Mexico: A Security and Business-risk Assessment Nov. 18, 201 1 1 STRATFOR 700 Lavaca Street, Suite 900 Austin, TX 78701 Tel: 1-512-744-4300 www.stratfor.com Executive Summary Johnson Controls, Inc. asked STRATFOR to provide a security and business-risk assessment focusing on threats that may impact the company’s operations, facilities and personnel throughout Mexico, specifically highlighting the cities of Ciudad Juarez, Reynosa, Matamoros, Nuevo Laredo, Tampico, Saltillo, Ramos Arizpe, Torreon, Santiago de la Monclova, Durango and the Monterrey metropolitan area. Areas of interest identified by Johnson Controls within the Monterrey metropolitan area include Apodaca, Cienega de Flores, San Pedro Garza Garcia, General Escobedo and Garcia, which STRATFOR also discusses within this report. Fractures within Mexico’s transnational criminal organizations, commonly referred to as cartels, have contributed to an ongoing volatile security environment in the country. The Mexican military has engaged in an offensive against the country’s numerous cartels in certain areas, but despite its successful arrests or killings of high-value leaders, violence continues to increase in these areas. The Mexican government has increased the tempo of its military operations against cartels in 2011 despite the rising death toll, likely because of national elections in 2012 (Mexican President Felipe Calderon appears determined to continue his offensive against the cartels until the end of his term). Military operations are continuing in Tamaulipas and Michoacan states, and new offensives have been launched this year in Veracruz, Durango, Coahuila and Nuevo Leon states. With the federal government’s main focus still squarely on combating the cartels, general crime remains a concern for multinational corporations’ (MNCs’) operations and personnel. In many cases, this crime wave can be directly linked to the drug trade. However, as Mexican security forces continue to put pressure on the cartels’ drug transportation networks and revenues, the cartels have expanded their revenue-making criminal portfolio to include kidnapping and extortion of individuals not associated with the drug trade, such as foreign businesspeople. Furthermore, between the expansion of operations by Mexican security forces against the cartels and the cartels’ corruption of municipal and regional law enforcement, smaller criminal groups have been able to flourish in Mexico’s unstable security environment. As a result, general crime such as carjacking, mugging, robbery and assault is an increasing threat to business’ operations and employees in Mexico. Overall violence has increased in recent years; 2010 was the deadliest year of Calderon’s term in office so far, with the Mexican government estimating more than 15,000 deaths associated with organized crime. Recorded cartel-related deaths in Ciudad Juarez and Tijuana metropolitan areas dropped appreciably in 2011, resulting in an overall statistical drop of countrywide cartel-related deaths. However, violence has increased severely in the Monterrey, Matamoros, Veracruz and Durango metropolitan regions. In the next three years, one or two of these cartels, most likely the Sinaloa Federation and Los Zetas, may eventually become dominant (we will discuss this scenario further in the Cartel Forecast section of this report). If this happens, one result likely will be a more predictable operating environment for MNCs in Mexico; the need for the cartels to engage in criminal activity for additional sources of revenue lessens or disappears as drug revenue becomes more dependable. However, in the meantime, as the Mexican government and the drug cartels battle for supremacy, the drug trafficking business in Mexico — and thus the security environment — will remain extremely volatile. MNCs must thus plan their operations accordingly and maintain a robust security apparatus in the country to ensure the productivity and safety of their assets until the violence subsides. Mexico-wide Cartel War Overview The continuing cartel war in Mexico, which has created the most severe security crisis that the country has seen in nearly a century, consists of three fronts: the battles among the various drug cartels, the government’s battle against the drug cartels and the violence inflicted by the cartels and other criminal groups against the civilian population. The campaign Calderon launched against the cartels in December 2006 has steadily escalated over the last five years, and while the government is making progress in fracturing the largest and most powerful cartels, one result has been a steadily deteriorating security situation nationwide. 2 © 2011 STRATFOR Austin, TX 78701 Tel: 1-512-744-4300 www.stratfor.com One measure of the insecurity is Mexico’s homicide statistics related to organized crime. The Mexican Public Security Secretariat recorded approximately 8,200 organized crime-related homicides in 2009, 15,273 in 2010 and 10,933 in 2011 as of Nov. 4. The statistical drop from 2010 to 2011 does not appear to be indicative of a widespread improvement in conditions across the country but rather a result of improved security conditions specifically in Ciudad Juarez and Tijuana. As cartel dynamics continue to evolve, cartel-related violence has shifted geographically. Territorial disputes among drug cartels have long been the norm in Mexico, but Calderon’s offensive against the country’s most powerful cartels has severely disrupted the criminal balance of power, leaving vacuums that other criminal groups have sought to fill. Throughout 2011 thus far, this conflict has been especially visible in border cities such as Ciudad Juarez, Nuevo Laredo, Reynosa and Matamoros, which the cartels use as drug-smuggling corridors into the United States. In addition, we have seen an escalation in cartel-related conflicts this year in Monterrey, Durango, Veracruz, Acapulco and other parts of Mexico that fall along the drug supply chain. At this point, there are very few states in Mexico that have not been affected by the cartel war. Related to the cartels that operate in areas of interest of Johnson Controls, the Sinaloa Federation, under the leadership of Joaquin “El Chapo” Guzman Loera, has continued to control the bulk of its home state of Sinaloa, most of the border region in Sonora and Baja California states, and the majority of Chihuahua and Durango states. The cartel continues to pursue its strategic goals of expansion into, or absorption of, neighboring cartel territories and to maintain its methamphetamine and heroin 3 © 2011 STRATFOR Austin, TX 78701 Tel: 1-512-744-4300 www.stratfor.com production in Sinaloa, Durango, Nayarit, Guanajuato, Aguascalientes and Jalisco states. The Sinaloa Federation is known to be smuggling high-value/low-volume commodities (methamphetamine, domestically produced heroin and Colombian cocaine) into the United States via the plazas it directly controls at Tijuana, Mexicali, Nogales and Agua Prieta, Rio Bravo, El Porvenir, Manuel Ojinaga and the New Mexico cities of Columbus and Santa Teresa, as well as the Gulf cartel-controlled plazas at Ciudad Mier, Miguel Aleman, Diaz Ordaz, Reynosa and Matamoros. Sinaloa has been engaged in running battles to subdue the Vicente Carrillo Fuentes organization (VCF) and take control of the Juarez plaza. The slow, long-term strangulation of the VCF remains in progress (discussed in more detail under the Ciudad Juarez section). According to STRATFOR sources, Sinaloa forces and allied gangs occupy most of the Valley of Juarez, encircling the city from the New Mexico border on the west to the Texas border southeast of El Paso/Juarez. Los Zetas continue to fight a large, multi-front war across Mexico. They are combating the Gulf cartel, Sinaloa and Mexican government forces in the northeast and assisting the VCF in holding Sinaloa forces back in Chihuahua state. Los Zetas are also taking control of additional territory in Zacatecas, pushing into Jalisco, Nayarit, Guerrero and Mexico states and battling Sinaloa in the southern states of Oaxaca and Chiapas. The organization is being hit hard by the Mexican military in its home territories in Nuevo Leon, Tamaulipas, Coahuila and Veracruz states and is fighting to hold the crucial plazas at Monterrey and the port of Veracruz against incursions by Sinaloa, the Gulf cartel and the Cartel de Jalisco Nueva Generacion. Despite significant challenges to their ownership of Monterrey and Veracruz, Los Zetas do not appear to have been displaced, though violence likely will increase significantly in the near term as rival groups openly push into both cities. Meanwhile, Los Zetas have also been allied with Cartel Pacifico Sur (CPS) for about the past year. With assistance from its Zeta allies, CPS continues to fight for supremacy in the central and western coastal regions of Mexico, including northward into Sonora and Baja California states. The CPS also has interests in Durango, Sinaloa, Jalisco and Guerrero states, predominantly along the Pacific coastal regions, and is known to be involved in the war for control of Acapulco. Another dynamic that will directly impact the security environment in greater northeastern Mexico is an internal dispute in the Gulf cartel that has evolved over the past four months into a violent split. During 2009-2010, the organization was co-led by Antonio Ezequiel “Tony Tormenta” Cardenas Guillen and Jorge Eduardo “El Coss” Costilla Sanchez. This arrangement shifted when Cardenas Guillen was killed in November 2010. At the time, Cardenas Guillen’s nephew, Rafael “El Junior” Cardenas Vela, reportedly had expected to replace his uncle as co-leader. Instead, Costilla assumed full control of the organization. The schism became wider as two factions formed: the Metros, who were loyal to Costilla, and the Rojos, who were loyal to the Cardenas family. In the past several months, both factions have lost high-value leaders in the ongoing internal struggle. On Sept. 3, 2011, authorities in Reynosa found the body of Samuel “El Metro 3” Flores Borrego, Costilla’s second in command and the Reynosa plaza boss. Then on Sept. 27, in a hit on U.S. soil, gunmen in an SUV opened fire on another vehicle traveling along U.S.