• Organized Crime Financing and Reconstruction in Latin America

    Organized Crime Financing and Reconstruction in Latin America

    Three Central Questions

    As reported by analysts in Peru, Guyana, and Colombia, illegal mining has overtaken drug trafficking, and other illegal sources of funding, as the primary method of financing the operations of criminal organizations in Latin America. Transnational criminal organizations have also diversified their income sources to include other illegal financing practices, like human trafficking and counterfeit goods trafficking. However, in Latin America, some of these non-state criminal groups have provided better governance and services than the government. These developments beg three questions: how did these phenomena come about? What is the extent of this problem? What policy solutions can be proposed to solve this emerging transnational security issue? 

    The War on Drugs

    For the past half-century, the war on drugs has characterized much of United States policy towards Latin America. To combat drug trafficking groups, the US government has often applied brutal and controversial policies at home and abroad. For the past five decades, the drug trade has remained the main source of funding for insurgent and criminal groups alike, including the still-active FARC dissidents in Colombia and Zetas in Mexico. 

    Yet, these groups have gradually turned towards underregulated and overlooked sectors of the illicit economy, as the drug trade has become overpoliced. During Richard Nixon and Gerald Ford’s presidencies in the 1970s, the Drug Enforcement Administration (DEA), the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF), and the State Department’s Bureau of International Narcotics and Law Enforcement Affairs (INL) were created for counternarcotics policy, particularly in Latin America. Since then, the US has spent over a trillion dollars to counter the drug trade in the region. 

    Likewise, broad and targeted sanctions have been placed on producers and exporters of drugs at all levels. This militarized approach to drug policy has come at a cost for communities across the hemisphere, especially Indigenous Peoples and other marginalized communities. Without providing state reconstruction, this counternarcotics approach has destroyed and deprived these communities of their lives, political stability, and economic opportunity. Over 300,000 people have lost their lives in Mexico since 2006, and 73,000 are still missing, with the death toll rising daily.

    Criminal Governance

    In response to inadequate government policies, some of these communities have turned to criminal groups for services. Despite the temporary, unstable, and criminal nature of these services, they remain a preferred path in spite of either corrupt governance or no governance at all. 

    In addition, criminal groups are now embedded in the local populace and have become indistinguishable from regular civilians, making the supposed war on drugs ever-so challenging. It is commonplace for farmers, truck drivers, security guards, construction workers, and countless others to work for drug cartels to make ends meet. 

    Financial Diversification: The Shift Towards Illegal Mining

    Criminal and insurgent groups have attempted to diversify or redirect their funding sources to ensure survival, as well as preserve legitimacy with local communities. Part of this attempt has consisted of raising and laundering funds through seemingly legitimate means, like infrastructure construction and energy production. However, most of the earnings of transnational criminal organizations in Latin America are still raised through illegal means. 

    The strongest source of illegal funding has shifted to illegal mining in recent years. This is true in the region’s countries with the largest underground economies, such as Colombia and Peru. According to a 2015 UN Office on Drugs and Crimes (UNODC) report, Colombian drug cartels make between $1 and $1.5 billion a year from drug proceeds, and between $1.9 and $2.5 billion from illegal gold mining alone. 

    The same also applies to Peru, where illegal mining has taken over the drug trade as criminal groups’ financial source of choice. In 2015, Peruvian groups earned $1.5 billion annually from drug sales and over $2.6 billion solely from illegal gold exports. The total amount of revenue earned by Peruvian groups through illegal mining now surpasses prior estimates

    Given how underregulated mining is in the region, and globally, this gap is almost certain to widen in the coming decades, especially as countries look to decriminalize or even legalize drugs, cutting off financial incentives behind black markets for narcotics. 

    Human Trafficking

    In some cases, other illegal markets, like human trafficking and counterfeit goods, have also surpassed the drug trade. In Central American countries, for instance, transnational criminal organizations have made billions smuggling people across borders, starting their risky journey to North America. Since Mexican president Andrés Manuel López Obrador ordered the National Guard to further militarize Mexico’s Southern border in October 2020, locals looking to flee persecution or pursue economic opportunities have had to turn to criminal groups for help. These groups charge hefty sums, sometimes worth months or years of pay in savings, to be given an unsafe passage across the border. 

    Data on Central America-Mexico migration has been skewed. As the number of reported migrant crossings may decrease, irregular crossings have only increased in recent decades, due to the difficult nature of life in many communities across Central America. 

    COVID-19 Fueling Black Markets

    Throughout the ongoing COVID-19 pandemic, black markets for counterfeit goods have been thriving in the Americas. Throughout the region, criminal groups have turned to producing, selling, and exporting counterfeit Personal Protective Equipment (PPE) and vaccines. In many cases, profit margins for counterfeit PPE are similar, or even larger, than those offered by the drug trade at a much lower risk of criminal punishment. While this may seem well and good, a great part of the equipment and vaccines are stolen, produced with illegal labour, or highly ineffective

    Criminal groups in Latin America have often watered down vaccines to the point of making them completely ineffective. Sadly, these groups have been the only viable source of assistance to counter the pandemic in many communities. Throughout Latin America, and the United States, millions of counterfeit PPE and vaccines have also been purchased from black markets by hospitals to address shortages. A vast amount of profiteering and corruption have been involved in the process. Most of the transactions for illegal PPE and vaccines were conducted online, where black markets were either underregulated or overlooked.

    The Lack of International and Localized Responses

    The critical response from local communities and governments has not been proportional to the scale of the problem. There has yet to be significant legislation against illegal mining and counterfeit goods production, and binding regional mechanisms have been lacking. Important work was initiated by the Organization of American States (OAS), but most of it has been on norm-building, education, training, and diplomatic negotiation, which could take years to produce concrete results. 

    This lack of response is due to a number of factors. Primarily, many local and state law enforcement officials in Latin American countries are corrupt, in part due to their distressed living and working conditions, exacerbated by the pandemic. Also, some governments have participated in these illegal schemes, therefore having no incentive to regulate or stop them. Corruption within local government bodies has been most prevalent in majority-Indigenous regions, where salaries and good governance are critically low. 

    This issue is highly complex and requires state reconstruction at all levels. Cutting off these criminal groups without replacing the governance and socio-economic mechanisms they put in place would mean cutting off community access to essential services, as well as any appearance of social mobility and economic opportunity. Due to this high level of corruption, some Latin American governments do not have the means, or the will, to respond and provide an alternative to individuals turning to organized crime for help. 

    Political Deadlock

    Some states, like Venezuela, Cuba, Haiti, El Salvador, Honduras, and Guatemala, are arguably fragile or failed states. This observation could also apply to certain parts of the United States, where local governance is completely dysfunctional and federal political deadlock has prevented reasonable policies from passing, namely drug legalization, universal healthcare, and a “social safety net” system.

    These countries, presented with a lack of will and resources to counter problems at their core, will pass the buck to intergovernmental organizations like the OAS and the UN, who are severely underfunded, understaffed, and lack the authority to adequately contain the issue.  

    Proposing Policies

    Fortunately, despite these grim facts, there are some potential policy solutions. One notable solution is to decriminalize drugs. To contain and ultimately disrupt transnational criminal groups, a unified financial policy needs to be implemented. Public and private sector organizations will need to collaborate, as will different government agencies, to bypass corruption and enforce effective policies. National and hemispheric reporting agencies should be created to supervise their collaboration.

    Drug Policy

    Decriminalizing drugs may eliminate black markets and the incentive for people to create and participate in black markets in the first place, which can open a path towards legalization, taxation, and regulation in the longer run. Drug cartels are not expected to go down without a fight, so this solution would require swift and decisive leadership. To decrease cartels’ ability to forcefully respond, governments across the continent should provide immense economic incentives for people to desist from violence, namely poverty alleviation, amnesty, and socio-economic integration programs. This should be done by shifting military spending to aid and development spending. Costa Rica is a particularly noteworthy example of demilitarization.

    More Than Drugs

    Still, organized crime would continue thriving as drugs are not its only source of revenue. To fight illegal mining, another solution is to increase the oversight of mining permits. Salaries of oversight officials should be increased to prevent pay-to-play corruption. Most illegal mining is done through permits granted illegally by bureaucrats within the government at all levels.

    Good Governance

    A system can be put in place to restore the governance instituted by these criminal groups; otherwise, more groups may gain governmental power and encourage an endless cycle of violence and statelessness. Hence, implementing strong anti-corruption and poverty alleviation mechanisms throughout the region is a possible solution. In many respects, the US, Canada, and intergovernmental organizations have created these problems, and inaction does little in the way of bringing about justice and good governance in the region. 

    Fighting Corruption

    Salaries of local, state, and national officials can jointly increase to tackle corruption, especially in Tri-Border Areas. This solution may be justified politically through the vein of national security. Without these criminal groups, terrorism, crime, and violence rates in the region will decrease. 

    New Decade, New Approach

    These policies try to aim at the root causes of transnational organized crime, institute strong state institutions, and build confidence within the government. Looking back at the past few decades, tough law enforcement tactics exacerbated death, suffering, injustice, and poverty across the Americas. Yet, a new approach is in order: one that emphasizes true justice, democracy, liberty, development, and prosperity to bolster security. The policies above are a good starting point. 

    Edited by Chase Kelliher

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    Joseph Bouchard

    Joseph Bouchard

    Originally from Quebec City, Joseph earned a BA in International Relations and Latin American Studies from the University of British Columbia. He is currently pursuing a Master's of International Affairs in National Security and Diplomacy at the Bush School of Government at Texas A&M. Joseph writes on the intelligence world and the dynamics and politics of modern conflict. He also hosts the monthly Realpolitik podcast, where he invites experts to discuss international security issues. Joseph hopes to work in geopolitical analysis, focusing on national, regional, and hemispheric security in the Americas.

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