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March 14, 2018

Mexico can be a dangerous place these days. You don’t have to look far for evidence. Nearly every day in our Daily Insights Intelligence Brief or our weekly Insights Podcast, we report crimes occurring in Mexico. In 2017 the Mexican government reported a record number of homicides. And while numerous factors have contributed to CNN and others calling Mexico “one of the most dangerous places on earth,” Pinkerton’s Managing Director Kurt Norrigan says the largest among them is the territorial battles cartels are waging to gain control of illegal businesses. “The cartel wars are impacting companies that are trying to expand or maintain businesses in Mexico,” he says. “Companies have to understand what the business climate is there and where their operations are vulnerable before they make decisions.”

Cartels Cause Supply Chain Disruptions

For oil and gas companies, as an example, managing supply chain risk due to cartel activity has become a major financial and physical hurdle. Theft of tanker trains and trucks has become big business for the cartels, and they normally hit the supply when it is en route. “Our field team has reviewed videos of trains being stopped by people putting rocks on the tracks, forcing the trains to stop,” Norrigan explains. “Cartel operatives pull up alongside with vehicles and they unload the cargo. It’s a planned, orchestrated attack.” He further notes that it is not just the cartels who bolster the supply chain risk. “Locals are tipped off and told to be ready. So, you’ll see villagers, families, even kids take advantage of the situation and steal whatever they can get their hands on.”

Companies operating in countries where law enforcement can be relied upon to thwart such efforts, either in advance or as they are happening, may not grasp fully the impact of local politics in these situations. Corruption at all levels of government, including police operations, creates a higher level of risk. “In the same train situation, we saw police cars drive up, assess the activity and leave without intervening,” Norrigan says. He further explains that while corruption certainly plays a large role, so does a sense of futility. “Police are frustrated by the lack of resources. We’ve witnessed a few occasions where police are sent into the field with firearms…but no ammunition. That lack of support comes from the top level, where corruption is also prevalent.”

Are Employees at Risk?

One might think that given the high crime and homicide rates in Mexico, that employees of multinational companies operating there are at unreasonable risk. But Norrigan says that is not usually the case, so long as they follow certain procedures. “The Mexican cartels understand that if they create an international incident by harming foreign company employees, they bring a additional unwanted attention to their operations. At that point, officials cannot ignore pleas for action by the companies and their governments.”

As an example, in 1985 a United States Drug Enforcement agent was murdered by the largest cartel operating at the time. The result was a massive investigation by both the Mexican and US governments, leading to the arrest of three kingpins of the cartel’s operation. The cartels do not want a repeat of that situation and place their lucrative empires at risk. .

When employees are at risk is when they make themselves a target, according to Norrigan. “We had a company come to us alarmed because their employees encountered armed cartel members at a checkpoint. After that, they wanted armored cars with armed personnel in the vehicles. We had to explain how that was the exact wrong thing to do.” He says that in general, cartels are not looking to engage with business people travelling through the country. What they are looking for are undercover police agents or rival cartel members trying to discover, and disrupt their operations. “We encourage companies to travel conspicuously, making it known that they are only there for their own business dealings. That will deter the major cartels. For minor operators, more apt to engage in petty theft, we recommend subtle clothing, no expensive accessories, absolutely no firearms and sticking to major highways, not diverting through country roads where they are more vulnerable to attack.”

Risks Need to be Factored Into Budgets

Perhaps the biggest risk companies face doing business in Mexico is to their bottom line.

“Unfortunately, losses realized through cartel theft are a reality of doing business in Mexico,”Norrigan reasons. “There just is no way to avoid it, especially if you are shipping products in and out of the country. Security efforts need to focus on limiting losses.”

The most critical thing companies must do is reconnaissance. They have to know what they are up against so that they can determine all the possible loss scenarios and the financial impacts they will have. A comprehensive risk assessment, encompassing more than just supply chain risk, is a critical first step. “Our Global Corporate Intelligence Services group has data it gathers from across the world which is used by our field teams as they assess risks. Up to date information is essential as cartels are on the move all the time so, where one area might have been a safe haven a few months or weeks ago could be a hotbed of illegal activity today.”

Internal reconnaissance is also critical. “Many times, criminals are aided by people working within corporations,” says Norrigan. “It’s important to find these through an internal investigation that might require embedded, undercover operatives to discover the key players involved.”

The next important step is determining how much mitigating the risks will cost and how much of a loss tolerance the company has. Using Pinkerton’s risk formula will help:

Threat x Probability x Business Impact = Risk

We explain the formula in our blog post “Measuring Security Risks & Business Impact.” Using the formula, a company will understand how much risk it is willing to accept as the “cost of doing business” in Mexico after it has implemented security measure to mitigate the risks.

The last step is budgeting. “While you can reduce some losses, you can’t avoid them all,” Norrigan explains. “We recommend companies understand this up front and factor into their Mexican operations security costs combined with expected losses. Doing so will help to ensure that they can tap into this emerging marketing through fiscally sound decision making.”

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