The Cartels Run Like Multinational Firms, So Policy Should Treat Them That Way

Any business school would admire the strategy. Diversify the product line when one market softens. Control the distribution channels. Tax the competitors who use your territory. Use your logistics network for whatever else it can carry. Protect market share with a ruthless attention to enforcement of your contracts.

The trouble is that the firm in question is a criminal organization, and its enforcement department is not a legal one. That is the first thing to understand about the Mexican cartels. They are not a mob in the old movie sense. They are businesses, and a business can be fought with the tools that work on businesses.

The claim and the terms

My claim is this: American policy toward the Mexican drug cartels will work better when it targets their finances and their logistics as it would those of a multinational company, and worse when it treats them only as a military enemy or only as a police problem.

Define the terms. A cartel, in common usage, is a criminal organization that controls the production and trafficking of illegal drugs. In the strict economic sense a cartel is a group of competitors that agree to fix prices, and the Mexican groups do not fit that definition well, since they often fight one another. The word has stuck, though, and I will use it. A transnational criminal organization is the more accurate phrase: a group operating across borders for profit through illegal means.

The business model, in general terms

I will describe it in general terms, because I want to be accurate and because the details change. The groups that are the main subject of American concern are best understood as having several lines of business.

Drug trafficking. This is the core. The groups move cocaine, methamphetamine, heroin and, in recent years, synthetic opioids such as fentanyl, across the border into the United States. Much of the money is made by controlling territory along the routes and corridors where drugs cross.

Human smuggling. Control of the same corridors lets the groups charge migrants for passage. This is the subject of How a Smuggling Network Prices a Border Crossing and Who Gets Paid, and it is a business with the same logic: a toll on a route they already control.

Extortion. In the regions they dominate, the groups collect payments from local businesses, farmers and transporters, in exchange for being left alone. A rancher, a shopkeeper or a trucking company pays or suffers the consequences. This is a tax, imposed without consent and collected by threat.

Fuel theft. In Mexico the theft of fuel from state-owned pipelines, known by a Spanish slang term, huachicol, became a major revenue source for criminal groups. A pipeline is a long, vulnerable asset, and tapping it is a way to turn an infrastructure network into a revenue stream.

Money laundering. All of this produces cash, and cash has to be turned into usable money. The groups launder it through businesses, real estate, currency exchanges and trade transactions. The laundering is where the criminal enterprise meets the legitimate economy, and for that reason it is where the law has the most leverage.

The thing to notice is that these lines are connected by common assets: territory, a network of corrupted or intimidated officials, a force that can punish disloyalty and a financial system that moves the proceeds. Cut one line and the others absorb the shock. A group that loses a drug route can shift to extortion or smuggling. This is why a policy aimed only at one commodity, one shipment or one kingpin keeps being surprised.

The tools Washington already has

Congress has not left the executive branch without instruments. Three are worth knowing.

The Kingpin Act. The Foreign Narcotics Kingpin Designation Act, enacted in December 1999, gives the president authority to identify significant foreign narcotics traffickers and to block their property and interests in property that come within the jurisdiction of the United States. It prohibits American persons from dealing with those designated. The administering agency is the Treasury Department's Office of Foreign Assets Control, which publishes the designation lists. The Act reaches the money, not the man, which is the right place to aim at a business.

Foreign terrorist organization designation. Under section 219 of the Immigration and Nationality Act, codified at 8 U.S.C. 1189, the Secretary of State may designate a foreign organization as a terrorist organization if it engages in terrorist activity or terrorism and threatens the security of the United States or its nationals. Designation makes it a crime, under 18 U.S.C. 2339B, to knowingly provide material support to the group, and it allows the freezing of assets and bars members from entering the country. The statutory standard turns on the definition of terrorism, and whether the cartels' conduct fits it is a point on which lawyers argue.

Treasury sanctions and the Bank Secrecy Act. Beyond the Kingpin Act, the Treasury has general authority over the financial system. The Bank Secrecy Act of 1970 requires financial institutions to keep records and report large cash transactions and suspicious activity, and it is the foundation of the system that traces money. Sanctions on banks and businesses that knowingly serve criminal organizations are a way to cut a group off from the global financial system.

There is also the older toolbox: indictments, extradition, joint investigations with Mexican authorities, intelligence sharing, and cooperation programs such as the Mérida Initiative, which began in 2007 as a package of American support for Mexican security forces.

Two conservative positions, fairly stated

Conservatives who agree on the problem disagree about the remedy, and both camps have a case.

The case for going further

Those who favor terrorist designation and, in some versions, military action argue as follows.

One, the cartels kill and terrorize on a scale that exceeds many conventional insurgencies, and they govern territory that the Mexican state does not control. A group that holds territory by force and threatens civilians is more than a crime syndicate.

Two, the existing tools have not been enough. Prosecutions and sanctions have removed leaders, and new ones have taken their places. The market regenerates. A stronger tool, with the powers of the terrorism statutes, would let the government treat any American who knowingly helps the groups, including financial facilitators, as a material supporter.

Three, the drug toll is an American toll. Americans die from the drugs the cartels ship, and a government's first duty is the protection of its own citizens. A president who declines to use every lawful means is failing at that duty.

Four, the memory of the 1985 kidnapping and murder of Enrique "Kiki" Camarena, a Drug Enforcement Administration agent seized in Guadalajara, Mexico, shows that these groups will attack American officials. The United States has long regarded that crime as a defining case, and the lesson drawn is that deterrence requires a response that the groups fear.

The case for restraint

Those who favor a financial and law-enforcement approach, and who oppose unilateral military action, argue as follows.

One, Mexico is a sovereign nation, and an American strike on its territory without its consent would be an act of war against a neighbor and trade partner. The consequences for cooperation on everything from extradition to trade to the border would be severe, and the Mexican public would not forget it.

Two, a terrorism designation has costs that are easy to overlook. It could expose American businesses and individuals with legitimate dealings in affected regions to liability, since the material-support statute is broad. A company that pays extortion under threat, or a farmer who sells to a buyer with ties to a group, could face legal risk. That is not a reason never to designate, but it is a reason to know the exposure.

Three, the legal authority for force is unclear. The 2001 Authorization for Use of Military Force was written against the perpetrators of the September 11 attacks and those who harbored them, and it does not obviously reach criminal organizations. The Constitution gives Congress the power to declare war, in Article I, section 8, clause 11, and the War Powers Resolution of 1973 limits what the president may do without it. A conservative who believes in the separation of powers should insist that a military campaign be authorized by Congress and not assumed by the executive.

Four, the record of force against criminal organizations is mixed. Taking out a leader tends to create a succession fight and more violence, as the groups fragment. Plan Colombia, which drew a major American aid package in 2000, is often cited as a success, and it was, but it was done with the consent and the active partnership of the Colombian government, with American money, training and intelligence. That is a model of cooperation, not of unilateral force.

Both camps have good points. The first is right that the problem is serious and the tools may be inadequate. The second is right that tools have consequences, and that the Constitution has procedures.

My verdict

I side with a course that is tougher than the second camp likes and more disciplined than the first would prefer. In numbered form:

1. Follow the money first. The groups are businesses, and a business runs on cash, banks and trade. Use the Kingpin Act and Treasury sanctions at full strength, go after the facilitators, the laundering networks and the companies that knowingly serve them, and fund the investigators who trace the flows. That is where the leverage is, and it does not require anyone's permission.

1. Use designation where it fits, with its limits understood. If the statutory definition is met, designation is a legitimate tool, and Congress and the courts can review it. The point is not to pretend that a label changes the facts. It is to get the statutory powers that come with it, and to count the exposure honestly.

1. Insist on Congress for any use of force. If a president believes military force against these groups is warranted, the Constitution gives him a path: ask Congress. A debate, a vote and an authorization with defined objectives would give any such campaign the legitimacy it needs and the accountability it deserves. If the case cannot win a vote, that tells you something.

1. Work with Mexico, not around it. The cartels' greatest asset is the weakness of the state in the territory they hold. The best way to reduce it is to help a partner government build its capacity, as in Colombia, while holding it to account.

1. Close the American side. Money laundering, weapons flowing south and demand for the drugs are American problems. A policy that talks only about the other country's failures is a policy in denial. And a border that is not secure, as argued in A Secure Border Is the Humane Border, and Here Is the Moral Case, hands the groups the corridors they tax.

A word about the framing

Some say that to call the cartels businesses is to flatter them. I say the opposite. A business can be bankrupted, and a myth cannot. The more we treat these groups as mythic figures, outside the ordinary categories, the more we persuade ourselves that only an extraordinary response will do, and the more likely we are to reach for a response that feels strong and accomplishes little. The better question is the one any investor would ask: where does the money come from, how does it move and who profits? Answer those questions and you have a target list.

The same discipline applies to the way the public debate is covered. A story that calls for "war on the cartels" in a headline and offers no authority, no objective and no end state is not serious reporting or serious policy. A story that says "sanctions" and offers no detail on enforcement is no better. The audience deserves both the mechanism and the stakes.

What the Founders would ask

They would ask two things. First, whether the government is protecting its citizens, which is the purpose for which governments are instituted, as the Declaration says. Second, whether it is doing so by the means the Constitution allows. The Founders gave the president the power of commander in chief and Congress the power to declare war, because they knew that a nation that gives one man the power to start wars will have more of them. In Federalist No. 69, Hamilton distinguished the president's authority from the king's, noting that the king's power extended to declaring war, and the president's did not. A foreign policy that respects that line is not weak. It is constitutional, and it is far more likely to be sustained.

There are also questions of how this connects to the rest of the border debate, including whether mass illegal entry might count as an invasion in the constitutional sense, which is covered in Does Mass Illegal Entry Count as an Invasion Under the Constitution, and what the record says about crime in the United States, which is examined from several sides in Immigration and Crime, Eight Popular Claims Checked From Both Sides.

The case in brief

1. The Mexican cartels are diversified criminal businesses, earning from drugs, human smuggling, extortion, fuel theft and laundering, all connected by territory, intimidation and access to finance.
2. Washington has tools: the Kingpin Act of 1999 for blocking property, terrorist designation under 8 U.S.C. 1189 with material-support liability under 18 U.S.C. 2339B, and Treasury sanctions backed by the Bank Secrecy Act.
3. One conservative camp wants designation and force because the groups kill at scale and the existing tools regenerate leaders; the other warns of Mexican sovereignty, legal exposure, unclear authority and the record of escalation.
4. The strongest course follows the money first, uses designation where the statute fits, requires Congress to authorize any force, partners with Mexico and closes the American side.
5. Treating the cartels as businesses makes them targets that can be bankrupted, and a policy that respects the Constitution's war powers is one the country can sustain.

What you can do: Read the Treasury Department's public list of Kingpin Act designations, then ask your senators what steps Congress has taken to fund the investigators who trace cartel money.