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How a Mexican Drug Cartel Makes Its Billions

452 points| jlees | 13 years ago |nytimes.com | reply

232 comments

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[+] guelo|13 years ago|reply
The only way to stop these large criminal enterprises is to legalize the stuff. Just like alcohol prohibition created some of the most notorious American criminals, South American drug prohibitions produce powerful criminals down there. There isn't any large crime related to South American cocoa or coffee imports. Legalize it and then spend money and make laws regulating consumption, it would greatly reduce the misery in our corner of the world.
[+] rwmj|13 years ago|reply
I read this and wonder how bad it needs to get before politicians take legalisation seriously.

50,000 people dead? - check. Billions in profit? - check. Narco-states on the US border? - check. Criminals walk out of prison? - check. Gigantic crack & methaphetamine problem within the US? - check.

[+] JumpCrisscross|13 years ago|reply
The problem isn't gangs; it's gang violence. Making their crimes less stringently punished (reducing the paranoia within their ranks) as well as doing more to restrict the flow of arms from the United States (a better use of funds than incarcerating college potheads) seems a more sensible experiment to try before full legalisation.

Consider the negative externalities of cocaine use (much higher than marijuana's); the healthcare implications and effects on worker productivity are costs that would need to be covered by a heavy tax. That, in turn, would make smuggling profitable.

Legalising cocaine would cause its price to plummet. This would cut into cartels' profits but also spur demand. I'm not sure if I want to walk around the street with people high on bath salts and cocaine. Perhaps in a highly controlled environment? That still leaves a profitable opening for illegal distribution.

For Mexico it makes sense to decriminalise; the United States would bear the cost of use while it could potentially build a viable industry in cocaine processing. It makes similar sense for the US to pressure Mexico to do otherwise up to the expected public cost of higher cocaine use in America.

[+] dsrguru|13 years ago|reply
While that would reduce violent crime, it would also sanction people using recreational drugs besides alcohol, tobacco, and caffeine. Many voters and politicians find it against their religious or moral beliefs to allow other people to do recreational drugs besides the ones they themselves are doing.
[+] _juof|13 years ago|reply
I think we should do even more: develop new drugs(and processes) with less side effects. Drugs(and processes) that let you escape reality when you want, but still enable you to manage life reasonably well and be relatively healthy.

It's clear that the need or desire to escape reality won't change anytime soon. Instead of ignoring and fighting this reality, we should try to find constructive solutions.

[+] dhughes|13 years ago|reply
I know I'm unpopular for saying this but I doubt it would work and by that I mean people like Guzmán will always exist whether it's drugs, prostitution, stolen merchandise or whatever.

Even today tobacco, mostly cigarettes, is smuggled and it is legal, people hate the high taxes implemented to help cover healthcare costs. The majority of legal drug (tobacco, alcohol) users it seems are low income so it would make sense taxes are a large part of the purchase price.

It's the same for alcohol easy to make and I think if I remember hearing it correctly from high school teacher that (here in Canada) the cost of alcohol is 99% tax.

Then people would say tobacco, alcohol, and probably drugs too if they are legalized should not be taxed so high, it's never ending.

If I said I didn't care if someone killed themselves using drugs that sounds callous but if I said I cared and thought people should not be able to use meth or crack then I'm told to mind my own business.

And people are living shorter lives due to morbid obesity because they can't manage to eat a healthy diet what would happen if drugs are legalized? People balk at taxing unhealthy food I can't imagine adding legal crack into that mess. People in the US and Canada can't seem to regulate their vices, I foresee massive numbers of deaths if drugs are legalized.

[+] vibrunazo|13 years ago|reply
They make most of their money from cocaine and methamphetamine (which can be legally acquired, but that didn't stop traffic). 90% of all cocaine in the US come from mexico. [1] Do you mean cocaine should be legalized? Alcohol is a bad analogy to legalizing cocaine, you should probably be comparing to the Opium Wars instead, which didn't really end well. [2]

[1] http://www.fas.org/sgp/crs/row/RL34215.pdf

[2] http://en.wikipedia.org/wiki/Opium_Wars

[+] jlarocco|13 years ago|reply
I'm in favor of drug legalization, but it's not going to happen any time soon, and I don't think it would reduce crime even if it did

It's hard enough to get pot legalized in most states - the "harder" drugs don't stand a chance.

And even if they were legalized, it's not even possible for a big illegal drug operation to "go legit". All of the drug cartels will still have long histories of violence, piles of cash, boatloads of weapons, and a ton of smuggling expertise. They'll probably just "pivot" to smuggling the next most profitable thing. Or smuggle untaxed and unregulated drugs.

[+] joejohnson|13 years ago|reply
Sadly, I think if the US were to decriminalize all drugs, the most drastic changes would be seen in Mexico and central american countries. So, what incentive does the US have to help out poorer nations which supply us with drugs? These countries suffer the majority of the negative externalities associated with the drug trade, and supply for drugs thoroughly meets demand in the US, with minor unpleasantness north of the border.
[+] antihero|13 years ago|reply
Do you really think these people are just going to go away?

Ironically, I'd imagine the cartels would be for keeping it illegal - it's their market!

[+] xelipe|13 years ago|reply
Legalizing drugs by itself does not imply that the price of drugs will fall and that the violence will end. Lest not forget that, in Latin American, revolutions have been fought because of the impact of the exploitation of the people and land for the cultivation of commodity products such as bananas (see Banana Wars in Wikipedia) and for which gangs like La Mara are a consequence. Drugs for personal use are legal in Mexico, so the violence itself is not related to the criminalization of drugs, it's related to the profit of drugs. And legalizing drugs only strengthens the cartels grip on that profit (see OPEC).

The one key aspect that I often find that is missing from the intellectual reasoning of the drug cartel violence in Mexico is that most Americans don't understand that narco culture that exists in Northern Mexico. For over 30 or 40 years, there has developed a narco culture in Mexico where songs and movies have been influenced by the trade (see Chalino_Sánchez). Basically, Chalino_Sánchez was like the Mexican Jay-Z except he didn't sell out and was gunned down by an unknown assailant.

[+] jimmar|13 years ago|reply
I don't think drug legalization is the final answer the problem of cartels. Like the article says, '“The goal of these folks is not to sell drugs,” Tony Placido, who was the top intelligence official at the D.E.A. until he retired last year, told me. “It’s to earn a spendable profit and live to enjoy it.”'

If you shut down their income from drugs, they will find another way to make money. I had the opportunity to talk to a former U.S. Border Patrol sector chief in San Diego about the cartels. He said that in San Diego, they achieved some level of success in constraining the drug trade. The cartel response? Kidnap people and hold them for ransom. Like any business, they will find another way to make money when the market changes. As their innovations in finding new ways to bring drugs into the country shows, they can be creative when faced with a business problem.

[+] res0nat0r|13 years ago|reply
I always see this argument when it comes to drug violence in Mexico but I don't think it is that simple.

If the goventment gets involved I'm sure it will want a highly regulated system, just like it does with all of the alcohol regulations on the books now. If the government says that only X supplers or growers are allowed to legally sell drugs then I can't see how this is going to be cheaper than stuff that is out on the street. If the government wants to make drugs on par with high end drug cartels that customers like I see it being overrun in bureaucracy and will cost the buyer much more than if they hit up their local dealer for better product at a cheaper price.

If the government can't beat the price + quality then people are going to continue to buy from suppliers in Mexico, which will keep fighting it out for this market.

[+] marknutter|13 years ago|reply
Won't they just shift to the next most profitable illegal good or service?
[+] TheGateKeeper|13 years ago|reply
Or the less popular option is to forcibly remove them from the planet.
[+] paulhauggis|13 years ago|reply
At this point, I doubt it will help. Why? The cartels thrive in countries where you can essentially buy off any official.

When you legalize drugs, they aren't going to suddenly stop selling it. They will now have a legal business which will continue to fund their criminal empires. We most likely will see an increase in other crimes, like extortion and kidnapping.

Drugs are still illegal in the US and we don't really see the same kind of crime in our country because the police actually (for the most part) do their job.

If you really want to stop the violence, stop the corruption. I know the recreational drug users of HN don't really want to hear this..

[+] kia|13 years ago|reply
The big difference of drugs from alcohol and tobacco is their addictiveness. While you can't get addicted to alcohol or tobacco after one use, certain drugs cause severe addiction after first dose. Of course you can legalize only mild drugs. But it won't solve the problem because as we see this business is mostly about very addictive ones.

EDIT: typo

[+] danso|13 years ago|reply
> Michael Braun, the former chief of operations for the D.E.A., told me a story about the construction of a high-tech fence along a stretch of border in Arizona.

>“They erect this fence,” he said, “only to go out there a few days later and discover that these guys have a catapult, and they’re flinging hundred-pound bales of marijuana over to the other side.” He paused and looked at me for a second. “A catapult,” he repeated. “We’ve got the best fence money can buy, and they counter us with a 2,500-year-old technology.”

[+] tgrass|13 years ago|reply
This is the border in Arizona, south of Sierra Vista. I often drive the international road and rarely see anyone else...not even border patrol. One does not need a catapult.

http://postimage.org/image/wtie29yrb/

[+] vacri|13 years ago|reply
To be fair, fences are an even older technology.
[+] startupfounder|13 years ago|reply
Joaquín Archivaldo Guzmán Loera is a true hacker, he continually breaks into the most secure country in the world by exploiting it's weaknesses.

"The cartel makes sandbag bridges to ford the Colorado River and sends buggies loaded with weed bouncing over the Imperial Sand Dunes into California."

Because of this, even when he is caught and send to a maximum security prison he is able to organize an escape by hacking the prison system.

"...[Joaquín Archivaldo Guzmán Loera] was transferred to the Puente Grande maximum security prison in Jalisco...Guzmán carefully masterminded his escape plan, wielding influence over almost everyone in the prison... The escape allegedly cost Joaquín $2.5 million... According to officials, 78 people have been implicated in his escape plan." - Wikipedia (http://en.wikipedia.org/wiki/Joaqu%C3%ADn_Guzm%C3%A1n_Loera)

[+] eieio|13 years ago|reply
Also notable are the stories of what he has done since his escape:

"In 2005 on a Saturday evening, Guzmán reportedly strolled into a restaurant in Nuevo Laredo, Tamaulipas, with several of his bodyguards. After he took his seat, his henchmen locked the doors of the restaurant, collected the cell phones of approximately 30 diners and instructed them to not be alarmed.[26] The gangsters then ate their meal and left – paying for everyone else in the restaurant.[27]"

(from the same wikipedia article, of course)

[+] vecinu|13 years ago|reply
It sometimes blows my mind how much power money can buy. This gentleman seems to also have a powerful charm.
[+] hef19898|13 years ago|reply
He also seems to have very ... sophisticated understanding of markets, supply chain maagement and logistics. that and a very healthy sense for risk management. One only has to tip his hat in the light of these operations. Which dosn't mean they don#t have to be stopped.

Maybe legalizing would help, but I'm not sure if legalizing heroine would actually do something good. what you have to do is to wreck havoc with their supply chain. But in order to do that you have to discard philosophie and biases first. Something I don't seen coming any time soon as long as politians all over the place only think in names in fugure hats.

As the article mentioned, removing Chapo won't do any good, the worst case ould be the zetas taking over his supply network and logistics, something that doesn#t thrill me a lot.

How you actually disruopt his operations, hard guess. At the minimum it would involve some serious leg work and analyzing. Continous analyzing and leg work. Again somethiing I don't see western law enforcement fit to do right now. and as long as intelligence is running their asses of in pursuite of some afghan hill billis that won't change anytime soon.

My 2 cents.

[+] revelation|13 years ago|reply
This is a 101 on capitalism. Raw capitalism, where killing someone is cheaper than settling on a solution that works for everyone. One where power amasses. But most importantly: where all actors are innovating. You can be amazed at crudely built submarines and private cell relay stations but really its just market pressure at work.

Which brings us back to the obvious conclusion: prohibition doesn't work; the market will find its way. It doesn't need intricate portraits like this one to make that clear.

[+] abruzzi|13 years ago|reply
Also impressed that the cartel smuggles cocaine on 747s that they own. That's a large operation.
[+] Eliezer|13 years ago|reply
I'm a bit surprised by this; I'd expect spy satellites to be able to spot a rogue 747.
[+] jonknee|13 years ago|reply
With their cash flow they could own a company like DHL outright. A 747 is small potatoes.
[+] DasIch|13 years ago|reply
Indeed. Where do they take off and land those planes? I don't think a flat stretch of grass will do.
[+] jboggan|13 years ago|reply
I'd be really curious to know what their IT department looks like.
[+] superuser2|13 years ago|reply
I'm going to guess low-tech. If I were running a dangerous, cutthroat business, I certainly wouldn't trust my profits, life, or freedom to anything I didn't understand completely. Having an IT department puts Chapo's sysadmin(s) in a position to stage a coup that he can't detect or address until it's too late.
[+] fkn|13 years ago|reply
I'd be interested in knowing how they were able to buy Boeing 747s. Those are huge transactions, you can't simply buy planes with cash.

I would assume that it would be through shell companies, but wouldn't (or shouldn't) Boeing be careful about who their customers are?

[+] larrys|13 years ago|reply
"but wouldn't (or shouldn't) Boeing be careful about who their customers are?"

Forgetting for a second whether we are talking about Boeing or the used market that is what money laundering is all about. Taking ill gotten gains and putting into a legitimate business. It wouldn't be a stretch to form a legitimate air charter company and even get customers as a cover for buying an airplane. If you've got the level of money they have there are many things you can do. Obviously you are hiding the transactions even if some of the parties might know there is something wrong going on.

[+] gwern|13 years ago|reply
'Money doesn't stink', as the Roman Emperor said. Who's to say they aren't selling?

But in any case, money and planes are pretty fungible. Perhaps they use straw buyers, or perhaps they simply buy used. Plenty of 747s out there now.

[+] alexqgb|13 years ago|reply
There's a direct correlation between misery and drug use, as well as a direct correlation between misery and high levels of social inequality.

People who agonize between the dangers of prohibition vs. the dangers of legalization (or even decriminalization) are doing so in the context of a highly unjust society that offers virtually no social mobility, no access to the courts for anyone who isn't fantastically rich, no prospect for wage growth for anyone who isn't already in the top 10%, no job security for anyone not worth putting under contract (i.e. nearly everyone), and the terrifying prospect of loosing access to the health care system in the event of a job loss - all of which imposes tremendous levels of anxiety and insecurity for the vast majority of its members.

In spite of all this, we're still rich enough for most people to have some disposable income. Add that to the conditions under which most people live, and it's no wonder that the US is, per capita, a tremendously big consumer of drugs.

Given this environment, either option will have predictably bad results. But a society that was far less friendly to the winner-take-all ethos, and more concerned with basic health and economic security for a large middle-class population would find that drug coming down to much more manageable levels, making the decriminalization route a much more attractive option.

[+] Osiris|13 years ago|reply
Laws could punish behavior that affects other people rather than behavior that does not.

With alcohol, it is legal but certain actions that involve alcohol are not, like driving. So, driving while high would be illegal and there would still penalities for committing other crimes while using drugs, but casual use that affects only oneself would not be illegal.

However, there may be other consequences to actions like higher medical premiums or getting fired from a job for misuse, etc.

To me, laws should be designed to protect people from other members of society, not to protect people from themselves. Breaking someone else's things is illegal, but breaking your things is not.

[+] joejohnson|13 years ago|reply
I wonder is Ignacio "Nacho" Coronel is the basis for Gustavo on Breaking Bad.
[+] nfriedly|13 years ago|reply
I wonder if we could find a way of making these drugs less "popular", similar to how we've done with smoking. That might require legalizing them, so I'm not sure it would actually reduce consumption. But it would hurt the cartels either way.
[+] praptak|13 years ago|reply
I admit that I (in a way) root for those guys. If they can move around such quantities of physical illegal stuff then we can be sure we can move around any strings of bits we choose to.
[+] mcantelon|13 years ago|reply
"The Sinaloa is occasionally called the Federation because senior figures and their subsidiaries operate semiautonomously while still employing a common smuggling apparatus. ... To reduce the likelihood of clashes [between competing interests], the cartel has revived an unlikely custom: the ancient art of dynastic marriage. ... An associate may be less likely to cheat you, or to murder you, if there’ll be hell to pay with his wife."
[+] antimora|13 years ago|reply
“A catapult,” he repeated. “We’ve got the best fence money can buy, and they counter us with a 2,500-year-old technology.”
[+] dreamdu5t|13 years ago|reply
Preaching to the converted.

What's the point of these articles if they have no impact on legislation or the national conversation?

[+] patrickgzill|13 years ago|reply
Opium Wars - there is at least 1 President who had connections in some way or another to this earlier form of the drug trade.

FDR (via his maternal grandfather Warren Delano).

There are others who also became President, (starts with a B) who are alleged to have been heavily involved while in a secretive government position.

[+] AlexDanger|13 years ago|reply
Can anyone recommend a good book/author detailing the history of these cartels?