Friday, December 7, 2012



Note: very interesting analysis

Security Implications for Multinational Corporations Operating in Mexico
Nov 28, 2012
Author: Charles Regini

Mexico is a significant economic and political player in Latin
America. With the world's 13th largest economy, sharing a large
common border with the United States and benefiting from extensive
free trade agreements, Mexico has developed privileged access to U.S.
markets and integration into U.S. supply chains. Iconic American
manufacturers have moved factories by the dozens to Mexico,
particularly to Mexico-U.S. border towns. Mexican factories are
exporting record numbers of televisions, cars, computers, and
appliances. Mexico continues to be viewed as a prime location for
U.S. companies seeking to establish value-based, cost-effective, high
return on investment business operations.

Drug wars and street battles, extreme violence, kidnapping,
extortion, endemic public corruption, and the looming specter of
spreading pockets of outright criminal organizational takeover of
municipal governments are consistent headlines highlighting the
ongoing challenges for business operations. Mexican federal
authorities, however, point to continued successes in arresting or
killing key criminal leaders and the break-up of transnational
criminal organizations and Drug Trafficking Organizations (DTOs), as
well as recent decreases in drug-related homicides. It is also a
common belief that most of the violence in Mexico is due to drug
gangs killing each other, or "bad on bad" murders. Multinational
corporations continue to consider future investment, but have
developed reservations and reluctance due to these concerns.

This article assesses the current security realities in Mexico,
addressing the country's overall security environment and identifying
specific primary security risks likely to be encountered by
multinational corporations operating in Mexico, including extortion
and kidnap-for-ransom schemes.

Government Control and Attacks on Authorities
Despite historical denials from the Mexican federal government,
current media reporting and public opinion consistently discuss
"fallen cities" or "ungoverned" communities in various areas of
Mexico. These communities are characterized by a general lack of
governmental authority. They arise due to pressure from direct
attacks, assassinations, intimidation, and public corruption
perpetrated by all of the various organized criminal groups. These
groups seek to retaliate against Mexican security forces and support
the continued expansion and activity of major DTOs in Mexican
communities. In February 2012, in what was widely reported as a break
from standard government media policy on this subject, Mexican
Defense Secretary Guillermo Galvan Galva acknowledged that some areas
of Mexico are no longer under government control. "Clearly, in some
sectors of the country public security has been completely overrun,"
he admitted.[1] Galva said that organized crime has penetrated not
only the country's public institutions, but Mexican society as well.[2]

While there is no general consensus of what constitutes an ungoverned
or fallen city, several conditions should be considered when
assessing security risks for business purposes. In fallen cities, any
or all of the following conditions may be present: lacks a mayor,
city council, or police department; cartel convoys travel openly in
the city; cartels regularly operate roadblocks; street battles occur
several times per month; large numbers of drug-related homicides, or
businesses or citizens routinely pay extortion fees; and retaliatory
attacks related to extortion attempts are common.

In the most extreme instances, these communities have no governmental
authorities at all; they do not have mayors, city councils, judges,
police departments, or other government officials. Residents and
businesses in these communities have no protection from organized
criminal groups who operate in the area, and criminals have full run
of the community and typically control access to it (e.g., roadblocks
and surveillance).

In less extreme cases, municipalities may lack some elements of local
government, but retain others. For example, they may lack mayors,
city councils, chiefs of police, or even police departments, but they
may have other governmental departments that function, such as public
utilities, health services and schools. They are still able to
provide basic municipal services, but in a limited form and one that
is essentially controlled by organized criminal groups.

A third condition is also present where communities may have some or
all elements of government, but they are largely ineffective in
protecting residents from criminal activity due to corruption,
collusion, intimidation, incompetence, or some combination thereof.

Due to variations in the level and type of criminal control over
communities, and the fact that these levels are in flux over time, it
is difficult to derive a definitive and current list of fallen cities
in Mexico. Conditions change rapidly and a fairly stable community
can quickly become ungoverned (often in a matter of weeks). In
contrast, there have been instances where the conditions in
ungoverned communities improved almost as quickly with the
introduction of federal forces, such as the police or military.
Several cities that exhibit a continuing pattern of security
deterioration and indicators of fallen or ungoverned would be
Apatzingan (Michoacan State); Ciudad Altamirano (Guerrero State);
Coyuca de Benitez (Guerrero State); Meoqui (Chihuahua State); and
Piedras Negras (Coahuila State).

Several municipalities that have had conditions improve with
continued deployment and use of military forces against organized
crime elements are Ciudad Juarez and Nuevo Laredo on the northern
border. Although neither city can be considered "safe" and under
complete control of legitimate Mexican authorities not influenced or
intimidated by criminal elements, there have been clear indications
of authorities regaining control and improving the security
conditions in what were once considered lawless and uncontrolled cities.

Overall, however, evidence suggests that organized crime has
increased its control over Mexican cities in the past decade.
Research completed by the Institute of Citizens' Action for Justice
and Democracy (IAC) shows that organized crime's control over Mexican
municipalities has gone from 34% in 2001, to 53% in 2006, to 71.5% in
2011.[3] The president of IAC stated that the infrastructure of
organized crime in Mexico is "apparent, open, and notorious," and
that in many cases there is complicity between political leaders and
these groups.[4]

Contributing to the deterioration of government control for security
of business operations are the daily attacks on government
authorities that plague more than half of the Mexican states.
Government officials are the target of daily attacks perpetrated by
organized criminal groups in many areas of the country. The attacks
include ambushes of police or military patrols, attacks on government
buildings such as police stations, courts and municipal buildings,
assassinations of political figures, and executions or kidnap-
executions of police officers. These attacks are in contrast to
street battles between government forces and sicarios (cartel gunmen).

The frequency and character of armed attacks directed against Mexican
authorities provide insight on the ability of the Mexican government
to combat organized crime and maintain control. The number of police
officers killed during ambushes jumped from approximately 625 in 2010
to 817 in 2011, a 130% increase.[5] The number of assassinations
dropped 8% in 2011, although that number remains quite high at
approximately 125 for the year.[6] In most instances, the victims
were municipal level government officials, followed by state level

Since January 2010, there has been a steady increase in not only the
numbers of attacks on government authorities, but also a spread in
the geographic pattern of attacks. In 2010, there were an average of
15 Mexican states per month experiencing attacks on government
authorities.[8] In 2011, the average increased to 18.[9] For most of
2012, the number of states with attacks on government authorities was
20.[10] States most recently hit hardest by attacks on authorities
have been Chihuahua, Coahuila, Guerrero, and Michoacan.

There has been a steady increase in the number of monthly attacks
since January 2010.[11] Attacks on Mexican security forces occur on a
daily basis throughout most of the country. The families of elected
officials are also routinely targeted. Data from 2010-2012 reveals an
increase in ambushes since January 2010.[12] Although the pattern of
political assassinations from January 2010 to July 2012 suggests they
are decreasing, political leaders and government officials remain
routine targets of Mexican organized crime and drug trafficking
groups, with an average of five to 10 assassinations of elected
officials in the first seven months of 2012.[13] These statistics
suggest continued challenges by Mexican authorities to maintain
control of many areas of the country.

Another useful variable in assessing government control and the level
of security risk to business operations in Mexico is the number of
street battles or firefights between Mexican authorities and cartel
gunmen.[14] There has been a continuing increase in the number of
such battles during the first seven months of 2012. In January 2012,
there were approximately 25 street battles, with the number rising to
67 in April.[15] In July, the number of street battles reached 71.[16]

There has also been a slight increase in the geographic dispersion of
these battles; they appear to be taking place across a larger number
of cities and states. This pattern, which might not yet reflect a
fixed trend, may still indicate a geographic expansion of threats to
public safety and business operations.

In addition to the number and geographic pattern of ungoverned
cities, attacks on authorities and street battles, other variables
provide insight into the current security risks to business
facilities, personnel, and operations. These include violent criminal
activities such as extortion, kidnapping, and cargo theft. Reliable
statistics do not exist on any of these crimes, but media reports and
releases by various human rights organizations and think-tanks
suggest an increase and spread in each of them.[17] Certainly, the
continuing decline in the effectiveness of law enforcement agencies
in many areas of the country due to direct attacks, assassinations,
intimidation, corruption, poor training, lack of equipment, and weak
leadership contribute to the increase and spread of these crimes. As
a result, opportunistic, small-scale criminals take advantage of the
disorder in local communities as well. Burglary and theft, armed
robberies, kidnapping, and extortion all tend to increase as law
enforcement personnel direct their attention to more significant
matters, including their very own survival.

Since 2008, extortion in Mexico has increased and spread across the
country. The National Citizens' Observatory, an organization that
compiles statistics on crime, calculated that Mexico extortion cases
of both nationals and foreign nationals have increased more than 180%
since 2006.[18] A 2011 study by the Bank of Mexico found that more
than 60% of Mexican businesses reported that they were victims of
crimes such as extortion.[19] One of the deadliest attacks on a
private sector business during the recent drug violence came as a
result of extortion. In August 2011, gunmen reportedly working for
the Los Zetas cartel set fire to a casino in Monterrey because its
owners refused to pay them protection money.[20] The fire killed 52
innocent civilian customers and employees, most of whom were middle-
aged and elderly women who came to the casino to play bingo.

Extortion has spread to businesses in areas of the country previously
considered largely untouched by crime. The state of Quintana Roo,
which is home to the popular tourist cities of Cancun and Playa del
Carmen, has now started to experience business extortions. A local
newspaper reported in 2011 that the Los Zetas drug cartel was
gradually infiltrating businesses throughout the region, including
businesses that work with the tourism industry. Quintana Roo trade
associations have reported that an increasing number of businesses
are simply closing down, in large part due to the ongoing threat of
extortion and other organized criminal activity. The trade groups
claimed that 70 businesses closed in 2009, 120 in 2010, and 300 in
2011.[21] A government official in the city of Playa del Carmen told
the local newspaper Por Esto that reported extortion threats against
local businesses jumped 150% in 2011.[22] He further said about 99%
of the businesses along one main commercial street in the city were
paying protection fees to cartels.[23]

The cities along the dangerous U.S.-Mexico border are also major
business extortion areas. Most extortion attempts here, as well as
elsewhere in Mexico, seem largely directed at small, more vulnerable
local Mexican companies that cannot afford to invest in adequate risk
and security mitigation and management measures.

While most extortion attempts are directed at local companies, there
have been increasing incidents targeting large multinational
corporations. One of the most well-known potential extortion cases
affecting a multinational business occurred in late May 2012 against
the Mexican subsidiary of Pepsico snack and beverage company,
Sabritas. The attack was viewed as the worst attack on a
multinational company in Mexico in recent years. Members of the
Knights Templar, an offshoot of the La Familia cartel, set fire to
warehouses and more than 30 trucks belonging to the firm in
Guanajuato and Michoacan states.[24] In total, the attacks and fires
at five distribution centers across the two states significantly
damaged company infrastructure, trucks and goods. In most media
reports, the criminal organization claimed the attack was due to the
company's cooperation with authorities, however the circumstances
point to indications of attempted extortion.[25] The attacks required
significant coordination to hit multiple locations and inflict a
tremendous amount of damage without causing any loss of life. Arson
is a common method of intimidation and retaliation in attempted

The mining industry in particular has become a popular target for
extortionists, mostly because the industry is highly profitable and
the work sites are remote. According to Mexico's Attorney General's
Office, drug cartels commonly pressure multinational mining companies
to pay from $11,000 to $37,000 a month in "taxes" for the right to
operate in the cartel's territory.[27] If the "security tax" is not
paid, the company's directors, family members, and the miners
themselves are attacked or kidnapped. The Attorney General's Office
has opened 12 investigations into extortion threats faced by some 300
mines across the country and has created an inter-agency
investigative team aimed at protecting the mining industry in
response to the rise in extortion.

In one example, a multinational mining company in Reynosa reported in
August 2012 that it had received several threats from unknown
individuals who demanded that they be permitted to steal copper from
a warehouse owned by the company.[28]

Separately, in August 2011, two miners of a multinational mining
company were intercepted on a road near their mining facility in a
remote area of Chihuahua State by a group of 12-14 men in bulletproof
vests, carrying automatic weapons, with bandanas over their faces.
The two miners were blindfolded, handcuffed, and transported to the
group's operating "base." They were taken on a short tour of the
location and shown a roomful of automatic weapons, grenade launchers,
and explosives. A laptop with the company's website loaded on the
internet browser was also shown to the men. The assailants told the
miners how the company's website bragged about the successes of the
Chihuahua gold mining operation and that to continue the operation
the company would be required to pay a monthly "tax" to the group.[29]

Mexico is among the top five countries at risk for kidnap-for-ransom
schemes. The Mexican government's statistical information about
kidnap-for-ransom is highly inaccurate and likely manipulated for
perception purposes. The reality is that the exact numbers of
incidents, types of victims, or average ransom demands are nearly
impossible to accurately determine because only a fraction of
incidents are reported to authorities or other organizations. This is
mostly due to fear that corrupt local and state police officers
collude with kidnappers.

A Mexican human rights group, the Council for Law and Human Rights,
claimed that 17,889 kidnappings occurred in 2011, up approximately
32% from the 13,505 abductions in 2010.[30] The figures did not
include kidnappings where the victim was released within 24 hours,
known as an "express kidnapping." In 2011, a separate Mexican think-
tank reported that 1,847 kidnappings were recorded in the country in
2010. Some 209 of these incidents resulted in the death of the
hostage.[31] The think-tank, however, admitted these figures were
likely only a fragment of the real kidnapping rate due to
underreporting and the manipulation of statistical data by local
governments. The think-tank's 2010 figure was twice its 2009 numbers.
Meanwhile, between October 2010 and September 2011 there were 1,016
incidents of kidnap-for-ransom, as noted in a report by the National
Public Security System.[32] According to a 2011 Mexican congressional
report, kidnapping in Mexico has risen 317% in the last five years.
[33] The report estimated an average of 3.72 kidnap cases are
reported every day. Although kidnap-for-ransom incidents occur
throughout the country, high numbers of incidents are concentrated in
eight states: Mexico, the Federal District, Guanajuato, Michoacan,
Guerrero, Chihuahua, Baja California and Tamaulipas. Other primary
trouble spots include Nuevo Leon, Tabasco, and Veracruz states. The
municipalities in the Yucatan Peninsula seem relatively less prone to
kidnap incidents.[34]

Kidnap groups in Mexico range from well-organized and professional
kidnapping rings and drug cartels to opportunistic street criminals.
Both types of groups generally operate in urban areas or along rural
highways. These groups often kidnap employees commuting to and from
work, or in transit from city to city. Mexican nationals are believed
to make up the vast majority of victims, but foreigners are also
targeted. Although all business sectors are victimized, energy and
mining sector workers are particularly at risk due to their isolated
and rural work sites and transportation routes.

Drug trafficking gangs, such as Los Zetas, La Familia, and the
Knights Templar, engage in retaliation and intimidation kidnappings
against rivals, government authorities, public officials and private
sector companies. They also kidnap-for-ransom employees and managers
of successful high profile businesses and multinational corporations
to boost their finances. While the vast majority of ransoms are
relatively small, high profile senior managers and executives of
multinational firms and local Mexican citizen business owners can
fetch ransoms in the millions of dollars. A U.S. businessman abducted
in Tijuana drew $5 million in 2011.[35]

In most cases, after the ransom is paid, the victim is safely set
free. Kidnappings in Mexico are rarely investigated or prosecuted due
to a lack of adequate resources, as well as corruption and competence
issues. In addition to traditional kidnap-for-ransom operations,
there are a number of other kidnapping methods used in Mexico,

Express Kidnapping: Abduction based on a 24-hour time limit with
emphasis placed on forcing victims to withdraw funds from a number of
ATMs, as well as handover cash, valuables, and other possessions. In
other cases, the victims are quickly released after paying a small

Virtual Kidnapping: Criminals call their victims from unregistered
mobile phones and claim to have kidnapped a family member or friend.
These criminals may use sound effects or information gathered on the
internet to convince a victim that a kidnapping has occurred. The
criminal then demands a ransom. Criminals often claim to be members
of one of the large drug cartels when making such calls, knowing
these groups' reputation for brutality will scare victims. These
incidents are actually elaborate extortion attempts since no one is
actually kidnapped.

Since extortion and kidnapping are closely linked to the drug trade
and the ungoverned municipalities and unsecured areas of the country,
the cartels' ability to operate with impunity have left businesses
and their employees, managers, and executives vulnerable. This has
resulted in significant economic and social damage, as well as
scaring away some businesses looking to invest in Mexico.

A 2011-2012 survey by the U.S. Chamber of Commerce in Mexico found
that 87% of the surveyed companies had increased security measures or
contacted authorities due to incidents of extortion or kidnapping,
and more than half of the companies increased their investments in
security during 2011.[36] A June 2012 article in the Financial Times,
however, reported a more optimistic scenario; foreign direct
investment totaled $18 billion in 2011 and was expected to reach
similar levels in 2012. While extortion and kidnapping affects
multinational corporations, in most cases criminals rarely know which
key leaders to kidnap due to the sheer size of many companies
operating in Mexico. In fact, in many incidents involving employees
or managers of multinational corporations, the threat and demand are
directed toward the families and not the companies, although most
multinational corporations do accept varying levels of ownership of
the incident and associated support and assistance to the victim's
family. The prospects for smaller, local companies may be darker.
Many small Mexican businesses close rather than face the continued
threat of violence, kidnapping, or ever-increasing extortion payments
to gangs or cartels.

The security environment for businesses in Mexico will see no
significant overall change for many years to come. Crime, corruption,
and the resulting insecurity for business operations, employees, and
executives will remain a consistent risk for business. Real change
will require the Mexican government to radically reduce the
corruption within law enforcement and significantly restructure the
criminal justice system.

Businesses considering future operations or maintaining current
operations in Mexico must acknowledge and take steps to actively
manage these security risks to be successful and profitable.
Regardless of the severity, business security risks can be managed
using a continuous and systematic risk assessment and mitigation
process. Access to and use of current continuous intelligence
reporting on the evolving threat environment and how a Mexico-based
business' employees, facilities, operations, and supply chain may be
vulnerable to security risks is the first step to developing and
implementing effective security practices and policies.

Although Mexico will remain dangerous for the foreseeable future,
multinational companies operating there can limit the frequency and
severity of security related incidents through implementing a
successful operational risk management program.

Charles Regini is Managing Director of Crisis Response and Planning
for Kroll Associates Inc. Mr. Regini oversees the day-to-day
activities of Kroll's crisis management planning and response
services, particularly the Kidnap for Ransom and Extortion response
program and associated risk assessments, prevention, preparation, and
planning services. Mr. Regini joined Kroll in 2011 after working as
an independent consultant and program/project manager in the U.S.
Intelligence Community. He retired from the Federal Bureau of
Investigation in 2009 after spending more than 21 years of
distinguished service in a variety of investigative, intelligence,
and management positions. Mr. Regini was one of the hand-picked full-
time hostage negotiators in the FBI's Critical Incident Response
Group, where he led the FBI's international hostage/kidnap program,
and became recognized as a subject matter expert in crisis-hostage

[1] Geoffrey Ramsey, "Mexico Official Admits Some Areas Out of Govt
Control," InSight Crime, February 10, 2012.

[2] Ibid.

[3] The IAC did not define how they measure "control." See "Mexico:
Situation of Organized Crime; Police and State Response Including
Effectiveness; Availability of Witness Protection," Immigration and
Refugee Board of Canada, September 11, 2012.

[4] Ibid.

[5] "Mexico Annual Security Review 2011," Harary Security Consulting,

[6] Ibid.

[7] Ibid.

[8] "Mexico Monthly Security Summaries in 2010, 2011, and 2012,"
Harary Security Consulting, 2012.

[9] Ibid.

[10] Ibid.

[11] "Mexico Annual Security Review 2011."

[12] Ibid.

[13] Ibid.

[14] The majority of these conflicts are running street battles
during which bullets are fired indiscriminately in mostly urban
settings often resulting in the injury or death of innocent
bystanders. Fragmentation grenades were also used in a significant
number of these battles resulting in injuries to innocent bystanders
and property damage.

[15] "Mexico Annual Security Review 2011."

[16] Ibid.

[17] "Mexico's 2012 National Survey on Victimization and Perception
of Public Security," Mexican National Institute of Statistics and
Geography, 2012; Luisa Blanco, The Impact of Reform on the Criminal
Justice System in Mexico (Santa Monica, CA: Rand Corporation, 2012);
Gary J. Hale, A 'Failed State' in Mexico: Tamaulipas Declares Itself
Ungovernable (Houston: James A. Baker III Institute for Public
Policy, 2011); "Security and Criminal Justice in the States: 25
Indicators of our Institutional Weakness," Mexico Evalua, 2012.

[18] Tracey Wilkenson, "In Mexico, Extortion is a Booming Offshoot of
Drug War," Los Angeles Times, March 18, 2012.

[19] Ibid.

[20] Daniel Hernandez, "Who is Responsible for the Casino Tragedy in
Mexico?" Los Angeles Times, August 29, 2011.

[21] Edward V. Byrne, "300 Businesses Close in Cancún, Riviera Maya
Due to 2011 Narco Extortion, Threats," Mexico and Gulf Region
Reporter, December 24, 2011.

[22] "El crimen organizado expande su radio de acción," Por Esto,
October 24, 2011.

[23] Ibid.

[24] "Sabritas Target of a String of Attacks in Mexico," CNN, June 2,

[25] "Arson Attacks Against U.S. Multinational Subsidiary," U.S.
Overseas Security Advisory Council, 2012.

[26] The criminal organization claiming responsibility for the arson
attack was the Knights Templar, a relatively small splinter criminal
group of the La Familia cartel that routinely relies on extortion
revenues, unlike the larger cartels that primarily rely on drug
trafficking revenues.

[27] Edward Fox, "Mexico Mining Ops Pay Hefty Extortion Fees to
Cartels," Insight Crime, May 8, 2012.

[28] Charles Regini, "Kroll Critical Incident Case Studies and
Statistics," Kroll Associates, 2012.

[29] Ibid.

[30] "49 Kidnappings Per Day Occurred in Mexico in 2011," Borderland
Beat, January 2, 2012.

[31] Elyssa Pachico, "Study: 2010 Record Year for Kidnappings in
Mexico," InSight Crime, February 7, 2011.

[32] Ioan Grillo, "No Reduction in Mexico Kidnappings," Global Post,
November 20, 2011.

[33] Damien Cave, "In Mexico, a Kidnapping Ignored as Crime Worsens,"
New York Times, March 17, 2012.

[34] There is not one definitive reason why the Yucatan Peninsula is
less prone to kidnap incidents.

[35] Regini.

[36] "The Impact of Security in Mexico on the Private Sector (Fourth
Edition)," American Chamber of Commerce of Mexico, 2011.

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