06/24/2024

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In Battle to Slow Precursor Chemicals in Mexico, Public-Private Partnerships are a Path Not Taken

In Battle to Slow Precursor Chemicals in Mexico, Public-Private Partnerships are a Path Not Taken

In Battle to Slow Precursor Chemicals in Mexico, Public-Private Partnerships are a Path Not Taken

It was days before Super Bowl LVI in February 2022, the biggest guacamole day of the year in the United States, when a threatening call came into the government-issued cell phone of a US agricultural safety inspector working in Michoacán, Mexico.

Michoacán is the heart of the $4 billion avocado industry. To facilitate cross-border trade, the US Department of Agriculture sends inspectors like this one that make sure the avocados are not carrying diseases or insects that may hurt US production.  

Michoacán is also a prominent hub for organized crime groups, whose business ventures range from extortion of all types of economic activities to the production and trafficking of synthetic drugs. 

*This article is part of a two-year investigation that tracked the supply chain of precursor chemicals that aid in the production of methamphetamine and fentanyl in Mexico. Read the other articles of the investigation here and the full report here.

Mexico’s Ministry of Agriculture and Rural Development, which first reported the news in a press release, did not specify what was said to the inspector over the phone, but the words were enough for the US government to abruptly halt avocado exports until further security measures could be enacted. 

Panicked by the possibility they would not be able to access the huge market of hungry American football fans, the private growers, united through the Association of Exporting Avocado Producers and Packers (Asociación de Productores y Empacadores Exportadores de Aguacate de México – APEAM) since 1997, reached out to their government. Less than a week later, the US government announced that exports had resumed.

In some ways, the case was a warning. Mexican criminal groups exert an enormous amount of pressure on businesses across the country. Avocado-growers, for instance, are regularly extorted based on their acreage and production. 

But in other ways, it was an illustration of how trade can be a useful leaver to press Mexico’s security forces into action. When pressed and suitably motivated by the private sector, the Mexican government could act in the face of a criminal threat. 

In that way, the avocado example stands in sharp contrast to how Mexico is dealing with another threat: the illicit production of fentanyl and methamphetamine. Mexico is the key provider of these synthetic drugs to the United States, where tens of thousands overdose every year, especially on fentanyl. The effects of this trade are also experienced in Mexico. Violence over the control of these markets contributes to tens of thousands of homicides and disappearances, while the country is increasingly experiencing public health constraints due to growing domestic consumption.

Yet, the efforts to slow diversion of the chemical substances used to make synthetic drugs in clandestine laboratories have, so far, not been effective, and illicit producers continue to access them with relative ease.

“We usually get the chemicals from companies in Mexico, which have all the permits to access them,” said one of many methamphetamine producers in Michoacán who spoke to InSight Crime, expressing a common sentiment during the two years we studied precursor chemical flows through the country.

SEE ALSO: Beyond China: How Other Countries Provide Precursor Chemicals to Mexico

Given the mutability of methamphetamine and fentanyl and the relatively small amounts of chemicals required to produce them – several of which have various legal uses – the Mexican government would need to receive industry help to regulate the substances or else enact a fully prohibitionist regime that would disrupt licit trade. 

To avoid the latter option, the private sector should play a cooperative role in the regulation of these chemicals, effectively “co-producing” security and law enforcement benefits. To be sure, public-private partnerships (PPPs) are part of the relative success of the avocado industry, where the growers, the Mexican government, and the US government all work in concert to mitigate security risks.

And in a variety of worldwide circumstances, the private sector and government have worked together to fight elements of transnational organized crime that endanger lives and the licit economy, using best practices for PPPs, some of which are outlined below. 

Still, similar efforts that might mitigate the negative impact of synthetic drug trafficking have yet to have any real impact. And – according to numerous industry sources, government officials, multilateral experts, and business experts who spoke to InSight Crime on condition of anonymity given the sensitivity of the topic – until both Mexico’s private sector and its government feel a sense of urgency, this existing state of affairs looks set to continue. 

Motivating a Collective Response – The European Example

Urgency comes in many forms. In Europe during the mid-2010s, it came following a series of terrorist attacks in many of their storied cities. One such attack involved sulfuric acid and ammonium nitrate. The chemicals were used to make what Palestinian insurgents once dubbed “The Mother of Satan.”

The Mother of Satan was triacetone triperoxide, or TATP, an explosive powder that terrorists in Belgium manufactured in an empty apartment building in a middle-class neighborhood in Brussels in preparation for a series of suicide bombings in the city’s metro and airport on March 22, 2016. The attacks killed 32 people. 

The terrorists had purchased some of the chemicals locally, a pattern seen in other high-profile attacks between 2015 and 2019 in Paris, Brussels, Manchester, and Lyon, with homemade explosives believed to come from local hardware stores and other innocuous purveyors.

Following the terrorist acts, the European Union (EU) worked diligently to create a common threat assessment regarding precursor chemicals used to create bombs. To start, the European Commission held an Open Public Consultation, which received input from industry and academic groups, including the European Chemical Society.

In 2019, following this consultation, the EU passed wide-ranging regulations of such chemicals, amending less-stringent ones enacted six years earlier. The reforms relied on strengthening the distinctions between professional users and the general public when it came to availability of materials; requiring that transaction data be kept for a long time given patterns of delay in bomb making; and including online marketplaces and the “dark web,” among other changes. 

The EU Commission also created a Standing Committee on Precursors composed of member states and industry associations to help with implementation of the new rules across the EU’s multiple jurisdictions. Reporting requirements now include the responsibility to determine if an intending customer was acting in a “suspicious” way by purchasing material they did not seem to understand, in quantities that were “uncommon for legitimate use,” or was unwilling to provide their proof of identity. National contact points with 24/7 availability were mandated to manage industry reporting of such customers. 

Despite the inconveniences of having to accede to new regulations, including these significant reporting requirements, the companies appear to have bought into the program, even in countries that are not part of the EU. One Norwegian food export company, for example, highlighted the EU’s reasoning on its website, noting the new legislation’s goal of keeping dangerous materials out of the hands of terrorists and the company’s intention to comply through appropriate reporting as a part of the supply chain.While a variety of factors can explain the phenomenon, the number of terror attacks – and, within those, bombings – has since declined, according to the 2023 European Union Terrorism Situation and Trend report. What’s more, terror groups are advising each other online, according to the report, on how to try to evade the restrictions on bomb precursors.

Collective Action, Positive Incentives, and Toolkits  

Successful PPPs require more than just motivation regarding earnings and reputation. In order to be sustainable over time, both parties must provide benefits and incentives that keep each other engaged.

For instance, activists and government regulators worldwide have found that anti-corruption efforts engaging the private sector need to take a “collective action” approach – defined as one where all private participants in an industry seek and agree to act in concert. This is imperative since, as the United Nations Office on Drugs and Crime (UNODC) notes in a workbook on corruption, the “prevailing sentiment is that if one company does not bribe, the competitors will.” 

That zero-sum sentiment was at least part of the challenge the United Kingdom had to overcome when the government created the National Economic Crime Centre (NECC). Established in 2018, the NECC is intended to coordinate and amplify the combined efforts of several government ministries and the private sector to combat organized economic crime, protect the public, and safeguard the “prosperity and reputation of the UK as a financial cent[er].”

The government sold its efforts by pointing to rising levels of economic crime, as well as highlighting the importance of maintaining the UK’s reputation as a safe and respected international banking hub. This task force concept includes working together to prioritize investigations, both civil and criminal, to achieve maximum positive impact on the sector. 

As an example of its work, in April 2023, the NECC was part of a coordinated effort by the government and the banking industry to establish new procedures protecting banking transactions taking place at post offices. The NECC was also instrumental in Operation Henhouse, a set of massive fraud seizures in May 2023. 

In other cases, companies took collective action because of a threat from the state. In Argentina, for example, government inspectors were eliciting bribes from shipping companies to clear them from an arduous inspection process. Refusing to pay could cost the companies tens of thousands of dollars a day in lost revenue, as the inspectors had the power to simply delay unloading the cargo. According to the organization that unearthed the corruption scheme, the Maritime Anti-Corruption Network (MACN), as much as $30 million per year was paid to corrupt inspectors and their accomplices.

In response, MACN partnered with a local organization to investigate the root cause of the problem, which included dozens of interviews with stakeholders and government officials. It then devised a solution – a modernized, transparent process that was less discretionary – and the means by which it could be implemented. In all, the process took three years but resulted in a new regulatory framework that was collectively implemented by private and state actors alike.   

Positive incentives are also important. Tax breaks, reputational boosts, or consumer enhancements like the highly influential US Environmental Protection Agency’s “Energy Star” certification for energy-efficiency, applicable to a range of items like buildings, appliances, technology, and lighting, can be the difference between widespread buy-in and a floundering government-led PPP-initiative.

Governments have their own positive incentives to seek partnerships with the private sector. A PPP can help diversify and pinpoint the enforcement toolkit, such as using technology which may be more advanced within an industry than the government. This is the case with efforts to fight human trafficking worldwide. The UNODC, for example, has noted that private companies have the capacity to address labor trafficking and exploitation by better oversight of their supply chain and procurement processes. And the US Chamber of Commerce underscored the important role in fighting human trafficking played by the group “Truckers Against Trafficking,” convenience store owners, and Uber drivers. 

One of the most promising examples of this type of multi-sectoral task force happened in Mexico following a UNODC-hosted Regional Experts Group Meeting in 2020, which brought together governments, banks, NGOs, transportation, and technology representatives. Since that meeting, Truckers Against Trafficking has partnered with the Mexican government, the Mexican trucking association, and a Mexican non-governmental organization, Consejo Ciudadano, which runs the national human trafficking hotline and a project known as Guardianes del Asfalto, to provide training to drivers of trucks and taxis. Truckers Against Trafficking and Guardianes del Asfalto also received a commitment from the national bus association to launch a major public awareness campaign at bus terminals throughout Mexico.

How PPPs Work – or Don’t – in Mexico

In Mexico, PPP arrangements exist in many areas, such as international trade, consumer safety, and infrastructure, constituting efforts to “co-create” public goods of prosperity and citizen protection against violence, illegal trafficking, and corruption. These partnerships often falter, however, due to systemic national weaknesses. Private backers of political parties and candidates often have anti-regulatory agendas; initiatives face issues of sustainability during total political changeovers removing government figures whose personal contribution was vital to the PPP dynamic; and some in Mexico resist seeing the role of policing illegal activities as anything other than the job of the government.

Many Mexican private sector actors told InSight Crime that their business compliance responsibilities are managed by multiple government partners, sometimes at bureaucratic war with each other, making cooperation nearly impossible. Without a coordination mechanism or single point of contact for inquiries, government entities may end up issuing multiple regulations on the same private businesses, failing to keep up to date on the concerns or proposed solutions suggested by industry, or ignoring the problem because the responsibility is formally designated elsewhere.

In this regard, the avocado industry may be the exception to the rule. There are several reasons for this. To begin with, there are clear incentives. The avocado industry creates almost 400,000 direct and indirect jobs in Mexico and accounts for billions in trade.

There are also clear goals. The chapter on phytosanitary measures in the United States-Mexico-Canada Agreement (USMCA), for instance, includes an up-front set of definitions of the common goal among the trade agreement parties that justifies the extraordinarily tough and detailed regulations which follow: to “protect human, animal, or plant life or health in the territories of the Parties while facilitating trade between them.”

The regulations are backed up by a program of extraterritorial enforcement by US Agriculture and Plant Health Inspection Service (APHIS), which is paid for by a $0.04 per kilogram export tax, Jesús Moreno, a member of the Mexican avocado industry’s trade organization, told InSight Crime. 

There is also strong local participation in the process. Moreno noted that there is an active working group, which facilitates communication between the industry and the government, informing the industry about changing regulations under the USMCA (for example, regarding fertilizer use) – though in fact, the industry is often more up to date than the government. 

Finally, the Mexican government and industry work closely to mitigate security issues affecting APHIS inspectors and farmers in Mexico, the importance of which was demonstrated by that brief pre-2022 Super Bowl trade shutdown by the United States.

PPPs have tackled difficult security problems in other parts of the country as well. Businesspeople in many of Mexico’s major cities, for example, have participated in a range of “mesas de seguridad,” or security working groups, along with municipal government counterparts, using joint action to push back dangerous levels of crime threatening lives and the economy. 

Examples include the Todos Somos Juarez effort of the early 2010’s; the Monterrey business community’s support from 2011 of the Fuerzas Civiles (including successful efforts to recruit police from cities throughout Mexico); Alto a Secuestro efforts in Guadalajara; and on-and-off again working groups in Tijuana, begun in 2008, and recently restarted in April 2023. 

SEE ALSO: A Look From Within: Navigating Extreme Violence in Ciudad Juárez, Mexico

Common to these efforts were initially agreed-upon aspects of the security problems to be solved – usually those most visible or upsetting to the wealthiest inhabitants of the city – and efforts by wealthy citizens to unilaterally augment the cities’ budgets. While often effective at first, these efforts face issues of sustainability, including loss of interest by the private sector and the aforementioned turnover in government personnel who had established relationships. 

Other initiatives have also sputtered. For example, Mexico’s efforts at instilling a reporting system under the Credit Law (Article 115) to comply with requirements of the Financial Action Task Force (FATF), the international regulatory body that oversees money laundering compliance, have been a “failure,” according to three anti-money laundering experts in Mexico, including two retired officials from the country’s financial intelligence unit, who spoke with InSight Crime.  

The FATF most recently graded Mexico as having “low compliance” on the requirement of “assessing risks and applying a risk-based approach.” Specifically, the 2023 FATF report noted that countries usually no longer need an “enhanced follow-up” of their technical compliance deficiencies more than three years after a non-compliant grade; Mexico is now in its fifth year of such follow-up, which could lead to being “grey listed” along with other countries who are not meeting their anti-money laundering/countering terrorist financing (AML-CFT) obligations. Grey-listing can have serious implications for Mexico’s cross-border trade, credit, and investment.

PPPs and the Mexican Chemical Industry

As it relates to the chemical industry in Mexico, attempts at PPPs have also largely failed. And sources within the chemical industry told InSight Crime that most efforts to protect companies from diversion and other potentially illicit activities have come from voluntary self-regulation initiatives. 

The National Chemical Industry Association (Asociación Nacional de la Industria Química – ANIQ), for example, requires all of its member companies to conduct due diligence on their suppliers and customers, perform risk assessments, and maintain records demonstrating compliance with national and international standards. However, the government has yet to endorse this scheme or provide positive incentives for non-ANIQ affiliated companies in the chemical sector to participate.

“We hope that a potential endorsement will come along with more trust between the government and our industry,” said a source working in the chemical industry who did not want to be named.

To be sure, based on our conversations with a range of practitioners and observers of the Mexican chemical industry, there appear to be three main impediments for PPP’s to be constructive in the country. First, there’s a stark disparity in how both parties define the problem and perceive its scale. While private industry acknowledges the existence of diversion for synthetic drug production, many companies tend to deflect responsibility, attributing the issue to a minority presumably engaging in illicit activities. 

Conversely, numerous experts, including current and former law enforcement officials consulted by InSight Crime, said the government has predominantly downplayed the issue, shifting blame onto US consumers and chemical companies in China. This obstinance starts at the top: Outgoing President Andrés Manuel López Obrador, or AMLO, as he is popularly known, has denied Mexico is a major producer of illicit fentanyl in spite of widespread evidence to the contrary. 

“It increasingly feels like the door for dialogue with authorities is shut,” said the chemical industry source. 

That door may remain shut for a while. Claudia Sheinbaum, who is running under AMLO’s Morena party banner, is expected to win the June 2 election. So far, she has argued that she will maintain the president’s stance on a number of issues.

Secondly, a lack of trust impacts information sharing, reporting illicit activities, or participating in working groups  with the private sector. Sources in the chemical industry told InSight Crime that workers have been kidnapped, extorted, and threatened by criminal actors, making companies extremely wary of sharing sensitive information about their clients or colleagues with potentially corrupt government entities. The continued lack of coordination among Mexican government institutions, which appear to operate in isolation from each other, also impacts the potential for successful PPP’s. 

In particular, acting and retired government officials consulted by InSight Crime, as well as members of the chemical industry, expressed concern about the Mexican Navy’s leading role in port security due to a lack of  sufficient training and guidance on best practices for handling and maintaining sensitive data. Having a single, civilian, senior point of contact in the government is a best practice that could increase trust; at the very least a coordinating body should ensure bureaucratic coherence.

The third barrier is the perception of overly general regulations and the need for an industry-informed, risk-based approach. Chemical industry representatives claim to be “strangled” by regulations, while noting that those who may engage in diversion can find legal loopholes or operate outside the legal framework altogether. 

SEE ALSO: Mexico’s Laws to Regulate Chemicals Work on Paper But Not in Practice

To address this, several experts consulted by InSight Crime flagged the importance of working with the industry to determine the highest-risk chemicals and most probable methods of illegal importation or diversion, rather than treating all trade as worth regulating equally. Such an approach would also target, for example, shipping companies, customs agents, e-commerce, and small- or medium-sized enterprises most likely to be used as front companies. Businesses could produce risk maps which result in specific chemicals being treated with the same regulatory restrictions used to detect money laundering, while other chemicals should be deregulated if they are not truly harmful. 

A Global Challenge

Mexico is not alone in its struggles to motivate the chemical industry to self-regulate or establish effective PPPs. In spite of the surge in overdose deaths in the United States, authorities in the United States have struggled to promulgate their own PPPs to help them update the regulatory framework for chemical companies. 

The framework explicitly identifies a few specific government points of contact to receive and respond to industry concerns, giving office numbers and contact emails for the Food and Drug Administration (FDA), the Environmental Protection Agency (EPA), the Drug Enforcement Administration (DEA), and the Federal Bureau of Investigation (FBI). But it offers companies few incentives or motivation to act. 

Indeed, a relatively unexplored area of cooperation for the chemical industry and government to fight chemical diversion would be the avenue of creating positive incentives for businesses that are compliant and transparent – a whitelist rather than a blacklist approach. Some tools might be a voluntary code of best practices, business integrity labeling and other public relations practices, a public campaign on the danger of synthetic drugs and the role of business, and tax incentives. 

Overall, this approach would require communication and constructive dialogue, possibly at formalized public-private working groups, without either side branding the other as irredeemably corrupt or non-compliant. It also would require members of the public sector to face negative consequences for not working cooperatively with industry.

Until then, in synthetic drug production zones like Michoacán, the same area where criminal groups were threatening the 2022 Super Bowl guacamole supply chain, independent producers will have few problems sourcing their chemicals on an international or local level.

When we asked one clandestine producer during a recent visit to the area where he got his raw materials to make methamphetamine, he blurted out his supplier’s name – it was a medium-sized Mexican company about 300 kilometers away.   

*Steven Dudley, Victoria Dittmar, Sara García, Parker Asmann, Jorge Lara, and Jaime López contributed to the reporting of this article. The findings are also based on consultations with a group of experts including members of the chemical industry, academics, NGO representatives, officials from multilateral agencies, diplomatic staff, and active and retired Mexican government officials.

The post In Battle to Slow Precursor Chemicals in Mexico, Public-Private Partnerships are a Path Not Taken appeared first on InSight Crime.