Earlier this year, a US health inspector at a Mexican avocado plant received a verbal threat over the phone. Mere days before the Super Bowl (where guacamole is an indisputable tradition), the US responded by temporarily suspending avocado imports from their biggest trading partner, Mexico. 🇲🇽
A ban on operations is no light matter. In 2020 Mexico’s avocado exports were valued at $3.2 billion, of which 79% went to their northern neighbour, the US. While the short-lived ban has since been lifted, the security incident is a sobering reminder of what and who is at play in the lucrative avocado industry. More specifically, multiple drug cartels have diversified their operations to infiltrate and profit from the iconic fruit known as ‘green gold’, creating a surprising link between avocados and organised criminal organisations and leading to one newspaper dubbing avocados “the world’s new conflict commodity”.
Why avocados? 🥑
Rising in global popularity, avocados have significantly benefited from positive marketing campaigns and favourable trade treaties. The game-changing 1994 North American Free Trade Agreement (NAFTA) allowed the avocado-hungry US to import Mexican-grown avocados, significantly increasing consumption. Subject to USDA sanitary regulations, the state of Michoacán became the primary exporter of the nutrient-dense fruit, with climate-ideal attributes like rich volcanic soil and high rainfall. These favourable conditions make Mitchoacán the avocado capital of the world.
Alongside its vibrant culture and beautiful varying landscapes, Mexico is known for its extremely violent drug cartels, emerging from a long, contentious history steeped in the war on drugs. As a result, the far-reach of Mexican cartels has permeated many aspects of society and industry, with the agricultural sector not being immune. As opportunistic cartel members have recognised the profitability of avocado growing, they have become more involved. Avocado producers, transporters, and packers are routinely subject to extortion. Cartels even use government databases to find, extort, and kidnap avocado farmers. In some instances, cartels directly take over the farming lands, becoming ‘informal owners’ of the fields or installing avocado orchards on protected woodlands. They ensure they get their share of a thriving industry using force, intimidation, and violence.
Diversity in Business 📈
Running like multinational corporations, cartels are profit-oriented businesses. While their activity is incredibly violent, Mexican cartels have sophisticated operations intertwined with different industries. Beyond avocados, cartels have been involved in several other agricultural sectors. For example, Mexico’s favourable climate makes it one of the largest producers and exporters of citrus fruit, and unsurprisingly drug cartels are keen to cash in. They exploit the rich industry by purposefully limiting the number of fruit produced to artificially manipulate prices and increase their market value, then demand a share from producers. Experts suggest that limes, berries, and other products have risen in price since Mexican cartels have become involved.
Business opportunists like the El Cartel de los Quesos, which moved contraband cheese between Honduras and El Salvador, and The Knights Templar, which has been involved in taxing the Mexican iron ore industry, all exemplify the diversification of gangs from the drug trade. More diversified cartel involvement means that extortion is an increasing daily reality across more and more sectors. From small-scale agricultural producers of high-demand fruits to high-end hotels and restaurants in tourist areas, evidence of routine shakedowns is noticed throughout the country.
FINTRAIL highlights: Narconomics: How to Run a Drug Cartel by Tom Wainwright
Exposing how cartels operate using a framework suited to a multinational corporation, Wainwright explores and investigates Central America’s drug cartels in a captivating narrative. An editor at The Economist, Wainwright combines journalistic flair with business analysis to innovatively apply principles such as supply management, human resourcing, franchising, and offshoring to understand some of the most notorious crime groups on earth.
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Laundering the ill-gotten gains 🧺
How do Mexican cartel members conceal these illicit gains? Much like any other predicate crime, the proceeds of extortion (a recognised predicate offence by the EU’s 6AMLD) or other dirty money can follow complex money laundering schemes and be commingled with legitimate business. Owning businesses like avocado or lime farms, restaurants, and export or trucking companies allows gang members to launder money and also smuggle illegal substances into other countries.
Historically, we know that the financial sector has been ineffective at tackling drug cartel activity through the application of proper anti-money laundering controls. As demonstrated by the infamous HSBC scandal and the more recent Wells Fargo involvement in aiding the Sinaloa cartel, negligence by financial institutions has undoubtedly helped facilitate brutal criminal gangs. Even for institutions trying to do the right thing, the gangs’ wide variety of economic activities confuse the picture, as does the use of sectors not generally seen as high risk.
Conclusion 📌
For financial institutions serving clients with a footprint in higher-risk jurisdictions or operating in higher-risk industries, awareness of jurisdictional nuances and transaction-related red flags, plus an understanding of trade-based money laundering, is paramount. It is also important to consider the potential ESG and reputational risks of servicing companies that source avocados and other ‘conflict commodities’ from high-risk areas.
At FINTRAIL, we combine deep financial crime risk management with industry expertise to help you optimise your anti-financial crime programmes. We’re here to support you in creating robust policies and procedures; refining, enhancing or testing your systems and processes; and providing context-based training to your teams. Get in touch to find out more.