SPECIAL REPORT-Cartel Inc: In the company of Narcos

(This story is the second in a series about the U.S. war on drugs. To see the first story, about rogue aviation networks with links to al Qaeda, click on: [ID:nN13145644] )

* Mexican cartels are sophisticated global businesses

* Cartels have corporate units, offer franchises

* Drug bosses use fear and money to maintain order

By Robin Emmott

RIO BRAVO, Mexico, Jan 14 (Reuters) - Late last year, Mexican soldiers raided a house in Rio Bravo, a dilapidated town just across the border from Texas. What they found was a kind of "back office" that belonged to the Gulf cartel, the country's most violent drug gang.

Inside the gray, one-storey house, clerical workers helped run cocaine shipments hidden in U.S.-bound avocado trucks from southern Mexico, said soldiers on patrol in the town. The office tracked the drug movements in trucks equipped with GPS and progress was logged into spreadsheets on laptops.

The Gulf cartel as well as its hitmen often refer to themselves as "The Company" -- and not without reason.

Often overlooked amid all the violence and chaos they engender is the fact that Mexico's drug cartels are capably run businesses that have turned into some of the most lucrative criminal enterprises ever.

The organizations have the equivalent of chief executives and accountants. They also use outsourcing and run offices to coordinate logistics, money laundering and murders, according to interviews with U.S and Mexican anti-drug officials.

As in legitimate commerce, the gangs employ business models and strategic planning to manage and expand their operations, make acquisitions and seek alliances, officials say.

"A drug baron's day is as hectic as it would be if you were working at any big corporation," said a senior U.S. law enforcement official in Mexico. "They have accountants looking at every dime," he added.

Made up of loosely knit confederations of clan-like families that snatched power from Colombian smugglers in the 1990s, Mexico's main drug gangs have developed franchises in major European and U.S. cities to reach consumers. They offer a range of products for different users, from cocaine to marijuana to crystal meth. Managers send back the profits to entities that play the role of holding companies in Mexico.

President Felipe Calderon has tried to crush the cartels with the army and more than 17,000 people have died in drug violence in Mexico since he took office in late 2006. But the crackdown appears to have done little to disrupt operations or curtail profits.

Conservative estimates put Mexico's total drug smuggling revenues at between $25 to $40 billion every year, more than the country's oil export earnings in 2009 and rivaling the annual revenues of U.S. companies like Nike


and Coca-Cola



It all starts with growers in the Andes, who sell coca paste to intermediaries such as Colombian guerrillas for between $500 and $800 a kilo, according to interviews with farmers and U.S. experts.

South American suppliers process the cocaine into a purer form and sell it on to Mexican cartels for up to $6,000 a kilo. Dealers working for the cartels in the United States and Europe break down their loads into individual grams sold between $80 to $100 each, generating between $80,000 and $100,000 a kilo, according to DEA data.

Some dealers water down the purity of each gram of cocaine and generate even greater profits, but they risk scaring away their customers over time, U.S. anti-drug officials say.

The costs for the cartels are not insignificant, starting with the need to pay a long chain of bribes. But the earnings are substantial.

"It is like a commodities business with huge margins," said Jose Maria Ramos at the Tijuana-based research institute Colegio de la Frontera Norte near San Diego.

Demand, too, remains robust. "No single cartel can supply the U.S. market on its own," Ramos said.


The ruthless Gulf cartel and its armed wing, known as the Zetas, together control drug trafficking across eastern Mexico and into Texas.

Mexican state security forces say the enterprise is as organized as it is well armed. It is split into three main divisions, one for international drug distribution and logistics, one for finance and money laundering and another, the Zetas, for security and enforcement.

Lines of command are often blurred and the Zetas, who also control Mexico's growing domestic drug market and bribes to police, politicians and judges, have become dominant in the organization in the last year, the army says.

Mexican anti-drug officials say they believe the cartel's administrative employees work out of various houses in Rio Bravo and the nearby cities of Reynosa, Nuevo Laredo and Monterrey, coordinating activities such as hit squad training, staff payments and communication networks.

"The Company's leaders are always on the move, but they have a base from which they go and talk to their managers, who in turn send the orders down the chain," said a source close to the Gulf gang who declined to be named.

Encouraged by the euro's strength against the dollar, the Gulf cartel has moved into Europe, where it has formed an alliance with Italy's 'Ndrangheta crime group, U.S. Drug Enforcement Administration officials say. A drug sweep in 2008 captured 500 Gulf cartel collaborators in Mexico, Italy and the United States, but it is unclear how much of a dent the raid put into the partnerships.

In Mexico, Calderon's military assault has disrupted some cartel operations by arresting a string of wanted traffickers, raiding safehouses and seizing weapons and cash.

But that progress is also double-edged, complicating government efforts to keep track of cartels as the gangs go to greater lengths to hide their operations.

"We used to know which businesses belonged to which capo, but now it is very difficult to say," said Lucinda Vargas, an economist and drug trade expert in Ciudad Juarez across from El Paso, Texas, where drug killings have made the city one of the world's most violent over the past two years.