Cartel Inc: In the company of Narcos

RIO BRAVO, Mexico (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.

A soldier pastes a note in a closed down currency exchange business in the northwestern city of Culiacan in the Mexican state of Sinaloa, May 14, 2008. 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. REUTERS/Stringer

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.

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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.


Top jobs in Mexican cartels -- such as money laundering and setting up smuggling routes -- are mostly reserved for relatives or close friends of bosses, but the gangs are often in the market for professional killers.

In one audacious move, the Gulf cartel openly advertised for army troops to desert and join it in April 2008, stringing banners from bridges over main roads in two towns near the U.S. border offering jobs. “The Zetas want you, soldier or former soldier. We offer a good salary, food and family care,” the ads read.

The Zetas group itself began as an army special forces team that deserted to the Gulf gang in the mid-1990s for more pay.

Further down the chain of command, men at street corners with walkie-talkies in Rio Bravo receive about $400 a month as “spotters” to alert the cartel to military convoys in the area.

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“What you see in Rio Bravo, you see all along the border. Cartel members are untouchable in the town. They can run operations and travel out to see their units,” the source close to the Gulf cartel said.

The dirty work is often sub-contracted to third parties such as corrupt police officers.

Just before Christmas, soldiers found a list of dozens of police in Monterrey who received up to $1,500 a month to work as Zetas’ backups and hitmen and to tip off the gang about any state security operations.

Drug gang wages are attractive to poorly paid police or Mexico’s many unemployed, but one slip on the job can mean a gruesome death. Traffickers almost daily kill members who lose drugs or money, leak intelligence to authorities, switch to other gangs or try to wrestle away their turf.

In October, suspected hitmen from the Arellano Felix cartel in Tijuana hung the naked body of a local government official from a bridge, having first cut off his penis and tongue. Police say the official was likely working for the Arellano Felix clan and probably leaked information to the Sinaloa cartel, a rival for access to the Californian drug market.

Cartels force policemen, government officials and even doctors to work for them as a nationwide fight for control of smuggling routes tears at the fabric of Mexican society.

“You can’t say no to these people. You take what they are offering or they kill you,” said a doctor working for the Arellano Felix cartel in Tijuana who treats senior hitmen wounded in gunfights.


In this world, boardroom battles are dangerous. Cartels retaliate violently to any challenges to their leadership, the army says.

In 2007, five brothers known as the Beltran Leyva family spun off from the Sinaloa cartel. In the ensuing power struggle, Beltran Leyva gunmen killed the son of Mexico’s most-wanted drug lord, Sinaloa leader Joaquin “Shorty” Guzman, in 2008. Some 40 men fired more than 500 rounds at Edgar Guzman as he parked outside a shopping center in the city of Culiacan.

More so than its main rival the Gulf cartel, the Sinaloa gang in northwestern Mexico is a loosely run federation of allies who often act independently of each other. The alliance is probably the most successful cartel in the country. With a personal fortune estimated to be at least $1 billion, Guzman made Forbes Magazine’s list of the world’s richest people last year.

He is believed to live in the “Golden Triangle” of remote mountains in Sinaloa, Durango and Chihuahua state. A Mexican former attorney general described him to Reuters as being akin to a “chairman of the board.” He leaves day to day business matters to the likes of operations chiefs such as smuggler Ismael Zambada.

In the United States, high-level Sinaloa distributors and dealers are required to live modest lives with false documents to avoid being traced back to cartel leaders, U.S. anti-drug officials say. They rarely have contact beyond their immediate superiors in the organization.

“The people moving the drugs don’t know Guzman, they don’t know Zambada, the cells are isolated,” said Doug Coleman, the assistant special agent in charge of the Drug Enforcement Administration’s Phoenix, Arizona division.

Mexican cartel franchises and distribution networks in the United States are outsourced, often to U.S. gangs in major cities such as Atlanta and Chicago, or to Mexican illegal immigrants in rural areas who are seeking to boost income.

When it comes to collecting the profits and getting them back to Mexico in large wads of cash, however, cartel relatives and direct employees are on hand.

Gangs and distributors take the proceeds from drug sales to networks of cartel cash collectors in U.S. cities who in turn use corrupt currency exchange businesses to swap small bank notes into $100 bills.

Trusted with up to $20 million hidden in a single vehicle, traffickers use spotters at the border crossings into Mexico to alert them by text messages when they think it is safe to get through. U.S. customs only sporadically check vehicles heading south due to a lack of manpower, although the U.S. government has pledged to step up its south-bound inspections.

Once in Mexico, the smugglers head to safe houses where, watched over at gunpoint, groups of mostly women and girls count the money by hand. The cartels wash their dirty money through businesses that can produce bogus receipts such as hotels and apartment buildings. The profits are kept in bank accounts in Mexico and abroad in places such as Panama, drug trade analysts say.

Despite the global economic slowdown, business is booming.

“Sometimes the cash is coming in so fast we can hardly deal with it,” said a trafficker handling drug profits in a car junk yard in Tijuana. “We have hours and hours and sometimes days and days just counting money,” he added.

Additional reporting by Jason Lange in Mexico City, Lizbeth Diaz in Tijuana and Tim Gaynor in Phoenix, Editing by Alistair Bell, Jim Impoco and Claudia Parsons