2010-01-01

Global Narco-Enterprise

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Dialogo

Entrepreneurs : Profits or death

Even in dire economic times, drug traffickers are still amassing profits. Drug cartels act like a transnational commercial enterprise to guarantee the continuity of their operations.

U.S. Department of Justice reports show the cartels’ structure mimics that of legitimate businesses, with executive directors, expansion programs, recruiting activities and strategic alliances.

“Cartels and their criminal soldiers seek dominance of the lucrative global narcomarket,” John Sullivan, a research fellow at the Center for Advanced Studies on Terrorism, said at an October 2009 conference. The forum, titled “Drug Trafficking, Violence and Instability in Mexico, Colombia and the Caribbean,” featured more than a dozen experts from Latin America, the Caribbean and the United States visiting the University of Pittsburgh to discuss the problem and possible solutions.

With legitimate businesses, a cartel implies an agreement between competing firms to monopolize a market. When the product is illegal drugs, cartels often compete with one another in bloody territorial wars. “The reasons for violence are because political patterns of control have changed, because of globalization,” Carlos Flores, a political scientist at Mexico’s Center for Advanced Studies and Research in Social Anthropology, said at the conference.

Illegal drugs rank as the world’s second largest commodity, after petroleum. Up to 250 million people consumed illegal drugs in 2007, according to the 2009 world drug report by the United Nations Office on Drugs and Crime, or UNODC. The U.N. has estimated that worldwide illegal drug sales generate up to $320 billion annually.

Mexican cartel profits are as high as $40 billion annually, the consulting company Kroll estimated. In comparison, Mexico’s secretary of tourism expects the country’s tourism industry to bring in about $13 billion in 2010.

To finance their operations, cartels also get involved in arms and human trafficking and extortion. “They engage in every type of criminal enterprise,” Sullivan said. When it comes to the drug market, cartels offer numerous products including cocaine, heroin, marijuana, methamphetamines and other synthetic drugs.

The cocaine market in the Western Hemisphere was controlled by Colombian traffickers in the 1980s and ’90s. As part of its expansion program, Mexican organizations were subcontracted by Colombians, said the UNODC report. Now, Mexican cartels control the market, with subsidiaries across Central and South America, the U.S., Canada, Europe and Africa.

“In Mexico, drug trafficking did not become a national security threat until the 1980s,” said Jorge Chabat, professor at the Center for Research and Teaching in Economics in Mexico City. The situation got worse in the 1990s when the Colombian cartels were dismantled. Then several big Mexican cartels appeared: Tijuana, Juárez, Gulf and Sinaloa, he said. Over the years, some of those cartels lost power, while others, such as La Familia, have emerged as major players in the illegal drug industry.

Colombia has about 300 organizations of various sizes engaged in drug trafficking, said Bruce Bagley, professor at the University of Miami, during his presentation at the conference. Colombian cartels are currently assisting Mexican cartels in logistics and transportation.

Just like other enterprises that facilitate business and increase profits, some cartels are also developing strategic alliances with other criminal organizations. These include Italian and Russian mafias along with terrorist groups such as the Revolutionary Armed Forces of Colombia and Basque Fatherland and Liberty in Spain, according to various news reports.

The cartels have been successful recruiting employees. There are various estimates of the number of people involved in the drug business, said Luis Astorga from the Institute of Social Research of the National Autonomous University of Mexico. Astorga said some sources in Mexico estimate 50,000 Mexicans are employed, but most sources say it’s greater. “In Mexico, the minister of defense says about half a million people are involved, from kingpins to peasants. The U.S. Department of State says it is about 450,000.” If that is the case, Mexican cartels employ about five times the number of people in Mexico that Coca-Cola employs worldwide.

In the illegal drug industry, the profit is much higher than the cost of production, said Gustavo Duncan, a professor at the University of Los Andes in Bogotá. For example, he said, a drug trafficker may sell a quantity of a drug for $100, when it only cost $20 to produce. “Now he has $80 to invest in what the drug business is about: reduction of risk,” he said, adding that the best way to reduce risk is “to bribe the state” by paying corrupt security forces and members of the judiciary to overlook their activities.

While the captains of legal businesses can enjoy long, comfortable retirements, the lifeline of the drug traffickers is becoming shorter. Andrés Sáenz, former director of defense and security policy with the Colombian Ministry of Defense, said the CEOs of cartels can change rapidly in what he calls the “hydra effect.” Authorities have often targeted the chiefs, thinking that might cause a big hit to the organization, but those leaders are quickly replaced by others from the middle ranks.

Production: heroin, cocaine , ephedrine , marijuana

Industries rely on a network of suppliers for raw material and production. The world’s three top producers of coca — Colombia, Peru and Bolivia — produce about 1,000 tons annually, according to the 2009 United Nations Office of Drugs and Crime report.

Heroin has been historically produced by Colombian and Mexican criminals, since the 1970s and ’80s. However, countries in Asia are now producing on a bigger scale. Small-scale poppy cultivation is starting to increase in Central American countries, said the report. For marijuana, Mexico and Paraguay are the two top producing countries. Paraguayan soil can yield 6,600 pounds per year for each hectare (2.47 acres).

Just as any enterprise looks for innovations, Mexican cartels took on the synthetic drug market because of a high demand and its low production costs, stated the UNODC report. Organized criminal groups are increasing the size and sophistication of operations of labs to produce methamphetamine.

In 2008, the Mexican government banned the import and domestic use of ephedrine and pseudoephedrine, precursors of methamphetamine. Some methamphetamine production moved south, and in 2008 the U.N. identified for the first time the manufacture of these precursors and other illicit synthetic stimulants in 10 nations, including Argentina, Brazil, Peru, Guatemala and Honduras. Guatemala, Honduras and El Salvador have recently passed laws prohibiting most uses of both chemicals.

With increases in production, consumption of methamphetamines, as well as heroin and marijuana, is on the rise in Latin America, the UNODC report said. “People think this is an American problem,” said Anthony Maingot, professor at Florida International University in Miami, “but no, this is also our [Latin America and Caribbean] problem.”

New Markeks , New Addicts

In the 1970s and ’80s, dominant Colombian cartels preferred to use Caribbean routes, while Mexican cartels preferred the Central American route for markets in the U.S. When authorities clamped down in the Caribbean, trafficking patterns changed, but with increased enforcement along the U.S.-Mexico border, the Caribbean is regaining popularity.

The business is not only recruiting traffickers in the Caribbean, but is also creating a broader consumer base of drug abusers. “Official sources suggest that between 10 and 20 percent of the cocaine that comes from Colombia and Venezuela now stays in the islands to meet internal demand,” affirmed Lilian Bobea, Dominican Republic sociologist and consultant for her government’s democratic security plan. The consumption has increased because drugs have stayed in the country to serve as payment in-kind.

Bobea said drug-related crime accounts for 60 percent of all homicides in Jamaica, 65 percent in Trinidad and Tobago, and 7 percent in overseas Dutch territories. The situation worsens, “especially with the growing influence of Colombian, Russian and Mexican cartels on Dominican dealers,” said Bobea. Each country faces different threats, depending on the level of maturity of organized crime, she added.

“There is an explosion of hard-core criminals,” said professor Maingot. In Jamaica, the gangs have been involved in developing scams: Con artists illicitly obtain the personal information of potential victims, then persuade them that they have won a lottery and need to send a fee to process their winnings. The money collected is used to buy weapons and drugs.

In Brazil, roughly 80 tons of cocaine enters the country each year, much of it from Bolivia, said UNODC and Brazilian police. About half is re-exported to Europe and the United States. Along the same smuggling routes from Bolivia and Paraguay, drug gangs bring in guns to defend their illegal trade. Many of the weapons end up with gangs in cities such as Rio de Janeiro, where they battle police and rival traffickers.

In El Salvador, territorial wars may be occurring between drug gangs and other local criminal groups involved in contraband and human trafficking, Salvadoran authorities said. In Guatemala, officials said local traffickers are being aided in the expansion of their operations by Mexican cartels or gangs that either own or fund light aircraft deployed in drug trafficking. The number of airstrips across Guatemala is now believed to be more than 800. Aside from air routes, drug organizations are also dominating maritime routes through the development of more and innovative semisubmersibles, said Colombian analyst Sáenz.

Colombian and Mexican drug cartels have crossed the Atlantic Ocean and expanded into West Africa to take advantage of a profitable European market. Officials said about nine cartels have established operations in 11 West African nations. The traffic usually occurs when a mother ship leaves the region — especially in Venezuela — and crosses the Atlantic. The ship then offloads the cargo in small vessels that will travel to different parts of Africa and Europe, the U.N. reported. In countries such as Guinea-Bissau, the value of cocaine trafficked through the country might be greater than the nation’s entire income. However, the importance of African routes appeared to have declined in the first quarter of 2009, the report said.

Solutions : The search for innovative approaches

Increased interdictions and arrests have caused major blows to cartels and criminal organizations, but the problem has not disappeared. Drug organizations find new routes or new modes of production. “We have to look at the unintended consequences of success,” said Phil Williams, director of the Center for International Security Studies at the University of Pittsburgh.

All conference panelists at the university agreed that drug trafficking and drug consumption require a transnational solution. “New approaches should take into account the different realities involved,” said the Dominican Republic’s Bobea. “Implementing inadequate policies affects the credibility of those governments.”

In the Dominican Republic, the government wants to continue strengthening state institutions and developing relations with civil society, she added. The police and the military have collaborated to target drug traffickers, but if the government’s plan continues, Bobea recommends defining these roles through official protocols.

The Mexican government has started to “fragment and control” cartels through police and military operations and institutional reforms, said Mexico’s Chabat. In order for this strategy to succeed, it is essential that corruption be controlled, intelligence systems be improved and that there are reforms in police, judicial and prison systems, he said.

The collaboration between Colombian and Mexican cartels has prompted law enforcement officials from both countries to work together and share information, but the situation in both countries in not identical. “We can use the Colombian analogy to find the differences rather than the similarities and we should let the differences inform our policy and strategies,” said Paul Kan, a professor at the U.S. Army War College.

All panelists agreed this is not merely a law enforcement issue. “Integrality is very important because it is a multifaceted crime,” said Sáenz.

When it comes to establishing a policy to eliminate the profits of cartels, analysts recommend tracking down the money. “To some degree, all illicit activity looks to imitate licit activity,” Flores said. To launder profits, traffickers rely on institutions such as exchange houses and offshore banking. The Caribbean is a ripe region for money laundering. The Cayman Islands is among the world’s leaders for offshore banking. Panama also ranks high among money exchange nations. “If you don’t hit the accounts, the money, you could arrest the people you want, but the problem will re-emerge,” Flores said.

Some of the panelists at the conference questioned the possibility of legalization of drugs to prevent the violence associated with market control. However, the 2009 UNODC report argued that legalization will not deter the profits and violence of criminal organizations. “Transnational organized crime will never be stopped by drug legalization. Mafia coffers are equally nourished by the trafficking of arms, people, and their organs, by counterfeiting and smuggling, racketeering and loan-sharking, kidnapping and piracy,” the report said.

“If the solution is to keep the problem under control, just like any crime, I think it is possible,” Chabat said.“The only ideal solution will be that drugs disappear from the face of the Earth.”

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