Cartel Conglomerates and Cocaine Kingpins

It’s a rare business that can take a $2,000 product, transport it 3,000 miles, and sell it for over $100,000. Its net-worth is magnificent, its workforce legion, and its influence brutal. The Sinaloa drug cartel is one of the world’s most successful businesses, and a feature in the New York Times shows how they make their money. Joaquín Guzmán, known as El Chapo, is the effective CEO behind the Sinaloa Cartel. The infrastructure for his venture is absolutely massive, intricate, and protected. Patrick Radden Keefe writes:

From the remote mountain redoubt where he is believed to be hiding, surrounded at all times by a battery of gunmen, Chapo oversees a logistical network that is as sophisticated, in some ways, as that of Amazon or U.P.S. — doubly sophisticated, when you think about it, because traffickers must move both their product and their profits in secret, and constantly maneuver to avoid death or arrest. In its longevity, profitability and scope, it might be the most successful criminal enterprise in history.

Great things have small beginnings. Chapo worked his way up through the cartels and then redefined the industry. Chapo’s organization started with only a small smuggling route between Mexico and Arizona. To deepen his stake, Chapo employed unconventional means. The Sinaloa would move cocaine into Mexico with small private planes, then on commercial aircraft, then on private 747s capable of moving 13 tons at once. They would use container ships, speed boats, fishing vessels, and crude, self-destructing submersibles. While high in unit cost, the million dollar submarines are essentially disposable to the smugglers. If the Coast Guard intercepted the vessel, the smugglers could flood the interior leaving the evidence behind and the crew calmly floating in the water.

[Chapo] opened a cannery in Guadalajara and began producing thousands of cans stamped “Comadre Jalapeños,” stuffing them with cocaine, then vacuum-sealing them and shipping them to Mexican-owned grocery stores in California. He sent drugs in the refrigeration units of tractor-trailers, in custom-made cavities in the bodies of cars and in truckloads of fish (which inspectors at a sweltering checkpoint might not want to detain for long). He sent drugs across the border on freight trains, to cartel warehouses in Los Angeles and Chicago, where rail spurs let the cars roll directly inside to unload. He sent drugs via FedEx.

No matter what drug enforcement officials did to curb the wave of drugs, Chapo had an answer. After the erection of a high-tech fence on the border of Mexico and the United States, the cartel worked their way around the barrier by tossing hundred-pound bales of marijuana across the fence with a catapult. “We’ve got the best fence money can buy, and they counter us with a 2,500-year-old technology,” said Michael Braun, the former chief of operations at the D.E.A., to Keefe.

It isn’t a game though. The cartels don’t sell drugs for the sake of it. They do it to earn a profit and live to enjoy it. To manage the risk, they have to make a great deal of money.

There’s a reason coke and heroin cost so much more on the street than at the farm gate: you’re not paying for the drugs; you’re compensating everyone along the distribution chain for the risks they assumed in getting them to you. Smugglers often negotiate, in actuarial detail, about who will be held liable in the event of lost inventory. After a bust, arrested traffickers have been known to demand a receipt from authorities, so that they can prove the loss was not because of their own negligence. Some Colombian cartels have actually offered insurance policies on narcotics, as a safeguard against loss or seizure.”

The hierarchy of the Sinaloa Cartel allows for the smaller branches and subsidiaries to operate autonomously. The workforce is subcontracted over a range of people. Because of this, there is only inconclusive data on how many might actually work for the Sinaloa Cartel. The guesses range between 100,000 people, and a mere 150. It takes a huge labor force to create the stockpiles of contraband and distribute it, but much of that work can be done by independent contractors who work for the cartel, but are not a part of it.

There are also the “falcons,” an army of civilian lookouts who might receive $100 a month just to keep their eyes open and make a phone call if they notice an uptick in border inspections or a convoy of police. “There are cities in Mexico where virtually every cabdriver is on the payroll,” Michael Braun, formerly of the D.E.A., said. “They have eyes and ears everywhere.”

Beyond “falcons” and the already massive internal workforce, the cartel pays municipal governments more than their legitimate due in taxes. The police force and government receive economic kickbacks from the relative success of the cartel to sell drugs in the United States. With money in pocket, they often turn their sight from the brutal methods of the cartels. In a business conservatively estimated to be worth $18 billion annually ($38 billion by the less reserved) there has to be some method to enforce business ethics. Often this method is murder.

Daylight killings are sometimes carried out by men dressed in police uniforms, and it is not always clear, after the fact, whether the perpetrators were thugs masquerading as policemen or actual policemen providing paid assistance to the thugs. On those occasions when the government scores a big arrest, meanwhile, police and military officials pose for photos at the valedictory news conference brandishing assault weapons, their faces shrouded in ski masks, to shield their identities. In the trippy semiotics of the drug war, the cops dress like bandits, and the bandits dress like cops.

As regularly as the cartels are fighting law enforcement, they are doubly fighting each other. The Zetas represent a blood-thirsty new cartel intent upon digging into Sinaloa territory. The Zetas started as mercenary bodyguards for the Gulf Cartel before they decided to experiment with the business independently. Now, they’re renegades more concerned with intimidation and sociopathic blood-letting than trading drugs. As an assumed message to the Sinaloa Cartel, Chapo’s lover, Zulema Hernández, was found dead in the trunk of a car with the letter “Z” carved into her body. To curb such tragedies, Chapo decided to inter-marry groups to form business relations.

Chapo’s organization is occasionally referred to as an alianza de sangre (“alliance of blood”), because so many of its prominent members are cousins by marriage or brothers-in-law. Emma Coronel, who gave birth to Chapo’s twins, is the niece of Nacho Coronel. All of this intermarriage, one U.S. official in Mexico suggested to me, functions as “a hedge against distrust.” An associate may be less likely to cheat you, or to murder you, if there’ll be hell to pay with his wife.

Despite these levels of protection, no man is entirely secure from the law or competing cartels. In 2007, Zhenli Ye Gon, a Chinese-Mexican chemical supplier had his home raided where the authorities found $206 million in cash. Even Chapo, the Sinaloa mastermind was arrested in 1990. Luckily he was sentenced in Puente Grande, where he had most of the prison in his pocket.

During the five years he spent there, Chapo enjoyed prerogatives that make the prison sequence in “Goodfellas” look positively austere. With most of the facility on his payroll, he is said to have ordered his meals from a menu, conducted business by cellphone and orchestrated periodic visits by prostitutes, who would arrive aboard a prison truck driven by a guard. I spoke with one drug producer who negotiated a joint venture deal with Chapo while he was behind bars.

The drive behind it all, the reason the business is so successful, is summed in one word: America. Americans buy drugs, and a whole lot of them. It is no coincidence that the world’s largest drug producer and purchaser share a geographic border. But the Sinaloa cartel doesn’t deal directly with those they sell to. They push the drugs to the countries regional distribution hubs. Because these deals are massive, the wholesalers are often extended lines of credit to purchase the drugs. This is not unlike the credit someone would take out to buy a car.

This credit system, known as “fronting,” rests on an ironclad assumption that in the American marketplace, even an idiot salesman should have no trouble selling drugs. One convicted Sinaloa trafficker told me that it often took him more time to count the money he collected from his customers than it did to actually move the product. It may also help that the penalty for defaulting could involve dismemberment.

While Chapo is an exceptional businessman, his advantage is inherent in his location, and the scale of his enterprise. Even if he is captured, the Siniloa Cartel will prosper as there are hundred of autonomous and ambitious underlings to rise to the occasion. Each year, Chapo’s cartel will pull in over $3 billion in revenue, with or without him.


Patrick Radden Keefe, The New York Times
Image by Steve McNiven

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