Monday, October 7, 2013

Extortionists Prey on Both Big and Small Businesses in Mexico

By Patrick Corcoran, InSight Crime

Some of Mexico's largest corporations have issued complaints to the president about the constant threat of extortion of public infrastructure projects, illustrating how this profitable illicit activity now permeates the Mexican economy at almost every level.

As reported by Reforma and other media outlets, the firms ICA, Carso, and Cemex have penned a letter to President Enrique Peña Nieto complaining of rampant extortion in Mexico City, Guadalajara, Oaxaca and Acapulco. The letter complains that organized crime groups essentially take control of elaborate public works projects, demanding monthly payments from the subcontracting firms, including major corporations.

This letter illustrates a growing pattern of criminal groups targeting big businesses for extortion demands. (Carso is owned by Carlos Slim, while Cemex, one of the world’s largest cement firms, is owned by billionaire Lorenzo Zambrano.) Earlier this year, the American Chamber of Commerce reported that the proportion of directors of US firms operating in Mexico who admitted to having suffered an extortion attempt doubled in 2012, increasing from 18 percent to 36 percent.

Perhaps the most notorious such case came in May 2012, when multiple installations belonging to the snack manufacturer Sabritas, a subsidiary of Pepsico, were attacked in Michoacan and Guanajuato by members of the Knights Templar. Authorities anonymously disclosed that the attacks were in response to failure to pay extortion fees of about $3,900 per month, though company officials later denied this.

InSight Crime Analysis

Extortion has grown far more common in Mexico over the past decade, especially since the start of the Calderon administration. In 2002, the government registered just 53 complaints of extortion, but by 2008 this figure had grown to more than 50,000, according to national police figures reported by El Universal. While extortion is a notoriously difficult crime to track because victims have an interest in denying its existence, virtually all counts demonstrate that it has continued to rise since then.

The extortion rackets take many different forms. The traditional practice is one in which gangs go after small local businesses, many of whom do not have the resources to defend themselves from even minor threats and who do not trust the police. The attacks against larger corporations, and particularly multinationals, represent a new approach to the age-old practice. Another alternative to the more traditional extortion schemes comes in the form of virtual extortion, in which groups armed merely with a cell phone make hundreds of phone calls in an attempt to convince one gullible victim that they are under threat, and that only by making a payment can they save themselves or their loved one.

The extortion gangs' modus operandi differ significantly from one region to the next. As the above stories indicate, the large firms that issued the complaint have been targeted primarily in central and southern areas of Mexico. In contrast, in the north of the country, where big multinational firms have a major presence, such reports have not filtered out.

See also: Mexico News and Profiles

However, northern cities have also suffered greatly from the growth in extortion. During the violence that raged in Ciudad Juarez from 2008 through 2011, up to 90 percent of businesses in the city's most troubled areas reported making extortion payments. Small businesses in Monterrey have also been subjected to similar demands, though the most notorious example of the crime’s consequences dealt with a more substantial enterprise: after the Casino Royale refused to make an extortion payment in August 2011, members of the Zetas set fire to the gambling house, killing 52 civilians.

Nationwide, the most recent victimization survey from Mexican statistics agency INEGI found that 7.6 percent of businesses reported suffering extortion demands in the past year, though the relatively low number likely reflects a reluctance to report.

The growth of extortion comes amid a broader diversification of activity by Mexico's criminal groups, which has seen them expand into human trafficking, bank robbery, kidnapping, and other criminal realms unrelated to the drug trade, their traditional cash cow. This diversification stems both from the crackdown against drug trafficking initiated under President Felipe Calderon and the fragmentation of Mexico's drug trade. As a consequence, many criminal actors no longer have direct ties to drug producers in Mexico's Golden Triangle or in South America, which has forced them to search for alternative sources of revenue.

This diversification has made Mexico's legitimate economy more of a target for criminal groups than in years past, with obvious negative effects on the economy. Kidnapping and extortion attack prosperous and productive sectors of Mexican society, while bank robbery attacks a vital element of the economic system. This serves to disincentivize investment and is a drag on growth.

These new activities profiting from the legitimate segments of Mexico's economy and society have also turned Mexico's civilian population into a contested element for criminal organizations, much the same way trafficking routes provoke conflicts. As a consequence, criminal organizations upload videos to the internet or hang narcomantas around a given city in which they accuse their rivals of kidnapping, extorting, and killing innocents, while painting themselves as the more honorable group in an attempt to secure the support or acquiescence of the local population. However, as the growing use of extortion wherever these groups are to be found shows, in practice there is often little in each organization's moral makeup or value system to distinguish it from its competitors.

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This commentary, "Mexico Corporations Complain to President of Extortion Threat," was first published in InSight Crime, on Sep, 24, 2013 and reposted per a Creative Commons authorization.  InSight Crime's objective is to increase the level of research, analysis and investigation on organized crime in Latin America and the Caribbean.  Patrick Corcoran is a graduate of the University of Tennessee, and an MA candidate at the Johns Hopkins School of Advanced International Studies.