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Doing Business in the Time of Mexican Drug Chaos
Narcotics Stashed in Shipments of Televisions, Auto Parts, Take Advantage of Security Clearances for Open Trade
5/27/09|The Wall Street Journal| by Joel Millman



U.S. Customs agents got a surprise on April 9, when they checked a trailer of an 18-wheel truck crossing into El Paso, Texas, from Mexico and found more than 9,000 pounds of marijuana hidden among auto parts bound for U.S. factories.

A startling aspect of the bust: The pot was packed into a shipment belonging to auto parts giant Delphi Corp. The Michigan-based company has operated in Mexico for decades, ranks among the country's top three private employers, and, until now, has never had an incident where drugs were found among its cargo, according to the company.

Delphi spokeswoman Xochitl Diaz confirmed the company had been notified about the seizure by U.S. Customs, but declined to offer details, citing a continuing U.S. investigation.


Photo -- Marijuana entered a Sharp Electronics
assembly plant in Rosarito, Mexico, last
year via a components supplier.

The bust highlights one of border control's endless conundrums: how to deter clever criminals from manipulating security systems for their own benefit.

In an era of open trade, Customs officials encourage exporters to beef up internal security measures to earn the privilege of fast transit through border checkpoints. Thousands of manufacturers, shippers and cargo expediters have been certified under a number of U.S. government programs that designate compliance. The unintended result of that compliance: Those same exporters are increasingly likely to be targeted by smugglers, who look to piggyback their contraband on legal cargo that makes low-friction border crossings, according to law enforcement officials.

A year ago, a ton and a half of marijuana entered Sharp Electronics Co.'s television assembly plant in Rosarito, a suburb of Tijuana, through a Mexican supplier delivering components, and then was transferred to an outbound trailer of widescreen TVs, according to one person familiar with the case. The drugs were detected before the trailer left the plant, according to the company. Company officials declined to offer other details, but said no Sharp employee was implicated.

The increased violence between cartels that has claimed 10,000 lives in just over two years has forced many firms to take extraordinary security measures. Brazen drug gangs are also branching out into crimes such as hijacking trucks and stealing cargo, terrorizing employees and raising the cost of doing business throughout Mexico.

California trucking firm Rapid Transfer Express Inc. has had four of its trucks in Mexico hijacked this year, even though the company took the extraordinary precaution of installing GPS systems on its trucks in order to monitor their location via satellite from the time they leave a factory until they cross the U.S. border safely.

Mexico is the U.S.'s second-largest trade partner and perennially among the top ten destinations for U.S. companies investing abroad, getting about $10 billion worth of U.S. investment last year. Most of that investment is in the north of the country -- where assembly plants known as maquiladoras import components for items like auto parts and then export the finished goods. That border region is also where the drug-related violence is worst.

So far, the violence doesn't appear to have slowed investment. Indeed, many firms from the U.S., Asia and Europe are adding capacity to industrial parks here, especially since the Mexican peso has weakened against the dollar, making Mexican exports more competitive in dollar terms.

And unlike in Colombia in the 1990s, U.S. executives don't appear to be prime targets for kidnapping or extortion by organized crime. The only high-profile abduction of an American recently was of security consultant Felix Batista in Coahuila in December, a case that remains unsolved. Mr. Batista is still missing.

Still, violence between drug gangs has overwhelmed law-enforcement agencies. That leaves fewer resources to solve other crimes such as kidnapping, robbery and extortion -- many of which, authorities say, are being done by the cartels' members.

Companies are reluctant to talk publicly about what kinds of security precautions they are taking, because they do not want to tip off criminals. But security consultants say even routine trips to and from Mexican factories require heavy security nowadays. Business dinners in public places, even the toniest restaurants, have been cut back.

Security consultant Van Bethea of Steele International recently reminded a seminar held in San Diego for Tijuana-based executives that a single incident -- a manager of a Mexican operation receiving a threatening phone call at work -- can disrupt business for days. "Cartel organizations are targeting critical employees all the time, looking for any information they can find to get into your business," Mr. Bethea told the group.

Many businesses in Mexico are also coping with a wave of truck hijackings. Sony Electronics Inc. confirms it lost one shipment of 102 large LCD television sets from a Tijuana plant in September, and thwarted another attempted hijacking in mid-December.

Samsung Electronics Co., the South Korean electronics giant, also lost at least one truckload this year, but refuses to discuss details of the crime. Typically, drivers are roughed up, and the trailer turns up empty somewhere days later.

So far this year, there have been at least 80 attacks on moving cargo in Mexico, according to John Baird, general manager for security agency Freightwatch Logistics Mexico. In March, authorities arrested a ring of truck hijackers directed by cartel gunmen known as Los Zetas, former Mexican soldiers who have deserted to join drug gangs.

Mr. Baird specializes in escort protection for long-haul truckers, and estimates the extra security now adds about $1 a kilometer to the cost of trucking goods from central Mexico up to the frontier.

Besides installing GPS monitors, trucking firm Rapid Transfer Express, known as RTX, also equipped each of its 250 trucks in Mexico with "panic" buttons that drivers can activate in the event of a hijack attempt. RTX dispatchers view computer screens in the U.S. to constantly monitor trucks' progress and can shut down a truck's motor remotely at the first sign of trouble.

Even that isn't enough. "We've been hit four times this year," says Joe Vega, RTX's operations director.

Mr. Vega says criminal gangs have spotters watching the loading docks of electronics manufacturers, angling for a chance to pick off shipments of finished goods. Their most common tactic: swarming trucks with gunmen deployed in pickup trucks or SUVs. Twice last year, he says, thugs have dragged his drivers from their cabs, beaten them with pistol butts and tried to steal their cargo.

To thwart this urban piracy, RTX drivers are not permitted to stop at any time between the plant and the U.S. the border, and no trailer leaves a Tijuana plant unless it's in a caravan of no fewer than ten trucks.

RTX has recovered three of its trucks that had been hijacked, including once in February, when RTX dispatchers summoned Tijuana police while the hijacking was in progress. Police sent a helicopter to chase the robbers, who abandoned the stolen truck and its cargo within 20 minutes of the attack.