Formulating effective strategies to combat Mexico-based crime organizations requires a nuanced understanding of their economic structures, says award-winning Mexican journalist Carlos Loret de Mola.

At a November 23 event hosted by the Americas Society/Council of the Americas (AS/COA), Loret gave a presentation entitled “The Evolving Economics of Mexico’s Drug Cartels,” in which he argued for an economic approach to tackling organized crime.

“I am totally convinced that there [can be] no war against drugs, there [can be] no law enforcement in terms of cartels, if you don’t first of all understand…the economy of the cartels,” he said.

Loret, a columnist for El Universal who also hosts a television show and a radio program, began studying Mexico’s drug trade as a university student in the late 1990s. Since then, he says, several factors have combined to create “a whole new world” for organized crime in Mexico.

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The defeat of the Institutional Revolutionary Party (PRI) in Mexico’s 2000 election cycle disrupted long-standing arrangements between cartels and corrupt politicians that had formed during the PRI’s 71 years in power. At the same time, some criminal groups that previously focused mainly on drug trafficking began branching out into more violent criminal activities, like kidnapping and extortion.

Additionally, Loret argues, due to increased US border security after the terrorist attacks of September 11, 2001, “a lot of drugs stayed in Mexico,” leading to the growth of domestic retail drug markets. Over the past two decades, Mexican crime groups also deepened their relationships with foreign suppliers of precursor chemicals used for drug production, which has helped them meet rising demand for heroin and methamphetamine on both sides of the border.

These shifting market dynamics, combined with the implementation of a “kingpin strategy” aimed at taking out top cartel leaders, contributed to the ongoing fragmentation of Mexico’s underworld, which, according to Loret, set the stage for the development of several distinct business models for Mexico-based crime organizations.

One is the model of “La Tuta,” the recently captured leader of the Knights Templar, who concentrated his organization’s efforts on using coercion to extract profits from individuals and industries in areas under the group’s control. 

The other model is that of “El Chapo,” the leader of the Sinaloa Cartel. “He avoids confrontation with the government” and focuses almost entirely on drug trafficking, Loret said. “He doesn’t go into kidnapping. He doesn’t go into extortion.”

“In between,” Loret added, “you can find something like Los Zetas” or the Gulf Cartel. “They do not work like El Chapo in terms of not messing around with anybody. They do not work like La Tuta, seizing almost every activity of the local economy. But they tax,” he says, charging “protection” fees to local businesses and other criminals seeking to operate in areas they control.

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For Loret, money laundering is “the key issue” when it comes to fighting the cartels. And he says policymakers have been slow to recognize this, continuing to rely instead on an outdated strategy of attempting to capture kingpins and deploying large numbers of security personnel to areas with high crime rates. Such policies often fail to have a long-term impact on crime and violence while contributing to the migration and decentralization of criminal networks, thereby making them harder to dismantle.

Although it may sound simple in theory, tackling the issue of illicit financial flows has proven difficult in practice. Criminal groups have adopted sophisticated methods of laundering their profits. Moreover, banks and other financial institutions have an incentive to resist enforcing or adopting strict anti-money laundering standards. 

“We can expect, except for a few cases of unprecedented honesty, for banks to cover up the origins of dirty money,” Loret told InSight Crime. “Raising penalties for banks who engage in these types of activities would work if the government is capable of detecting the illegal flows of cash and those institutions that allow them to come through, but this isn’t the case: governments fail to detect these, so who is left to sanction?” 

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In addition to improving the capacity of law enforcement to clamp down on illicit financial flows, Loret argues, governments should concentrate their efforts on investigating and understanding criminal economies. “For the poor farmers that work for the narco cartels, whenever they have a choice, it’s a surviving choice. It’s not an ambition thing,” he said. “It’s because of the state not being able to provide good jobs, good opportunities, and some sort of future for them that they become farmers for the local cartels.”

“When looking at the narcoeconomy, we can conclude that the government’s aim is not to completely eradicate drug cartels,” Loret said. “The sudden disappearance of drug cartels would trigger a brutal economic crisis that no government wants to have in their territory. I believe governments are actually trying to reduce the negative externalities of the illicit activities: less violence (executions, extortions, kidnappings, etc.) and less hard drugs available in the internal market.”

In his presentation, Loret also stated that he supports drug legalization. He pointed out that drug prohibition amplifies the profitability of substances like marijuana and heroin, which are cheap and easy to produce but can be sold at high markups once they are trafficked to foreign markets. “I think the strategies that have been implemented so far have failed. So why not try something different?” he said.

Loret also highlighted the necessity for international cooperation in combating organized crime, specifically citing the United States as the country best positioned to provide financial and technical assistance. “These are international organizations who can have people across not only the continent but in Asia and Europe…These are multinationals, and they work as multinationals,” he said. “No country can fight this by themselves.”