Extortion in Mexico: Why Mexico’s Pain Won’t End with the War on Drugs

By Benjamin Locks

Introduction

Since 2007, many Mexicans and international observers have blamed drug traffickers from Mexican cartels—and former President Felipe Calderón’s heavy-handed response—for the reign of violence that has left more than 60,000 people dead through 2012, according to Human Rights Watch.[1] Enrique Peña Nieto’s winning 2012 presidential campaign capitalized on domestic frustration, offering policies that would focus on the economy over fighting the cartels. Yet, Mexico’s violence stems from more than just drug trafficking; extortion and kidnapping are driving a new wave of violence as cartels diversify into less risky, yet still profitable, criminal enterprises.

Drug trafficking remains the cartels’ most lucrative business, with revenues possibly as high as $30 billion.[2] However, it is by no means these groups’ only source of profit, with cartels moving increasingly into robberies, kidnappings, extortion, fraud, human smuggling, and the sale of pirated or stolen goods.[3] These activities allow the groups to increase revenues, hedge the risks of other criminal activities, and move into new markets. From 2007 to 2012, the overall number of crimes increased by 150 percent, but most dramatically extortion increased by 1,250 percent.[4]

While often overlooked, extortion is even more harmful to Mexican communities than drug smuggling. In demanding payments from innocent individuals and businesses, criminal groups terrorize communities and displace the government’s basic functions. Extortion also attacks the entrepreneurial class, who should be the drivers of economic growth, sometimes forcing business owners to remain prisoners in their own homes or flee the area entirely. The effects add up: the Mexican employer’s association, COPARMEX, estimates that 37 percent of businesses have been direct victims of crime—largely extortion—costing them $5.8 billion per year.[5]

Dramatic Increase in Extortions

Extortion has been prevalent for many years in Mexico, but between 2009 and 2010, its prevalence increased exponentially.

Figure 1: Dramatic Increase in Extortions in Mexico.

Source: ICESI, INEGI [6] — *Source: ICESI, INEGI* [6]

The main reasons behind this increase were the unintended consequences of President Calderón’s security strategy, which focused its efforts on capturing the country’s cartel leaders. In late 2009, the Mexican government targeted several members of the Beltran Leyva cartel, which operated in central Mexico. In late 2010, the Mexican government killed the leader of the Familia Michoacana organization, which operated in the state of Michoacán in west-central Mexico. By the fall of 2011, the Mexican government had killed or captured 21 of the 37 most wanted criminal organization leaders.[7]

In 2010 and 2011, the quick success of the Mexican government’s offensive, along with fights for control within the cartels, led to fragmentation within the leadership of many criminal organizations. The middle management—the hit men and regional chiefs—founded local mafias dedicated to the extortion of illegal markets (such as drugs or pirated goods), but later expanded into legal markets. Many retired criminals re-activated and re-formed because of the growing demand for their work. These criminal organizations established their reputation for violence with extremely bloody acts. According to security analyst Eduardo Guerrero Gutierrez, they also began to hang banners called narcomantas in public places so as to announce their arrival and intimidate the local populations into paying their extortion demands.[8]

Figure 2: The rise of “narcomantas” in Google searches

Source: Google Trends, As of Dec. 23 2013

(Note: The numbers on the graph reflect how many searches have been done for a particular term, relative to the total number of searches done on Google over time. They don’t represent absolute search volume numbers, because the data is normalized and presented on a scale from 0-100. Each point on the graph is divided by the highest point, or 100. When there is not enough data, 0 is shown. A downward trending line means that a search term’s popularity is decreasing. It doesn’t mean that the absolute, or total, number of searches for that term is decreasing.)

The graph above shows Google searches for “narcomantas” in Mexico from 2004 to December 23, 2013. Google searches for the term are a proxy for narcomantas presence over time; meaning that there will likely be more Google searches when there are more narcomantas. The graph shows that there was almost no search activity for narcomantas prior to 2008, despite the fact that President Calderón launched the war against the cartels in 2007. Instead, we see a spike in February 2010 and high levels of searches throughout 2011 and 2012, corresponding to the extortion uptick over the same time period. While it is near impossible to prove that public violence leads to extortion, the data and anecdotal evidence seems to support security analysts’ theories that the increase in violence around 2010 paved the way for criminal organizations to increase their extortion racket.

Contrary to popular perception, drug-trafficking organizations do not typically seek violence for its own sake. Public and conspicuous violent displays bring unnecessary law enforcement attention to a particular region or group. Hence why drug traffickers are so keen to use the services of people like the infamous “stewmaker,” Santiago Meza Lopez, who stands accused of dissolving 300 bodies for one particular cartel.[9] Yet there is a strategic logic to committing conspicuous and gratuitous acts violence in order to extort the local population. Public displays of violence generate fear throughout a community, which reduces the marginal cost of extorting another business or individual and increasing the profits of criminal organizations.

One of the most infamous displays of public violence occurred in 2011, when the Casino Royale in Monterrey was attacked by the Zetas, one of Mexico’s most violent cartels. The Zetas attacked the casino with automatic weapons and lit fire to it, killing 52 people. According to sources, the owner was being extorted for $150,000 per month by the Gulf cartel and the Zetas attempted to extort him for $200,000 per month, which he refused, resulting in the attack.[10]

Cartels Responsible for the Rise in Extortions

Harvard researcher Viridiana Rios has studied and classified the competitive and expansionary behavior of various cartels. Competitive is defined as operating in an area where other cartels are already operating, and expansionary is defined as colonizing new municipalities where no cartel had previously operated.[11] Expansionary cartels use extortion more than sedentary cartels because it is an effective strategy for establishing their enterprise in a given territory.

Figure 3: Extortion’s association with criminal organizations

La Familia Michoacana and the Knights Templar—a relatively new group not listed in Rios’ data—are also mentioned prominently in the Mexican media in association with extortion. Similar to the Zetas, these groups also display relatively high levels of competition and expansion during this period.

How Criminal Organizations Expand

National or regional cartels are not the only criminal actors in Mexico and certainly not the only ones extorting individuals and businesses. Many mid-level and local criminal organizations run extortion operations. In the drug trafficking business, cartels must have the contacts abroad to import cocaine or precursor chemicals for methamphetamines into the country, grow or produce the drugs locally, control transportation routes through Mexico, and/or have connections in their primary export market, the United States. With extortion, cartels need employees who have local knowledge of the people and businesses that are vulnerable and that could be extorted profitably. To quickly attract individuals with this expertise, groups like the Zetas have used a franchise model of expansion typical of fast-food chains.

When the Zetas arrive in a city, they use connections within the underworld and corrupt police officers to discover whom the local criminals are and the activities in which they are involved. For instance, there may be groups who specialize in robberies, extortion, drug dealing, and kidnapping. The Zetas meet with these smaller organizations that know the local market and arrange a deal where they will offer them the use of the Zeta name, help organize their activities with each other, and provide them access to weapons. In exchange, these local groups kick up profits from the operations to the higher echelon of Zetas.[12]

If one of these groups refuses to integrate into the Zetas, they start killing lower ranking members—though avoiding the upper echelon that has the human capital they need—to pressure the leaders to cooperate. Through this strategy, the Zetas have built their brand into one that is synonymous with violence and one that they protect ferociously, even killing other criminals who falsely use their name. It is likely that the other expansionary groups like the Gulf cartel, Familia Michoacana, and the Knights Templar also use similar tactics to expand their territory and extortion operations.

How Extortionists Operate

There are three main types of extortion operations: virtual, direct, and indirect. Unfortunately, reports and surveys from the government and NGOs do not classify extortion into the different subtypes, making it difficult to diagnose and analyze the problem.

Virtual extortion

Telephonic extortion, sometimes referred to as virtual kidnapping, is the most common form in Mexico. In 2008, an ICESI survey estimated that 82 percent of all extortions were conducted via telephone. Unfortunately, no surveys since have charted this percentage, but interviews with NGOs and security analysts, as well as media reports, suggest that telephonic extortion is still the overwhelmingly most common form of extortion.

Extortionists use many different methods to trick their victims into thinking that they or one of their family members are in imminent danger if they do not pay the demands. Some criminals use Google Maps to research the victim’s location and then use the name of a nearby place or store to make the threat more believable. In other cases, extortionists call a victim and claim they have kidnapped a member of their family. The extortionists usually have a recording of a child or woman crying and, sometimes, the shocked victim says a family member’s name. With this information, the extortionists make the victim believe that their family member is in imminent danger and demand an immediate payment.

Many times the calls are simply random; extortionists dial numbers until they reach someone who they can trick into paying. Other times they will conduct information reconnaissance to extract information from victims. They call and pretend to be an employee at a bank where the victim has an account, a worker performing a survey, a long-lost relative, or they may even claim that the victim has won a raffle and needs to provide personal information in order to receive the prize. Extortionists also use publicly available information from Google searches or social media sites. If victims cannot be simply tricked into handing over money, perpetrators threaten to kidnap or murder the victim or his family.

NGOs agree that the vast majority of these telephonic extortions originate from prisons. One way criminals collect the money is by having victims purchase pre-paid phone cards and read the codes to the extortionists. The extortionists then relay these codes to outside vendors, who sell them at a discount to the public and send the criminal’s share back to the prison.[13]

Direct Extortion

Direct extortion refers to confronting individuals or businesses to force them to make continuous extortion payments. These operations can range from the simple to the complex. In some areas where there is a high degree of fear and a lack of law enforcement, criminals simply enter a business and threaten the owner with violence if he or she does not pay a regular sum.

In Cancun, some extortionists have operatives who sit outside the restaurant and count how many people come in for breakfast, lunch, and dinner. These individuals then present the owners with estimates of how much money they have earned and demand a certain amount of the profits.[14]

In Michoacán, the Knights Templar is involved in almost any industry where it can make a profit. In some mining companies, the cartel’s members or sympathizers work as accountants or in key departments to provide inside information on the companies’ finances and production capabilities. Economists working for the cartel monitor the international markets for precious metals, allowing the group to make extortion demands with almost perfect information about the company’s current business status and future profits.

For exports, the Knights Templar have members who speak Chinese and can negotiate extortion payments with the Chinese ships that come to purchase the metals and bring precursor chemicals for methamphetamine production and pirated goods. The Knights Templar have even moved into agriculture. Michoacán is the world’s largest avocado producer and the criminal group has a near stranglehold on the industry. El Economista estimates that the Knights Templar earn $152 million per year from extorting the avocado industry alone.[15]

Indirect Extortion

Indirect extortion refers to the practice of forcing businesses to purchase items directly from criminal organizations. Many groups, especially the Knights Templar and the Zetas, steal oil and gasoline from Pemex and resell it to truckers and gas stations in states like Tamaulipas, Nuevo Leon, Zacatecas, San Luis Potosí, Querétaro, Veracruz, and Michoacán. They also steal large pipes from Pemex and resell them to distributors at a 30 percent discount, knowing that Pemex only sells them at a 5 percent discount.

If the owners refuse to buy from the criminal organizations, the groups force them to sell their gas stations, even bringing a public notary to legalize the transaction. If these owners report the crime to the police or refuse to sell their businesses, the cartels will kill the owner, his or her family, or the workers.

Once owners become involved with organized crime—either willingly or not—groups like the Knights Templar collect monthly extortion payments to the tune of $769 (10,000 MXN) a month per gas station.[16] Government officials sometimes act as a part of, or in collaboration with, criminal organizations in order to extort businesses. Once agents of the army or federal police discover that a station is selling stolen Pemex products, they too often demand extortion payments of more than $150,000 (2 million MXN) in order for owners to avoid criminal proceedings.[17]

The Costs of Extortion

According to the sixth National Survey about Insecurity (ENSI-6) published in 2009 by the Citizen’s Institute of Studies about Insecurity (ICESI), money was demanded in 84 percent of extortion attempts, and 28 percent of these attempts ended with a payment. Also, according to the survey, the average extortion demand in Mexico was $5,247 in 2012 dollars ((68,737 MXN in 2012pesos) per year.[18]

Unfortunately, this survey data on the success rate and amounts demanded was not replicated in previous nor subsequent surveys, making this the only publicly available quantitative data on the subject. In order to estimate the revenues from extortion for additional years, I took the national effective payment rate from attempted extortions of 23.52% and multiplied it by the number of extortions that ICESI and INEGI surveys had recorded for each year from 2007 to 2012.

Table 1: Estimates of Losses from Extortions by year (Millions of 2012 USD)

For the high-end extortion cost estimates, I took the 2008 national average and assumed extortionists’ demands for money simply kept up with inflation. This is a simplistic assumption, but given the paucity of data, it will at least serve as a ballpark figure. For the low-end estimate, I used another figure from an ICESI analysis, which stated that the average extortion cost was $1,576 (20,650 MXN) in 2012 dollars (pesos) per year.[19] No explanation is given for the discrepancy between the two surveys.

Based on these calculations, extortion revenues in 2012 were between $2.2 billion and $7.4 billion, while from 2007 to 2012, they totaled between $7 billion and $23 billion. That represents 0.2 percent to 0.4 percent of Mexico’s GDP in 2012. Some security consultants estimate that extortion is the cartels’ second or third largest income source.[20] For comparison, a Colombian newspaper estimated that Colombia’s extortion market was worth $1 billion.[21] Given that the Colombian economy is roughly a third the size of Mexico’s, and both countries suffer from the presence of organized crime, this estimate of Mexico’s extortion market size makes sense.

The ICESI report also included indirect costs that victims suffered from extortions such as visits to a hospital or psychologist, and the productivity lost from trips to a police station to file a complaint. Using an approach similar to what I did with direct costs, I calculated the indirect costs of extortion to be $1 billion for 2012. Given that extortion hits small business owners—Mexico’s entrepreneurial class—the hardest, extortion likely forces businesses to reduce investment or even close down operations. This produces an even larger negative impact on the economy—one that cannot be calculated at this time due to scarce data.

How Extortionists Move Their Money

In order to use money collected from extortions, criminals launder it through banks or wire services. Investigations have produced strong evidence that some banks are complicit in extortion. Below is a list of banks that extortionists used for depositing payments from 2008 to 2011, according to cases that the attorney general’s office brought in Mexico City.

Table 2: Banks receiving extortion payments, 2008-2011

Source: Porfirio Cruz Vázquez. “El perfil de las víctimas de extorsión telefonica”. CIDE. August 27, 2012.

As seen in the chart, five banks account for almost 97 percent of all extortion payment deposits in Mexico City. Marco Lara Klahr, a Mexican journalist who chronicled extortionists and their victims in his book, Extortion and Other Circles of Hell, told me, “Of all the deposits in bank accounts from extortion payments, I have only heard of them going to Banamex, Banco Azteca, Bancomer, and BanCoppel.”[22]

One would think that a solution would be to trace the account’s owner, but it is not always so easy. For example, Banamex offers a type of account that does not require official identification to open, so police cannot trace ownership. Or if the account does require identification to open, the process of sending the contract and account details to authorities typically takes a month and in some cases can take up to six months.

Even when law enforcement can get the information from banks in a timely manner, one official estimates that only 50 percent of judges consider an extortion payment sufficient evidence to issue an arrest warrant or question the account owner as a witness. In the other 50 percent of cases, in which judges do consider it sufficient evidence, the accounts are often opened under a false or stolen identity or the extortionists have people ready to immediately collect the payments from the banks after the deposits are made. These individuals often claim that they have lost their account papers and desperately need the money to return home.

Sometimes, bank tellers are part of the criminal organization itself. In two separate cases, in Hermasillo, Sonora and Guadalajara, Jalisco, tellers received a five percent commission on extortion payment deposits that ranged from $60 to $830 (800-10,000 MXN), receiving between five and 10 payments per day.[23] There is also a concern among many individuals and businesses that bank tellers or other bank employees with access to customers’ account data are passing this information along to extortionists and kidnappers, so that they know exactly who to target and for how much. According to INEGI surveys, nearly one-third of people and businesses are afraid to conduct bank transactions.

Why Extortion?

Criminal organizations in Mexico have three principal economic goals in extortion: financing drug trafficking operations, replacing other revenue streams, and entering the legal market. Criminal organizations extort because it requires low initial investments in equipment and logistics, it has low management costs, and it is a low-risk operation—especially in areas where state protection is weak.[24]

Extortion as Criminal Financing

Like any business, criminal enterprises have regular costs. Not only does a cartel have to pay for its drug imports, it must maintain control over trafficking routes, logistics, and distribution networks. It also has to pay workers and bribes, and buy weapons, ammunition, trucks, and gasoline. The criminal enterprise must meet these payments on a regular schedule just like a legitimate business needs to meet payroll and expenses.

Imagine a cartel like Sinaloa, which has billions of dollars in revenues, yet very irregular cash flows. Organizing the logistics for a major drug shipment may take many months and is subject to partial or complete loss of the shipment in the production country or in transit. Let’s say a major drug shipment makes it onto Mexican shores, traverses the length of the country, and, simply due to bad luck, gets stopped at the U.S. border. The shipment is a complete loss for the firm. The regular and predictable sums of money from extortion provide a useful tool in financing these less assured operations.

The criminal enterprise’s need for liquidity becomes particularly acute when it faces major pressure from rival criminal organizations or the state. With its territory and organization under threat, a criminal enterprise needs more soldiers, weapons, ammunition, intelligence, and government collaboration through bribe payments.

Think of the criminal enterprise as a bank in the recent financial crisis. Under pre-crisis conditions, when the economy was growing steadily and loans were performing, the bank was profitable and did not need large capital buffers to protect it from potential losses. When the crisis hit, and loans under-performed, the same bank became unprofitable and needed larger capital buffers to protect it from losses. Likewise, at any given time, a criminal group may be organizing several major drug shipments. These are like the loans that a bank has on its balance sheet; they could be very profitable for the criminal enterprise if the transaction is realized, but if a rival takes control of the logistics and distribution network, the drug shipment could become a loss. Likewise, increased state pressure could ruin the transaction. Under these conditions, the criminal group needs greater capital buffers to protect its organization from potential losses. Revenues from extortions or kidnappings can provide this buffer.

Extortion as a Substitute for the Drug Trade

While drug trafficking to the United States is the cartels’ greatest revenue source, they have seen their profits decline dramatically in recent years. Since 2006, cocaine use in the United States has declined by 40 percent while the price has only increased by 24 percent.[25]

Source: United Nations Office on Drugs and Crime, World Drug Report 2013

Figure 4: Cocaine use and seizures in the U.S.

For marijuana, a 2010 report from the RAND Corporation estimates that cartel revenues for the drug reached $1.5 billion, making up 15 to 26 percent of their total earnings.[26] Since then, eight U.S. states have joined 17 others that have legalized medical marijuana or decriminalized possession and production below a certain amount. Washington and Colorado have gone even further by legalizing marijuana altogether, and other states are considering such a move. Complete marijuana legalization, according to a different RAND study, would cut a few billion dollars from Mexican cartels’ revenues.[27]

Decreased drug trafficking revenues, greater competition from cartel fragmentation, and increased pressure from the Mexican state have already given criminal groups less economic incentive to expand their drug trafficking operations.[28] These shifts have displaced many of the cartels’ members who only know how to make a living through violence, leading to increased extortion. Sometimes the cartels sanction these extortion operations, but other times, these individuals take advantage of opportunities to use their violent skills away from their bosses’ oversight.

Extortion as Entry Point into Legal Market

Extortionists can also use their leverage over businesses to enter the legal market. Just as Wal-Mart is vertically integrated and can lower its average unit cost because it offers a wide array of products, so too can extortionists once they break into the legal market. As an extortionist’s business expands, he can put pressure on legitimate competitors by raising extortion payments or lowering his prices until they are put out of business. It may be economically rational to bankrupt other businesses, even those from which the criminal collects extortion payments. Although the extortionist loses revenue from lost extortion receipts, he can offset, or even exceed these revenues by capturing the now bankrupt business’ market share. He can also offer a plethora of other illegal goods and services that the legitimate business could not.

In southern Italy, one mafia family ran the market for new and used vehicles because they offered steep discounts to customers, which eventually drove competitors out of business. Depending on the type of market that the criminal enters, the extortionist can force customers to buy from one criminal-controlled supplier. In southern Italy, mafia families displayed this type of behavior, forcing butchers and supermarkets to purchase meat from their companies.[29] The control of a legal business is advantageous, since it can launder the profits of an illegal one.

The Police Response

The rates of unreported crimes and convictions are staggering. For 2012, INEGI estimates that 92 percent of crimes went unreported; that rate is even higher for extortion, at 98 percent. Yet, even of the crimes that are reported, only seven percent end in a conviction and jail time (0.56 percent of all crimes). On top of that, only 12 percent of convictions are for high-impact crimes such as murder, robberies, kidnapping, or extortion.[30]

In October 2013, the Mexican army and marines announced that they would create a designated anti-extortion and anti-kidnapping unit. The army seems to recognize that the police at the federal, state, and local levels are unable or unwilling to tackle the dramatic increase in these crimes.[31] Besides Ciudad Juárez, which is briefly discussed below, there is not a single police unit dedicated to fighting extortion.

According to local activists in Ciudad Juárez, from April 2010 to November 2012, federal police intervened in 1,089 cases of direct extortion, 960 in real time, preventing the payment of extortion in 88 percent of the cases. Overall, they detained 112 people and dismantled 10 criminal organizations.[32] While these numbers are likely only a small percentage of the total number of extortions that occur in that city of 1.3 million, it is a start. If criminals and business owners alike believe that there is a credible chance of arrest, the perception change will deter more extortions and make businessmen more likely to stand up to intimidation.

During the 2012 presidential campaign, President Peña Nieto announced that he would create a 50,000 strong gendarmerie force to protect businesses and crop growers from extortion. However, in August 2014, he unveiled a force that was only 10 percent of the original number. Ernesto López Portillo, head of the Mexican Institute for Security and Democracy called the force “an aspirin to fight a cancer.”[33]

Self-Defense Groups Respond

Beginning in the summer of 2013, indignant locals have taken up arms to fight criminal organizations—and even state authorities who have made exorbitant extortion demands, including demanding wives and daughters as sex slaves.[34] Self-defense groups, as they are known, have cropped up in ten states throughout the country, although most are concentrated in Michoacán and Guerrero. In Guerrero, 46 of the 81 municipalities have self-defense groups.[35] In Michoacán, José Mireles Valverde, one of the must public and famous leaders of the self-defense groups in Tepalcatepec, Michoacán, says that from July 2013 until his arrest the following year, his self-defense groups took control of 28 of the 113 municipalities.[36] One Michoacán self-defense group claims to have as many as 5,000 members and another claims 3,000.[37]

Only in late January 2014 did the Mexican state legally recognize these self-defense groups. This is a tacit admission that the Mexican state does not have the will or power to fight the cartels in Michoacán, nor does it have the popular backing to disarm the self-defense groups who have become modern-day Robin Hoods in the eyes of some in the Mexican public, even while others believe them to be tools of rival cartels. One of Mexico’s most respected think tanks, the Center of Research for Development (CIDAC), along with many other analysts, have seriously asked whether Michoacán, whose capital lies less than 200 miles from Mexico City, is a failed state.[38]

Proposals

Even admitting the extent of the problem will be difficult for the Peña Nieto administration. During President Peña Nieto’s tenure as governor of the State of Mexico from 2005 to 2011, law enforcement there did not report a single extortion. This was despite the fact that an INEGI survey showed that there were almost 530,000 extortions there in 2011 alone, more than in any other state.

In the long-term, rooting out corruption in law enforcement and prosecuting the criminals who commit extortion will be the only way to significantly reduce the problem. Yet, there are steps that the government could take in the short-term to stem the tide. One major and fairly simple method to fight extortion would be to block cell phone signals in the nation’s prisons, where most of the telephonic extortions originate. These signal blockers should not be put under prison authorities’ control, since prisoners’ and visitors’ extortive practices have become embedded in their operating culture. Instead, members of the new gendarmerie force could oversee the signal blockers and be frequently rotated between prisons, so as to diminish the chance that they too will become corrupted.

Extortion has been described like a wave sweeping over an area; once one business falls victim, it becomes easier for criminals to target the next business and they eventually fall as well, until an entire neighborhood or municipality is being extorted. In the foreseeable future, Mexico’s law enforcement will not have enough resources or manpower to gain the public’s trust. But anti-extortion units, embedded in particularly vulnerable locations, could start to move the wave in the opposite direction to convince people, by word and deed, that they are able to protect the population.

As the rise of the self-defense groups has shown, people are willing to take up arms and push back against organized crime. Instead of fighting or just acknowledging them, law enforcement could work with them as allies, where the groups provide intelligence and a first line of defense. The long, difficult war against cartels’ extortion has shifted to a new arena that requires improved strategies.

The Future of Extortion in Mexico

Widespread extortion allows criminal groups to embed themselves deeply in all economic activities in the territories they control and to become completely self-financing. With the size of Mexico’s economy and the lack of citizen security, extortion could finance criminal organizations even if drug trafficking were completely eliminated.

Further, once these criminal groups are entrenched, it often takes a military operation, like the Mexican army’s takeover of the port of Lazaro Cardenas, or an uprising like the self-defense groups to dislodge them. One only needs to look further south to Guatemala, El Salvador, or Honduras to see the ways embedded criminal networks can displace state control and erode economic activity.

The rise of extortion shows that Mexico does not have a drug trafficking problem; it has a rule of law problem. The elimination of the drug trade would force criminal groups to diversify more heavily into extortion, terrorizing more of the Mexican population and causing greater economic disruption than it already has. The war on drugs may have brought unprecedented levels of violence to Mexico, but its termination will not cease the bloodshed if criminal groups are allowed to continue to extort the masses.

About the Author

Benjamin Locks graduated from Johns Hopkins School of Advanced International Studies with a master’s degree in Strategic Studies and International Economics. Benjamin is currently a Senior Analyst at Avascent, a leading strategy and management consulting firm serving clients operating in government-driven markets.

Endnotes

“Mexico Drug War Fast Facts”. CNN. Mar. 15, 2014. http://edition.cnn.com/2013/09/02/world/americas/mexico-drug-war-fast-facts/
Theunis Bates. “A Mexican drug cartel’s rise to prominence”. The Week. Jan. 25, 2014. http://theweek.com/article/index/255503/a-mexican-drug-cartels-rise-to-dominance
Ibid.
Surveys of crime from ICESI and INEGI, 2008-2013.
Kyra Gurney. “Crime Costing Mexico Companies $5.8 Bn a Year”. Insight Crime. June 3, 2014. http://www.insightcrime.org/news-briefs/crime-costing-mexico-companies-58-bn-a-year
The number of extortions in Mexico were recorded by surveys of crime performed by the Citizen’s Institute of Studies about Insecurity (ICESI), which published national surveys about public perceptions of insecurity in 2005 and 2008-10 as well as surveys from the National Institute of Statistics and Geography (INEGI) which published surveys of victimization and perceptions of public security from 2011 to 2013.
Alejandro Poire. “Can Mexico win the war against drugs?”. Americas Quarterly. Fall 2011. http://www.americasquarterly.org/node/2989
Interview with Eduardo Guerrero Gutierrez of Lantia Consultores on July 29, 2013.
“Cartel ‘stewmaker’ says he dissolved 300 bodies”. CNN. Jan. 24, 2009. http://edition.cnn.com/2009/WORLD/americas/01/24/mexico.cartel.arrest/index.html?iref=mpstoryview
Tracy Wilkinson. “Suspect says Mexico casino fire set over unpaid extortion money”. LA Times. August 29, 2011.
Viridiana Rios and Michele Coscia. “Knowing Where and How Criminal Organizations Operate Using Web Content”. 2012. Harvard University. http://www.gov.harvard.edu/files/CosciaRios2012_WhereHowCriminalsOperate.pdf
Interview with Eduardo Guerrero Gutierrez of Lantia Consultores on July 29, 2013.
Marco Lara Klahr. Extorsion y otros circulos de infierno. Random House. 2012.
Interview with Eduardo Guerrero Gutierrez of Lantia Consultores on July 29, 2013.
Veronica Macias and Rodrigo Rosales. “Extorsion a aguacateros da a Templarios 2,000 mdp al año”. El Economista. Oct. 29, 2013. http://eleconomista.com.mx/seguridad-publica/2013/10/29/extorsiones-aguacateros-da-templarios-2000-mdp-ano
Marco Lara Klahr. Extorsion y otros circulos de infierno. Random House. 2012.
Ibid.
According to the survey, it was 58,200 MXN in 2008. I adjusted the amount to 2012 numbers based on the inflation rate between 2008 and 2012 and the 2012 USD/MXN exchange rate from oanda.com, a respected foreign exchange trading company.
“El Costo de La Inseguridad en México”. ICESI. Cuadernos del ICESI 5. 2009. P. 57
Interview with Eduardo Guerrero Gutierrez of Lantia Consultores on July 29, 2013
James Bargent. “Colombia Extortion Market Worth $1Bn a Year: Report”. Insight Crime. Mar. 21, 2013. http://www.insightcrime.org/news-briefs/extortion-rate-colombia-billion
Interview with Marco Lara Klahr. August 10, 2013.
Marco Lara Klahr. Extorsion y otros circulos de infierno. Random House. 2012.
Letizia Paoli, Mafia Brotherhoods: Organized Crime, Italian Style, (Oxford: Oxford University Press, 2003) p.165
United Nations Office of Drugs and Crime. “Cocaine Retail Prices”. http://www.unodc.org/unodc/secured/wdr/Cocaine_Heroin_Prices.pdf
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Beau Kilmer. “Legalization in the U.S. and Crime in Mexico”. RAND. May 23, 2013. http://www.rand.org/blog/2013/05/legalization-in-the-us-and-crime-in-mexico.html
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ArticleYale Journal of International AffairsOctober 6, 2014North AmericaComment