In the summer of 2020, President Andres Manuel Lopez Obrador ordered the army and marines to take operational control of Mexico’s 49 seaports and border land-crossing ports from corrupt customs officials and organized crime. Cleaning up Mexico’s port system, in the words of a frustrated senior official, was like confronting a “monster with a thousand heads.” Predictably, AMLO’s militarization did not succeed in de-corrupting the ports but only ensured that what happens inside them remains more thoroughly hidden.  

The continuing disastrous state of Mexico’s ports, 25 years after NAFTA, is a prime example of how the treaty’s proponents never seriously grappled with the complications and unintended consequences that come with grafting a modern trade and investment regime onto a country with deeply flawed legal institutions, endemic Mafia-like criminal groups, and ingrained corrupt practices. Few NAFTA proponents anticipated that Mexico’s rule of law and corruption struggles would become worse, not better, after 25 years of expanded commercial integration with the United States.  

Political leaders in both countries paid little attention to or miscalculated NAFTA’s impact on U.S.–Mexican security. Vice President Al Gore, debating Ross Perot in 1993, argued—incorrectly, as events demonstrated—that the trade deal would help reduce illegal Mexican immigration. Like his predecessors in the Bush White House, President Bill Clinton believed NAFTA would lay the foundation for a modern U.S.–Mexico partnership. 

The Washington establishment advocated that robust trade and investment were the fix for Mexico, just like they would solve another foreign affairs dilemma: China. But the strategy was wrongheaded in both cases. U.S.-led economic engagement did not “normalize” communist China, which emerged as a geopolitical rival, and it crucially failed in helping Mexico to overcome endemic corruption and organized crime, growing dangers that today strike at the American heartland.

Focused on the fight against illegal drugs and migration, Americans do not realize that Mexican crime syndicates also reap vast profits through systematic extortion of legitimate business activities, many spawned by NAFTA and tied to American trade and investment. These extortion profits, along with other illegal enterprises, further enrich cartels and enhance their capacity to undermine weak Mexican state institutions. The result is that Mexico becomes wealthier, but it remains a country locked in a struggle with a criminal and corrupt cancer. 

As with many large traditional countries, Mexico is full of contradictions—wealth and poverty, modernity and backwardness—but a major cause of the country’s current downward slide is Mafia-style violence, or the threat of violence, that infects businesses and state institutions. Violence and bribes are why Mexico’s abysmal legal system has never improved. After decades of intense national efforts, assisted by Washington experts, Mexican rule of law remains dysfunctional, incapable of enforcing criminal statutes or even dependably resolving commercial and civil disputes.

Cause and effect are constantly debated, but Mexico is rightly ranked 126 on the Transparency International corruption perception index, right there beside Laos and Bolivia. Mafia-like activity in Mexico, of which there are some 80 recognized criminal groups, not to mention the large transnational criminal organizations (TCOs), is the country’s fifth largest employer, giving steady work to an estimated 175,000 Mexicans. 

The failure of President Felipe Calderon’s “drug wars” should have been a warning bell about the dangers of expanding the U.S. economic footprint south of the border. Launched in 2006 with robust Washington support, Calderon’s ambitious law enforcement plans sought not only to finally break the drug cartels but also to remake Mexico’s dysfunctional legal system. The effort was to be a major step on the road to Mexico’s modernization.

But after much carnage and many deaths, the modernization campaign had sputtered to a dismal law-enforcement defeat by 2018 with the election of AMLO, a populist leftist, and, most significantly, the emergence of an even stronger Mexican underworld. Today, the Mexican federal government struggles to exercise control over large swaths of national territory; U.S. officials estimate up to 40 percent of the country is dominated by cartel operatives or is in a “wild West” outlaw status.

It is not just for control of smuggling routes that Mexican cartels fight to dominate geographic territory. Analyzing Mexican crime, the Economist explained, “Once a gang has established a monopoly of violence on its turf, it can control or demand a cut from all the illegal activity that takes place on it. It can also extort money from legal businesses.” Extortion is a major source of organized crime profits in Mexico. 

Americans understandably think of Mexican cartels mainly as deadly narco-trafficking and migrant smuggling syndicates. Mexicans, who consume fewer illicit narcotics than their gringo neighbors, are in a different struggle with organized crime. They navigate around underworld extortionists who kidnap, murder, and above all squeeze protection payoffs out of legitimate business enterprises and institutions.

Much of the country’s high murder rate is tied to criminal gangs enforcing their extortion rackets, collecting their regular payoffs, commonly called cobrando derecho de piso; it happens both on the street and in upscale establishments. Business owners have abandoned the idea that the country’s corrupted law enforcement institutions can protect them or their families. For these merchants, big and small, extorted payoffs are part of the cost of doing business, much like rent and electricity. While large businesses are reticent on details, Mexico’s national small business association openly estimates four out of five merchants regularly pay piso, costing them easily over $10 billion yearly.

Mexico’s almost $1 trillion export-import economy, along with the logistics and transportation network that undergirds it, represents the crown jewels of the country’s commercial activity. It is also under the same ubiquitous Mafia-like extortion. Trade businesspeople openly admit the export-import sector is “under pressure from organized crime” and infected with a “corruption cancer.” 

This same corruption-criminal axis targets American trade. The United States and Mexico exchange some $780 billion in commerce annually, cargo that is moved, most often by trailer trucks, through transportation networks that regularly pass through TCO territory. From China each year arrives in Mexico’s Pacific ports another bonanza of merchandise valued around $100 billion. These goods and products, too, are warehoused and transported through TCO territory, often on their way to the U.S. border. 

Despite AMLO’s sending in the army and marines, all the ports remain major choke points. Moving cargo starts with the opaque bureaucratic process of export-import paperwork that is “supervised” by federal customs officials (aduana) and tax authorities, working with Mexican brokers and freight forwarders. Corrupt customs officials can and do extort direct bribes from foreigners, but the more effective criminal extortion model is demanding payoffs by applying pressure on Mexican brokers and freight forwarders, who are the indispensable middlemen in the export-import process.

Mexican brokers and freight forwarders are independent businesses, licensed by the state, and hired by exporters and importers to move most cargo across the border, or in and out of seaports. Many brokers and freight forwarders are sophisticated, world-class businesspeople, experienced in dealing with large commercial clients from the U.S., Canada, Europe, and China. The brokering industry invoices around $3 billion a year for its services, while freight forwarding billing costs are around $128 billion, with tens of billions of that associated with transporting international cargo. It is in the invoicing of these billions of dollars of legitimate services that corrupt officials and criminal operatives extort payoffs—hidden in the costs of consultancy, transportation and warehousing—that are ultimately paid by exporters and importers.

One leaked Mexican investigative report indicated that payoffs could range from $500 to $10,000 per cross-border shipment. Those amounts may sound unimpressive but must be considered in the context of how vast the trade is: alone in the Nuevo Laredo land port, one of 49, more than 15,000 trucks cross the border daily on the move to and from Texas. International cargo is not just vulnerable as it moves through ports, it is constantly exposed to cartel operatives in transversing thousands of miles of Mexican territory. At play in the corruption-criminal consortium is a delicate balance that must ensure the international freight is delivered, the foreign customer is pleased, and criminal extortionists do not “overcharge” in a way that would kill the golden goose.

Although not in their immediate self-interest, cartels do shut down regular commerce when they need to demonstrate their power. In March 2022, the Cartel del Noreste, a.k.a. the Zetas, blocked the highway bridges and threatened the railroad line in Nuevo Laredo used to move some $235 billion of annual U.S-Mexican trade. Protesting the arrest of a leader, cartel operatives hijacked freight trucks and set them ablaze, squeezing the transportation bottleneck to block all commercial vehicle traffic entering Texas.

Mexican authorities are quick to calm such disturbances, which hurt everybody’s profit margins. Through secret powwows with cartel representatives, Mexican officials resolved the Nuevo Laredo problem, as they do all such incidents; cargo vehicles resumed crossing the border, and everybody went back to making money. The incident illustrates how it is inconceivable that cross-border trade could continue without criminal gangs also getting their payoffs. The only debate is how much they get.

Understanding the scale of the extortion fees is even more difficult than valuing illegal drugs, which at least have a known street price and illicit consumer market. But extortion is an activity of few participants, with even fewer interested in exposing it. Assign only a small amount, say two percent, of the billions of dollars of costs that are invoiced, mainly those associated with consulting costs for brokers and freight forwarding and warehousing fees, and the scale of the shakedown becomes clearer. The exact figure is unknowable, and it is likely much more than two percent based on analysis of how other organized crime groups, such as the Sicilian Mafia, operate where state institutions are dysfunctional and government officials are corrupt. 

The scale of trade extortion puts it on the same level as profits Mexican TCOs are reaping from illicit drug sales in the United States. The United Nations Office on Drugs and Crime estimated (in pre-fentanyl times) around $11 billion in annual drug profits, and the Mexican government put the figure around $21 billion a year as recently as 2018. Those illicit earnings have been augmented by the $13 billion a year, record profits, that TCOs are now garnering in smuggling migrants, as reported by the New York Times.

U.S. law enforcement is understandably concentrating on the counternarcotics war, which the good guys are also losing. The DEA administrator, Anne Milgram, should have sobered all Americans when she recently fingered the Sinaloa cartel and the Jalisco New Generation cartel (CJNG), Mexico’s two largest fentanyl trafficking organizations, as the “greatest drug threat our nation has ever faced.”

As U.S. law enforcement and intelligence agencies engage in the all-consuming counternarcotics mission, they also work with the Departments of Commerce, Treasury, and State to warn or sanction legitimate businesses connected to criminal enterprises, such as money laundering. But neither U.S. law enforcement officials, nor policymakers, have publicly spoken out on how Mexican TCOs expand their power and resources by clandestinely extorting legal commerce with the United States.

Sometimes, TCOs trade outright on their own account. In March 2014, the international media reported that it had become more profitable for the brutal cartel known as the Knights Templar to export iron ore than to trade in narcotics. The Knights Templar cartel was exposed shipping 120,000 tons of iron ore from the seaport in Lazaro Cardenas directly to China. Cartels have also taken over aspects of Mexico’s highly profitable agricultural sectors, for instance, growing and shipping avocados and limes into the U.S. market. 

These and other red flags seem not to have registered much in evaluating NAFTA, whose proponents retort that the trade and investment deal was always about business; only out-of-touch gringo politicians and globalists believed the agreement was about transforming Mexico. They also point out the United States has often undertaken robust economic activity with corrupt countries around the world, of which there is a long list. 

In response, those concerned about U.S. national security must understand and make the case why our giant neighbor Mexico is different. Even many conservative critics of NAFTA, who aggressively fault the trade deal for exporting American jobs, rarely call out how massive U.S. trade and investment help feed the cancer of Mexico’s powerful criminal underworld and its consequences for U.S. security. In replacing NAFTA with USMCA, Ambassador Robert Lighthizer commendably made sure the new deal included a chapter on corruption, yet given Mexico’s intractable corruption-crime axis, that provision is only a symbolic gesture. Lighthizer appears never to have delved deeply into the subject of TCO extortion. 

U.S. private investment in Mexico, where the Americans have put in around $130 billion of FDI, also deserves a security analysis. Drawn south of the border by NAFTA, Walmart de Mexico famously became embroiled in a corruption scandal, handing out millions in bribes, on its way to becoming a dominant retailer south of the border. When exposed, Walmart HQ in Arkansas ultimately settled with U.S. authorities in 2019, paying a penalty for violating the Foreign Corrupt Practices Act.  

The FCPA makes it illegal for Americans abroad to pay off foreign government officials, but it does nothing to address the organized crime extortion threat. The U.S. Chamber of Commerce has endorsed the proposed “Foreign Extortion Prevention Act,” now under consideration in Congress, that would allow American law enforcement to prosecute foreign officials who extort bribes from American business. The FEPA would be an improvement over the FCPA, but neither would impact extortion tactics that involve American business and serve to strengthen the Mexican underworld. Many American companies operating in Mexico may legitimately be unaware that fees for business services include extortion payoffs; at least they may have plausible deniability, as the lawyers say. 

One result of Calderon’s failed drug wars was that Mexico’s private security business boomed, becoming today a $10-15 billion industry, the largest in all Latin America. Today, the country fields more than 4,300 registered private security firms, and many more that are unregistered, employing more than a million Mexicans. 

But the private sector’s entry into Mexico’s rule-of-law challenges has done nothing to help the country’s massive security shortfall; it has made it worse. As with seemingly everything south of the border, the private security sector has also been infected by significant corruption and criminality. As one international security expert summed up Mexico’s situation: “A very large percentage of people working in private security are suspected of working with organized crime networks.” 

This intersection of private security firms and organized criminals has served mainly to give the latter more “legitimate” participation in normal business activities, delivering yet another blow to Mexico’s rule of law. Large domestic and international companies, perhaps without full awareness, contract with such private security firms to ensure “security” for their business operations.

The responsibilities of U.S. firms, such as those in Mexico’s maquiladora sector, can be complicated when they must navigate in TCO-controlled territory. Take for example, Constellation Brands, the American brewery giant that brings delicious Mexican beers such as Corona and Modelo to the American market. Constellation beers are brewed in Mexico as part of the company’s very successful marketing spin. To that end, Constellation constructed a large modern brewing facility just across the border from Texas in the state of Coahuila. 

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The brewery is located in territory controlled by Cartel del Noreste, the same brutal outfit that controls the Nuevo Laredo port. One assumes Constellation’s first-rate Mexican security firm handles the arrangements that guarantee those beer-loaded trucks cross the Rio Bravo safely and move north to yanqui refrigerators and bars everywhere in the heart of America. Most American beer drinkers are unaware that their enjoyment of fine Mexican beers, like their guacamole made from TCO-shipped avocados, puts a few centavos in the pockets of a cartel. But it all mounts up. 

Washington policymakers need to ponder more deeply, perhaps over a cold Modelo, to what extent U.S. security has become compromised by this complicated trade and investment scheme. There is no easy answer, but the first step is for American politicians and law enforcement officials to recognize and investigate the problem. Identifying this kind of extortion is certainly not easy, but U.S. law forbids American business from profiting from slave labor, for example, requiring a certain vigilance that seems overlooked when it comes to Mexican organized crime.

Today, most economic leaders in both countries see Mexico emerging as a major platform for coming “nearshoring” of new industries. The benefits of even more cross-border commercial integration must be evaluated not just on economic data but also on its impact on the U.S.-Mexican security environment. There is too little examination of how Mexican state institutions are losing their fight against the country’s cancerous corruption and criminal underworld, how cartels will gain from more trade and investment, and what that all ultimately means for U.S. national security.