law-enforcement apparatus.

This is why Calderon chose the Mexican military to tackle the countrys drug cartels head on: It wassimply the best tool available at the time. The Mexican military has traditionally been perceived as the

least corrupt security institution in Mexico, and it possesses the firepower and tactical know-how to go

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up against similarly armed organized criminal groups. However, Calderons choice to deploy theMexican military to fight the drug cartels on Mexican soil has drawn fierce criticism from rival

politicians and human-rights activists, mainly due to concerns that the military is not trained to handlethe civilian population.

To allay those concerns and create a more effective law-enforcement apparatus, Calderon proposed a

reform plan to the Mexican Congress in September 2008 that would integrate the two existing federallaw enforcement agencies the Federal Preventive Police and the Federal Investigative Agency into

one organization, the Federal Police. The plan called for existing agents and new recruits to undergo a

much more thorough vetting process and receive higher pay. The idea was to build up a moreprofessional force less vulnerable to corruption and better able to fight the cartels. In implementation,however, the reform process has faced several setbacks in weeding out corrupt elements of the

existing federal force. In October 2008, the then-designated drug czar for Mexico, Noe Gonzalez, was

found to be receiving $450,000 a month from the BLO for information about the Mexican governmentscounternarcotics operations, just one indication of how far corruption permeated law enforcement

agencies.

In January 2010, nearly a year and a half after Calderon presented the reform plan to the Mexican

congress, Federal Police agents began to take control of Joint Operation Chihuahua, which had been

led by the Mexican military with the Federal Police in a supporting role. On Jan. 13, the Mexicanfederal security forces mission in Chihuahua state was officially renamed Coordinated Operation

Chihuahua, to reflect the official change in command as well as an influx of some 2,000 Federal Policeagents. Tactically, the change of command meant that the Federal Police assumed all law-enforcementroles from the military in the urban areas of northern Chihuahua, including police patrols,investigations, intelligence operations, surveillance, first-response and operation of the emergency 066

call center for Juarez (equivalent to a 911 center in the United States). The Federal Police were tasked

with operating mainly in designated high-risk urban areas to locate and dismantle existing cartelinfrastructure using law-enforcement methods rather than military methods. The military then

assumed the supporting role, charged with patrolling and monitoring the vast desert expanses of the

states rural areas and manning strategic perimeter checkpoints to help stem the flow of narcoticsthrough remote border crossings. These changes in roles and areas of operations were intended tobetter reflect the training and capabilities of each force. While the enhanced Federal Police are

designed to operate in an urban environment and trained specifically to interact with the civilianpopulation, the Mexican military is trained and equipped to engage in more kinetic operations in a

rural environment.

Coordinated Operation Chihuahua was the first big test of Calderons Federal Police reforms. When herenamed the operation, Calderon said the effectiveness of the change in strategy would be evaluated

in December 2010, but at the time this report was being written no evaluation had been released tothe public. There have been several arrests of low-level operatives, and even a few high-rankinglieutenants such, as VCF leader Acosta and Los Aztecas leader Arturo Gallegos Castrellon, but

Chihuahua state still leads the nation in the number of drug-related murders this year with more than3,000 more than the next two states, Sinaloa and Guerrero, combined. While the securityenvironment in Juarez remains tumultuous and unpredictable, the Mexican government launched the

Federal Police-led Coordinated Operation Northeast in Tamaulipas and Nuevo Leon states in the wake

of the death of Gulf cartel leader Tony Tormenta, in an attempt to pre-empt any violence from a Los

Zetas offensive in the region. The roles of Federal Police agents and Mexican military personnel in theoperation are nearly identical to their roles in Coordinated Operation Chihuahua, and the Northeast

operation suggests the Calderon administration considers the change in strategy in Chihuahua asuccess.

National Security Act

While Calderons Federal Police reforms have begun to relieve the Mexican military of domestic law -enforcement responsibilities, the Mexican Congress has taken steps to limit the presidents ability to

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deploy the military domestically at will. On April 28, the Mexican Senate passed the National SecurityAct, a set of reforms that would effectively redefine the role of the Mexican military in the cartel wars,

and while it is not yet law, it does indicate the countrys attitude toward the domestic use ofthe

military. The reforms range from permitting only civilian law enforcement personnel to detain suspectsto repealing the ability of the president to declare a state of emergency and suspend individual rightsin cases involving organized crime. While these reforms are notable, they would likely have little effect

at the operational level. This is because the armed forces will likely remain the tip of the spear when it

comes to tactical operations against the cartels simply by having troops accompanied by civilian policeofficers who conduct the actual arrests. Representatives from Mexicos Human Rights Commission

would also be present during these operations to address public grievances, ensure no human-rightsabuses have taken place and report them if they have.

The most notable change in the proposed law is that the president would no longer be able to deploy

the armed forces whenever he wants to. Individual state governors and legislatures would have torequest the deployment of troops to their regions once criminal activity has gotten beyond the ability

of state and local law-enforcement entities to control. In practical terms this could prove difficult given

the limited size of the Mexican military. Many states, including Tamaulipas and Nuevo Leon, havepreviously requested significant numbers of troops to augment the federal garrisons already there,only to see their requests go unanswered due to a lack of available troops.

Limiting the executive branchs power to deploy the military domestically has a lready politicized the

battlefield in Mexico, much of which lies in the northern border region. This is where most of theMexican security forces are deployed, and these are also states that are governed by Calderonspolitical opponents, the Institutional Revolutionary Party (PRI). Friction has emerged between thesestates and federal entities on how best to combat organized crime, most notably from former

Chihuahua state Gov. Jose Reyes Baeza of the PRI, who complained that federal security forces were

complicating the situation in Juarez and Chihuahua state and that the problem was a law-enforcementissue that should be left to the Juarez municipal police and Chihuahua state police. As 2012 elections

draw closer, Calderons campaign against the cartels will likely become even more politicized as the

three main parties in Mexico the PRI, Calderons National Action Party (PAN) and the RevolutionaryDemocratic Party (PRD) jockey for the Mexican presidency.

So whether or not the new National Security Act will have an immediate impact on the Mexicangovernments countercartel campaign should it become law, high levels of violence will continue to

necessitate the use of the Mexican armed forces, especially in regions where there is not a reorganizedand enhanced federal security operation in place. State law enforcement has yet to demonstrate theability to quell any outbreak of violence, so even the political friction between the PRI state governorsand Calderons PAN administration will not preclude a military role in counternarcotics efforts.

Unified State Police Command

One thing that has become obvious during the past three years of the federal governments offensive

against the cartels is that government resources are stretched thin the Mexican government simply

doesnt have the manpower to be everywhere federal security forces need to be. One possible solutionis to build up the capability of individual states to handle many criminal matters on their own, withoutthe aid of federal security forces. On June 3, the Mexican National Public Security Council approved a

proposal by Calderon to establish a commission charged with creating a new unified police forcenationwide. Under the plan, each state would have a new statewide police force that would eventuallyreplace all municipal-level law enforcement entities. These new state police agencies would all report

to a single federal entity, the Unified State Police Command, in order to ensure a unified strategy incombating drug-trafficking organizations and other organized criminal elements.

The idea of replacing some 2,000 municipal police agencies with state or federal law enforcementpersonnel has been floating around Mexican political and security circles since about 2008, but certainobstacles mainly pervasive corruption have prevented it from being realized. Municipal-level law

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enforcement has traditionally been a thorn in the side of the larger federal offensive against the cartelsdue to incompetence, corruption and, in many cases, both. In some cases, the Mexican military or

Federal Police have been forced to completely take over municipal police operations because the entire

force was corrupt or had resigned due to lack of pay or fear of cartel retribution. Lack of funding forpay, training and equipment has led to many of the problems at the local level, and under the newplan such funding would come from larger state and federal budgets.

The plan will likely take up to three years to fully implement, some state governors estimate, and not

only because of logistical hurdles. The federal government also wants to give current municipal-level

police officers time to find new jobs, retire or be absorbed into the new law-enforcement entity.

The new force will likely go through a vetting and training process similar to that seen in the 2008

Federal Police reforms, but the process will not be a quick and easy solution to Mexicos law -enforcement woes. While the new police force will serve as a continuation of Calderons strategy of

vetting and consolidating Mexicos law-enforcement entities, stamping out endemic corruption and

ineptitude in Mexico is a difficult task. Consolidating police reforms at the local level should not beexpected to produce meaningful results any more quickly than the Federal Police program has. It isvery difficult to reform institutions when they exist in a culture that tolerates and even expects

corruption. Without changes to the underlying culture of graft and corruption to support the new

institutions (for example, paying police a living wage and cultivating public respect for their authority),these reformed institutions can be expected to become corrupt in short order.

In October, nine state governors from Chihuahua, Durango, Zacatecas, Tamaulipas, Veracruz, Sinaloa,

Oaxaca, Puebla and Hidalgo agreed to begin the process and to have unified police commands withinsix months.

Outlook for 2011

The successes that Calderon has scored against the cartels in 2010 have helped his administration

regain some public confidence in its war against the cartels. But by disrupting the balance of poweramong the cartels, the effort has made the cartel landscape throughout the country more fluid andvolatile than it was a year ago. Violence has continued to escalate unabated and has reached

unprecedented levels, and as long as the cartel balance of power remains in a state of flux, the

violence will show no signs of diminishing. While direct action by the Mexican government hasfractured certain organizations the BLO, for instance the cartel environment in Mexico is stressfulin its own right, and organizations falling victim to infighting only exacerbate this stress. Indeed,fissures that opened in 2010 will likely continue in 2011, and new will ones will quite possibly appear.

Calderons current strategy appears to be inciting more violence as the cartels try to seize upon their

rivals perceived weaknesses, and the federal government simply does not have the resources toeffectively contain it. While plans are in place to free up certain aspects of the federal security

apparatus, namely the reformed and still-maturing Federal Police and the Unified State Police

Command, they are still several years away from being capable of adequately addressing the securityissues that Mexico is dealing with today. With the 2012 presidential election approaching,unprecedented levels of violence are politically unacceptable for Calderon and the PAN, especially sinceCalderon has made the security situation in Mexico the focus of his presidency.

Calderon is at a crossroads. The levels of violence are considered unacceptable by the public and the

governments resources are stretched to their limit. Unless all the cartel groups can be decapitatedand brought under control something that is highly unlikely given the limits of the Mexicangovernment the only way to bring the violence down will be to restore an equilibrium of power

among the cartels. Calderon will need to take steps toward restoring this balance in the next year if hehopes to quell the violence ahead of the 2012 election.

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Calderons steps will likely go in one of two directions. The first would be toward increased assistanceand involvement from foreign governments. With federal resources stretched to their limit, Calderon

and the Mexican government have nowhere else to look for legitimate assistance in combating the

violence. With foreign assistance, the combined resources could effectively dismantle major cartel andother criminal operations and restore security and control, particularly in the northern tier of borderstates. Over the past several years there has been an increase in the level of involvement of U.S.

intelligence in Mexican operations, and even members of the Mexican military establishment have

voiced their opinion that Mexico cannot continue down its current path alone. The revelation of a jointU.S.-Mexican intelligence center in the Mexican media in November is further indication of the

increased involvement of foreign agencies. However, there was a tremendous political outcry by manyin the PRD and PRI after news of the joint intelligence center was made public. Mexican socialsensitivities to foreign forces operating on Mexican soil will likely trigger an even bigger politicalbacklash than what has already been triggered by the violence, making foreign assistance the leastlikely choice that Calderon will make.

The second direction is not a new option and has been discussed quietly for several years. The

Mexican federal government has never been able to assert complete and total control over Mexicanterritory very far outside of its central core region around Mexico City certainly not in its northerntier of border states. Going back to the days of Pancho Villa in the early 1900s, the northern frontier of

Mexico has always been bandit country due to its inhospitable environment and distance from thecapital, and it remains so today. Before the balance of cartel power was significantly disrupted byCalderon in 2006, there were clear delineations of territory and rule in the region, and while there wasstill occasional fighting between cartels, the levels of violence were nowhere near what we are seeing

today. This was due in large part to the cartels ability to effectively police the region. It is in theirinterest to have lower-level violence and other crimes, such as kidnapping, carjacking, robberies,extortion and muggings, under control. Any sort of uptick in criminal activity negatively affects their

ability to traffic drugs through their respective areas.

This second scenario involves a dominant entity purging or co-opting its rivals and reducing the

violence being practiced by the various criminal groups. As this entity grows stronger it will be able todirect more attention to controlling lower-level crimes so that DTOs can carry out their businessunimpeded. However, this situation would not be able to play out without at least some degree of

complicity from elements of the Mexican government. While the Mexican government hasdemonstrated the ability to significantly disrupt cartel operations, it cannot control their territories,

and it would need some degree of compliance from the dominant cartel entity as well.

We began to see hints of such an arrangement in the first half of 2010 with the formation of the NewFederation, but the organizations involved were eventually forced to focus their attention elsewhere

and the goals of the alliance fell by the wayside. However, one key element is still in play: the SinaloaFederation. The Sinaloa Federation has spread and increased its level of influence from Tijuana toparts of the Rio Grande in Texas and has the most resources at its disposal, making it the most

capable of all the organizations in Mexico today, and thus the most likely to lead an alliance that couldconsolidate power in the volatile regions and keep them stable. Sinaloa has remained remarkablyintact throughout much of Calderons offensive against the cartels, and it has even been accused by

rival cartels most vocally by the VCF of being favored by the Mexican government. Over the

course of the next year we will be watching for indications that the Sinaloa Federation and any new

friends it may make along the way are becoming the dominant organized-crime entity throughoutMexico.

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