August 10, 2016

Organized crime groups, commonly referred to as drug trafficking organizations, operate throughout Mexico, and are the primary threat to business activity in the country. Since the disintegration of the Cali and Medellin cartels in Colombia in the early 1990s, Mexican drug trafficking organizations have come to dominate most aspects of the wholesale illicit drug market, including major supply chains into North America, Europe, and parts of Asia.

Although the drug trade is the primary source of income for most drug trafficking organizations (DTO), many have steadily expanded their operations into illegal mining, illegal logging, extortion, kidnapping, and theft. A recent report by the Institute for Economics and Peace showed that the Mexican economy lost approximately MXN 2.12 trillion (USD 134 billion) or 13 percent of its gross domestic product (GDP) in 2015 due to DTO activity and gang violence.

Government policies, macroeconomic phenomena, and rising global demand for illicit substances have fueled the DTO's growth. Drug trafficking in Mexico can be traced back to the early 1900s; however, it rapidly expanded during the 1960s in response to rising demand for marijuana, cocaine, and other illicit drugs in the US.

In the 1970s and early 1980s, Mexican DTOs played a major role in smuggling Colombian cocaine. In the mid-1980s, though, a combination of geopolitical and economic policy decisions in the US and Mexico inadvertently facilitated DTOs transition into a more profitable business of drug production and distribution. During the mid-1980s, both Mexico City and Washington increased anti-narcotics efforts and began using military personnel to combat rising levels of drug trafficking-related violence.

Through the late 1980s and into the early 2000s, a series of DTOs rose to power and later splintered into numerous new organizations. Crime continued to rise, as local police forces and politicians increasingly collaborated with DTOs, and high-powered weapons began making their way into the hands of "hit squads" and assassins, allowing those actors to overpower security services.

In 2006, Felipe Caldern was elected to the presidency and immediately launched his War on Drugs campaign. Despite the presidents intention to diminish the drug industry in Mexico, the program further fragmented the DTO landscape and precipitated even higher levels of violence in parts of the country, especially along the US border.

Over the past several years, Mexico has experienced a sort of balkanization. Although there are a few well-established DTOs, such as the Crtel de Jalisco Nueva Generacin (CJNG) and Sinaloa Cartel, dozens of other groups vie for control over states, cities, and municipalities, which has resulted in perpetual turf wars. Whereas DTO activity was most operative in border areas during Calderns War on Drugs, severe instability has crept into parts of 21 Mexican states.

Surging levels of demand for heroin in the US have provoked protracted battles for control over the Tierra Caliente region in the southwestern part of the country, which provides a topographically-ideal environment for clandestine poppy cultivation. Maritime ports in Veracruz, Colima, Baja California Sur, and Guerrero states are also the scenes of ongoing turf wars between rival groups.

Federal- and state-security services are stretched thin as they attempt to combat crime on multiple fronts, and massive levels of corruption fueled by billions of dollars set aside for bribery signal that few practical solutions exist to combat the groups. As a result, legitimate business operations are increasingly exposed to DTO crime.

Although violence that could cause physical harm to employees or assets is not typically directed at enterprises uninvolved in criminal activity, trends in Mexico indicate that organized crime has the potential to substantially affect revenues. Substantial threats to revenue, mainly due to extortion and theft, exist in a majority of Mexican states. The fragmentation of Mexico's DTOs suggests that the proliferation of groups relying on revenue from localized sources that can affect commercial income will remain a threat in the foreseeable future.

For more information on the most recent drug trafficking trends and the impact on global organizations like yours doing business in Mexico, be sure to watch the recorded version of our webinar: Changing Dynamics of Drug Trafficking Organizations in Mexico: Are your prepared?.