Executive Summary Johnson Controls, Inc. asked STRATFOR to provide a security and business-risk assessment focusing on threats that may impact the company’s operations, facilities and personnel throughout the country, while specifically highlighting the cities of Ciudad Juarez, Reynosa, Matamoros, Nuevo Laredo, Tampico, Saltillo, Ramos Arizpe, Torreon, Santiago de la Monclova, Durango and the Monterrey metropolitan area. Areas of interest identified by Johnson Controls within the Monterrey metropolitan area include Apodaca, Cienega de Flores, San Pedro Garza Garcia, General Escobedo and Garcia, which STRATFOR also discusses within this report.

The security environment in Mexico continues to be volatile due to fractures taking place within the criminal drug organizations (DTO) or more known more commonly as drug cartels. Safe to say?--—if referring to the first sentence in this para, yes Also, despite successful arrests or killings of high-value cartel leaders by the Mexican government, violence continues to increase in areas where it has engaged in an offensive against the country’s numerous drug trafficking organizations. Likely due to the approaching national elections in 2012 (it appears that Mexican President Felipe Calderon is determined to continue his offensive against the cartels until the end of his term), and despite the rising death toll, the Mexican government has increased the tempo of its military? operations throughout 2011? against the cartels.Yes, yes. Military operations are continuing in Tamaulipas and Michoacán states and new offensives have been launched in Veracruz, Durango, Coahuila and Nuevo Leon states when?.

Meanwhile, with the federal government’s main focus still squarely on combating the drug cartels, general crime remains a concern for multinational company (MNC) operations and personnel. In many cases this crime wave can be directly linked to drug cartel activity and individuals linked to the drug trade. However, as Mexican security forces continue to put pressure on the cartels’ drug transportation networks and revenues, the cartels continue to expand their revenue-making criminal portfolio to include kidnapping and extortion. Within that target set are foreign businessmen and other individuals not associated with the Mexican drug trade. Furthermore, between the expansion of operations by Mexican security forces against the cartels and the standing condition of endemic corruption of municipal and regional law enforcement by those cartels, smaller criminal groups have been able to flourish in Mexico’s unstable security environment. As a result, general crime such as carjacking, mugging, robbery and assault become less of a priority to counter for security forces and therefore remain a threat to both domestic and foreign business operations and their employees in Mexico.

Overall violence has continued to increase annually over the past five years, with 2010 being the deadliest year yet of Mexican President Felipe Calderon’s term in office with more than 15,000 deaths in Mexico associated with organized crime according to the Mexican government. As will be discussed in below, violence increased dramatically in the Monterrey, Matamoros, Veracruz, Durango metropolitan regions, however recorded cartel-related deaths in Juarez and Tijuana metro areas dropped appreciably, resulting in an overall statistical drop from last year which does not appear to correlate with the spread of cartel-on-cartel and cartel-on-government conflict. The rest of this paragraph was outdated from the old report so I cut it—also we don’t need to refer to the old reports since this is a new one and with a different audience. What are the death stats for this year so far so we can back up that violence is still increasing? I mentioned them further down, in the section immediately below, second paragraph. Moving forward over the next three year time (confirm timeframe) was this for V to answer? period, one cartel may eventually prevail become the dominant DTO. STRATFOR has assessed that the Sinaloa Federation remains the most likely candidate for the top spot, which we will discuss further in this report. If a dominant cartel does emerge, one result will likely be a more predictable operating environment for multinational corporations (MNCs) operating in the country. However, in the meantime, as the Mexican government and the drug cartels battle for supremacy, the drug trafficking business in Mexico will remain extremely volatile, with the security threat environment at critical levels and drug-related crime and violence a part of everyday life. Therefore, STRATFOR continues to assert that MNCs must plan their operations accordingly and maintain a healthy and robust security apparatus in the

country to ensure the productivity and safety of their assets before the violence can begin to subside.

Mexico-Wide Cartel War Overview The continuing cartel war in Mexico, which has created the most severe security crisis that the country has seen in nearly a century, consists of three fronts: the battles among the various drug cartels, the government’s battle against the drug cartels, and the violence being inflicted by the cartels and other criminal groups against the civilian population. The campaign that Calderon launched against the cartels in December 2006 has steadily escalated over the last five years, and while there is no denying that the government is making progress in fracturing the largest and most powerful cartels, one result has been a steadily deteriorating security situation nationwide.

One measure of this growinge insecurity is Mexico’s homicide rate statistics related to organized crime. According to the Mexican Public Security Secretariat, the number of organized crime-related homicides in 2009 was approximately 8,200, and a total of 15,273 in 2010. Cartel-related homicides reported for 2011, through AugustNovember 4, were 8,77610,933—this needs to be updated. What are cartel deaths to date? Mexican papers have a death toll so it seems odd that August would be the reporting period. Though more up-to-date statistics have yet to be published, iIt appears that over-all the level of cartel violence (and the concomitant security concerns) are slightly lower overall than those of 2010, and shift somewhat by region as the cartel dynamics and the violent fallout from that continues to change each year. The statistical drop does not appear to be indicative of the conditions overall, as a large degree of the change stems from the quieter conditions seen this year in Juarez, which conditions are not are not duplicated in any other city or region beside Tijuana.

Territorial disputes among drug cartels have long been the norm in Mexico, but Calderon’s offensive against the country’s most powerful cartels has severely disrupted the criminal balance of power, leaving power vacuums other criminal groups seek to fill. Throughout 2011 thus far, this conflict has been especially visible in border cities such as Ciudad Juarez, Nuevo Laredo, Reynosa, and Matamoros, which the cartels use as drug-smuggling corridors into the United States. In addition, we have seen an escalation in cartel-related conflicts this year in Monterrey, Durango, Veracruz, Acapulco, and other parts of Mexico that fall along the drug supply chain. At this point, there are very few states in Mexico that have not been affected by the cartel war.

CARTEL GRAPHIC HERE

Arellano Felix Organization The AFO (aka the Tijuana Cartel) is widely considered to be operating by permission of the Sinaloa cartel, an agreement suggested by a drop in the turf-war homicide rate in Tijuana. According to the Mexican federal government, deaths by homicide statewide in Baja California from January through August 2011 numbered 464, compared to 579 for the same period in 2010. Any significant gains or losses for the AFO have gone largely unnoticed since the cartel effectively operates as a Sinaloa vassal organization.   For the near term we do not expect significant changes within or related to the AFO, although confidential sources indicate that the cartel has engaged in discrete interaction with Los Zetas. Due to that fact, we believe there will probably be a resurgence of open hostility toward the Sinaloa cartel by the AFO at some point, to regain control of its plazas.     Sinaloa Federation The Sinaloa cartel, under the leadership of Joaquin “El Chapo” Guzman Loera, has continued to control the bulk of its home state of Sinaloa, most of the border region in Sonora state and the majority of Chihuahua and Durango states. The cartel continues to pursue its strategic goals of expansion into, or absorption of, neighboring cartel territories and to maintain its methamphetamine and heroin production in Sinaloa, Durango, Nayarit, Guanajuato, Aguascalientes

and Jalisco states. Sinaloa is known to be smuggling high-value/low-volume commodities (methamphetamine, domestically produced heroin and Colombian cocaine) into the United States via the plazas it directly controls at Tijuana, Mexicali, Nogales, Agua Prieta, Columbus and Santa Teresa (both in New Mexico), Rio Bravo, El Porvenir and Manuel Ojinaga as well as the Gulf-controlled plazas at Ciudad Mier, Miguel Aleman, Diaz Ordaz, Reynosa and Matamoros.   Regarding Sinaloa's running battles to subdue the Vicente Carrillo Fuentes Organization and take control of the Juarez plaza, the slow, long-term strangulation of the VCF remains in progress. According to STRATFOR sources, Sinaloa forces and allied gangs occupy most of the Valley of Juarez, encircling the city from the New Mexico border on the west to the Texas border southeast of El Paso/Juarez.   

Vicente Carrillo Fuentes Organization (VCF, aka the Juarez Cartel)Although constriction of the VCF continues, the cartel retains the loyalty of the approximately 8,000-member Azteca street gang, which has helped it hold on to Juarez and maintain control of the three primary ports of entry into the United States, all of which feed directly into El Paso, Texas. STRATFOR sources recently indicated that the VCF also retains supply lines for its marijuana and cocaine shipments and continues to push large quantities of narcotics across the border.    On July 29, Mexican authorities captured the top leader of La Linea, the VCF’s enforcement arm. His position in the VCF hierarchy made him difficult to replace. For the cartels, there is never a good time to lose an important figure, but the loss is felt even more acutely when the figure is the leader of a cartel’s armed wing and he is removed from the mix during a heated and prolonged battle for survival. At the beginning of 2011 there was an expectation that the level of violence associated with Sinaloa operations against the VCF would continue to escalate, given the indicators seen at the time. However, over the first eight to nine months of 2011 we saw cartel-related homicides subside in the Juarez region. It appears now, though, that violence again is on the rise in Juarez. Gun battles and targeted killings began increasing again, during September and October, and STRATFOR sources in the region expect the current trend to continue into 2012.

Los ZetasLos Zetas continue to fight a large multi-front war across Mexico. They are combatting the CDG, Sinaloa and Mexican government forces in the northeast while assisting the Juarez Cartel in holding Sinaloa forces back in Chihuahua state. Los Zetas are also taking control of additional territory in Zacatecas, pushing into Jalisco, Nayarit, Guerrero and Mexico states and battling Sinaloa in the southern states of Oaxaca and Chiapas. The organization is being hit hard by the Mexican military in its home territories in Nuevo Leon, Tamaulipas, Coahuila and Veracruz states, and fighting to hold the crucial plazas at Monterrey and the port of Veracruz against incursions by Sinaloa, CDG and CJNG.

Certainly, Los Zetas are being pressed on every side. What we find telling is that despite significant challenges to their ownership of Monterrey and Veracruz, Los Zetas do not appear to have been displaced, though we do expect violence to increase significantly in the near term as rival groups openly push into both cities. While Los Zetas have withdrawn from territory before – Reynosa in the spring of 2010 being a prime example – the loss of that plaza was not detrimental overall to the cartel’s operations, given its control of other plazas in the region and in Nuevo Laredo. However, we expect to see Los Zetas ramp up defensive efforts in Monterrey and Veracruz, two cities that have great strategic value for the cartel.

Gulf Cartel In the last four months, it has become apparent that a schism within the CDG involving divided loyalties has become a split with large and likely violent consequences. The rift began to develop after CDG leader Osiel Cardenas Guillen was captured and imprisoned in Mexico in March 2003. For

a time he continued to run the organization from his federal prison cell, but Mexico extradited him to the United States, where he was convicted. Currently he resides in the Supermax penitentiary in Colorado, where tight security measures make it very difficult for him to maintain any control over his organization. Following his removal from power-by-proxy, Osiel Cardenas Guillen was replaced as leader of the organization by a pair of co-leaders, his brother Antonio Ezequiel “Tony Tormenta” Cardenas Guillen and Jorge Eduardo “El Coss” Costilla Sanchez. This arrangement shifted when “Tony Tormenta” was killed by Mexican troops in November 2010. It is believed that at the time Rafael “el Junior” Cardenas Vela, reportedly the nephew of Osiel and Antonio Cardenas Guillen, expected to replace his uncles as leader of the CDG. Instead, Costilla Sanchez assumed full control of the organization. The schism became wider as two factions formed, the Metros, which were loyal to Costilla Sanchez, and the Rojos, which were loyal to the Cardenas family. What we have seen unfolding in the last several months has been a pattern of high-value leader losses from both factions.  On Sept. 3, 2011, the body of Samuel “El Metro 3” Flores Borrego was found by authorities in Reynosa. Flores Borrego had been the trusted lieutenant of Costilla Sanchez and served as his second in command as well as Reynosa plaza boss. These two men were at the top of the Metros faction. On Sept. 27, in a rather brazen hit on U.S. soil, gunmen in an SUV opened fire on another vehicle traveling along U.S. Route 83 east of McAllen, Texas. The driver, Jorge Zavala from Mission, Texas, who was connected to a branch of the Gulf Cartel, was killed. Though his role in the cartel is unclear, he is rumored to have been close to a senior Gulf plaza boss, Gregorio “El Metro 2” Sauceda Gamboa, who was arrested in April 2009. As indicated by his “Metro” nickname, Sauceda had been aligned with the faction of the Gulf cartel that supports Costilla Sanchez.

On Oct. 11, the Mexican navy reported that the body of César "El Gama" Dávila García, the CDG’s head finance officer, was found in the city of Reynosa, Tamaulipas. “El Gama” had been Antonio Cardenas Guillen’s accountant. After Antonio’s death El Gama was made plaza boss of CDG’s port city of Tampico for a period of time, then placed back in Matamoros as the chief financial operator for the cartel. Then most recently Rafael “El Junior” Cardenas Vela was arrested Oct. 20 after a traffic stop near Port Isabel, Texas, while on his way to a residence he reportedly owns on nearby South Padre Island.   Though the CDG split has been quietly widening for two years, the apparent eruption of internally focused violence during the past quarter indicates the division may be about to explode. It is not yet clear whether the detention of Cardenas Vela by US authorities will remove the impetus toward a violent clash, or conversely add fuel to an all-out internecine war, but the consequences of a violent rupture within the CDG likely include moves by Los Zetas and Sinaloa to take advantage of the situation and grab territory. This would further heighten violence beyond the already volatile conditions created by the three-way battle between Los Zetas, the CDG and government forces for control of Mexico's northeast.

Cartel Pacifico Sur Cartel del Pacifico Sur (CPS), which is led by Hector Beltran Leyva, the youngest and last Beltran Leyva brother around whom the Beltran Leyva Organization was centered, has been allied with Los Zetas for the last year or so. With assistance from its Zeta allies, CPS continues to fight for supremacy in the central and western coastal regions of Mexico, including northward into Sonora and Baja California states. The CPS also has interests in Durango, Sinaloa, Jalisco and Guerrero states, predominantly along the Pacific coastal regions, and is known to be involved in the war for control of Acapulco. While the cartel itself has not been seen to be actively involved in conflicts recently, to such an extent that there would be media attention paid to it, the organization does not appear to be floundering. Over the last several months the cartel has suffered no significant arrests, and any violence associated with group has gone unnoticed in contested areas. This lack of reported losses or gains for CPS may be due to its alliance with Los Zetas, which attracts most of the media attention. There also is the possibility that, while Sinaloa and the Mexican government focus their efforts on Los Zetas, CPS is taking advantage of a lull in territorial battles to concentrate

on smuggling activities and rejuvenate its revenue streams. We do not consider CPS to be marginalized at this point and will be watching for signs of activity during the last quarter of this year.

La Resistencia La Resistencia was originally a confederation between enforcers from Guadalajara-based affiliates of the Sinaloa Federation, the Milenio Cartel and Ignacio “Nacho” Coronel's faction, along with enforcers from the Gulf Cartel and LFM. The organization was intended to fight against Zeta incursions into Jalisco and Michoacan. Following the July 2010 death of Coronel, the alliance splintered as the LFM made a push to take over Guadalajara and Coronel's followers blamed Sinaloa leader El Chapo Guzman for Nacho Coronel's demise.    In the melee that followed, the Milenio Cartel was badly damaged by the arrests of high- profile leaders and by battles with the strongest of the splinter groups from Coronel's organization, CJNG. Remnants of the Milenio Cartel have continued to use the La Resistencia name. Although La Resistencia was originally formed to combat Los Zetas, it recently announced an alliance with the group. If there is an alliance forming, it could help explain why CJNG, the arch-enemy of La Resistencia, recently traveled across Mexico to target Zeta operatives in the port city of Veracruz.    La Resistencia has been hit hard by CJNG and the Mexican government, but an apparent alliance with Los Zetas raises questions regarding the transfer of skills and the potential for a significantly increased Zeta presence in La Resistencia's area of operations. We will be watching this situation closely, since the dual dynamic of a Zeta-La Resistencia alliance and CJNG’s cross-country operation lead us to expect elevated violence over a substantial part of Mexico’s bi-coastal midsection.

La Familia MichoacanaOver the last four months LFM sustained loss after loss, either at the hands of the Knights Templar or the Mexican government. On Oct. 5, LFM leader Martin Rosales Magana “El Terry” was captured in Mexico state, the most significant hit to the cartel’s leadership since Jesus "El Chango' Mendez's capture by the military in July. The Mexican Federal Police claims that the La Familia structure is disintegrating and the cartel no longer has much access to essential precursors in the production of methamphetamines. The continued losses indicate that LFM as an organization is nearing its end. However much LFM’s losses have hurt the organization, the cartel continues to show activity. In a raid in July, U.S. law enforcement agencies arrested 44 individuals in Austin, Texas, who were reported as being LFM members, however as the cells in Texas have been in place long enough to predate the split in the original LFM and the emergence of the Knights Templar, it remains unclear whether the cell in Austin was aligned with LFM or the Knights Templar.      There have been indications that remnants of LFM are continuing to seek an alliance with Los Zetas. Narco banners signed by the Knights Templar were intended to send a message to El Terry, blaming him for aligning with Los Zetas. Following his arrest in early October, Mario Buenrostro Quiroz, the alleged leader of a Mexico City drug gang known as “Los Aboytes,” claimed in an on-camera interview that El Terry had sought an alliance with Los Zetas prior to his arrest. This claim followed reports that Jesus “El Chango” Mendez was also seeking an alliance with Los Zetas before being arrested. While the Mexican government denies LFM has achieved an alliance with Los Zetas, LFM will likely continue pressing for any advantage to stay alive as the KT continues trying to eradicate it.

The Knights TemplarOne question that emerged over the last quarter is whether the Federal Police will increase its focus on KT operations. With LFM’s organizational decline, Federal Police will have more resources to target the KT in Michoacan and Mexico states. Federal Police Commissioner Facundo Rosas has suggested an imminent end to LFM and a shift in operations against the Knights Templar. The KT has taken hits from Mexican federal forces, but there have been no indications that the group’s organizational structure has been seriously impacted. The KT continues to display narco banners in

Michoacan and Mexico states. In September, the cartel offered monetary rewards for information leading to the capture of certain individuals named on the banners (known LFM members who the KT claimed were aligned with Los Zetas).   The early October arrest of Los Aboytes gang leader Buenrostro Quiroz has raised questions about the KT’s leadership. In the video of Buenrostro Quiroz being questioned by authorities, he said he met with KT leaders approximately a month before he was captured. He further claimed that Nazario “El Mas Loco” Moreno Gonzalez is still alive and heading the KT with Servando “La Tuta” Gomez Martinez, former LFM plaza boss, as second in command. There has been no evidence supporting Buenrostro Quiroz’s claims, although Moreno Gonzalez’s body was never found when he was reported dead in December 2010. The prospect of Moreno Gonzales, the ideological founder of LFM, still being alive would explain to a large extent LFM’s immediate decline following the KT’s emergence last March. 

The KT will continue to target LFM members in Michoacan and Mexico states, and as it takes over La Familia’s turf it will likely increase its methamphetamine production operations. Regardless of whether an alliance exists between LFM and Los Zetas, we anticipate increasing conflict between the Knights Templar and Los Zetas in the coming months due to both groups’ territorial aspirations.

Cartel de Jalisco Nueva Generacion When we began discussing Cartel de Jalisco Nueva Generacion in the last quarterly update, we included it in the “Independent Operators” section. We took the cartel at its word, which had been made clear its publically released videos, that CJNG had declared war on all other cartels. The organization, based in Guadalajara, consists primarily of former Sinaloa members who had worked for Nacho Coronel and who believe that Nacho was betrayed by Sinaloa leader El Chapo Guzman Loera. However, recent activities by CJNG have greatly muddied our take on the group.   Between Sept. 20 and the first week in October, at least 67 bodies labeled as Zetas were dumped in Boca del Rio, a wealthy southern suburb of Veracruz. All of the killings were claimed by CJNG. We find this odd for two reasons: While it is not surprising that CJNG would go after Los Zetas, Veracruz is very much outside of CJNG’s home territory in Guadalajara, and CJNG appears to have conducted these operations in cooperation with the Sinaloa Federation. Therefore, it seems as though CJNG may have been co-opted by Sinaloa.

Specifically,….We need some info on who is battling who in the country, which can be pulled from the cartel quarterly update. This is where we highlight what the situation is like now. For example, Gulf is splitting, Zetas and Gulf tensions continue in the northeast, which we expect to continue for the next x months. Who controls Durango, what has been going on in Acapulco. What is the exec summary version of describing the main cartel dynamics that we have seen this year? See above (I condensed the additions above from the 3Q update, but did not synopsize heavily as I’m not sure how much detail is needed for the purposes of this report.

This cartel power struggle is far from over and until a lasting balance of power has can bebeen solidified, violence will continue and possibly intensify in key battleground regions (which we will discuss in the cartel forecast section of this report. It is this situation that confronts foreign businesses, which are forced to conduct daily operations in an increasingly volatile environment. Not only is the personal safety of their employees threatened, but also the profitability of their business operations.

Meanwhile, the increasing friction between the Mexican government and the cartels is another reason for the level of violence in the country. As the Mexican government continues its policies to disrupt drug trafficking operations, there has been a violent retaliatory response by those cartels directed at law enforcement and other high-ranking government officials. Several officials have

been assassinated in retaliation for government counter-narcotics operations. For example…Need examples from 2011 Inserted at end of this paragraph High-ranking local and regional law enforcement and elected officials have been executed throughout the country, more often than not for having committed one of three sins: refusing to work for a cartel, working for the wrong cartel (so killed by the rival group), or caught either snitching on – or stealing from – the dominant cartel. For example…. Need examples from 2011? In February the coordinator of the so-called C-5 center, which houses federal police, naval, army, and state and municipal anticrime intelligence officials, was found in his burning armored SUV in the center of Monterrey, Nuevo Leon. In March a Mexican Army LtCol and his girlfriend were ambushed at a traffic light by gunmen in Zamora, Michoacan. Approximately 150 rounds were fired into the vehicle by the gunmen. On July 27, the mayor of a municipality in Zacatecas state was killed after being kidnapped. And on Sept. 17, the bodies of Mexican federal legislator Moises Villanueva de la Luz and his driver were found along a riverbank below a bridge in Huamuxtitlan, Guerrero state. The men had been missing since Sept. 4, when they disappeared following an Institutional Revolutionary Party (PRI) political event Villanueva de la Luz attended in his congressional district.

Given the potential for a profound fracturing of the CDG where did this come from? This is why we need the info about the cartel dynamics as I pointed out above, it’s been added above the Calderon government and its successor both face the near-future need to increase military operations in that region significantly beyond the current deployment as a large upswing in violence brought on by a CDG split is likely to negatively impact overall stability and multinational corporation operations profoundly. The security of MNC operations, as well as their ability to maintain a workforce, will be directly affected by GOM actions in this eventuality. Elaborate-what specific threats do they face? Shootouts, roadblocks, extortions to support both factions’ financing? Give a for example here of what we are already seeing as back up. A Canadian businessman, with an air-conditioning business in western Jalisco state, was killed by gunmen in the Benito Juarez neighborhood of Mexico City, on the afternoon of May 3.

According to mid-2011 data, the reported incidents of extortion of businesses shows low index rate exemplars: Chihuahua state’s index statistic is 13, while Durango state’s official extortion rate is 17. However, research indicates that the percentage of business extortion events which go unreported hovers around 85%. In national ranking by state, for homicide, kidnapping, and extortion, the following top five have been determined:

Overall Ranking Homicide Kidnapping ExtortionDurango Chihuahua Durango MorelosChihuahua Durango Chihuahua AguascalientesMorelia Sinaloa Tabasco ChihuahuaBaja California Guerrero Tamaulipas Baja CaliforniaSinaloa Nuevo Leon Michoacan Distrito Federal

Mexico-Wide Criminal ThreatThis is the section where we need to cite as many examples of what we are talking about as possible. The client is specifically interested in examples of threats that impact residents/employees, supply chain, threats to authorities and business travelers such as robberies, kidnappings, extortions, etc.

The general crime threat in Mexico is at a critical level and has been for more than a decade. Changes in the security landscape over the last couple of years, however, have led to an expansion of criminal threats in the country. Three recent developments in particular illustrate this growing problem.

First, Mexico's rampant corruption and general breakdown in law and order have created an environment in which other criminal organizations, unrelated to the drug trade, can operate with

impunity. Mexican authorities have their hands full with the cartels and have not had the resources to focus on other criminal activity. While Mexican police have always had a reputation for corruption, the extent of the problem is not fully understood. Over the past two years, several high-ranking officials have been arrested on charges of cooperating with organized crime. For example, from 2011? If we are no longer seeing this, we need to note that and if this is no longer such an important indicator of crime. Can’t just assume things are the same from two years ago. Few (if any) high-ranking officials have been arrested or charged with cooperating with the DTOs this year. However, on July 9 two Mexican Federal Police officers were arrested after they shot at Juárez Municipal Police officers during a chase. The incident began when the two suspects, who were later identified as Federal Police officers, opened fire on a nightclub in the colonia Villahermosa area of Juarez, and tried to flee the scene in a taxi cab. When Juárez police tried to stop the taxicab, both passengers shot at the officers’ vehicle.

Other anecdotal accounts indicate that police are likely either to turn a blind eye to DTO or street crime to avoid retribution, or are actively involved in extortion or kidnapping rackets. An account in Quintana Roo is particularly appropriate here. It was reported this spring that in Cancun businesses were being visited by a policeman in uniform (and likely on duty) accompanied by a man in civilian clothing, who stood in the background as the policeman introduced himself to the business owner or manager. The policeman identified himself and showed his badge, reportedly in a calm and friendly manner, then told the owner that he had with him someone who wished to speak with the owner. The policeman introduced the civilian, then stepped back out of hearing range while the Zeta established the extortion arrangement. The very clear message was sent by the presence of the policeman “What are you going to do about it? Call the police?”

Second, many drug-trafficking organizations have begun to turn to other criminal activities to supplement their incomes. Previously, drug traffickers generally focused their attention solely on the lucrative drug trade. This meant drug traffickers rarely crossed paths with civilians not associated with the drug trade. However, due to the government offensive against the cartels and U.S. efforts to interdict drug shipments from South America over the past few years, cartel turf battles have intensified, as have feuds within the organizations. As a result, many drug traffickers are becoming increasingly involved in crimes such as extortion and kidnapping for ransom (KFR). For example, the Zetas? What is some evidence of this from 2011 that we can cite? Mexico’s Public Security Department (SSP) reported on Nov 1 that between January 2010 to September 2011, federal and state authorities have reported a total of 3,114 kidnapping cases. Keep in mind, as discussed on the previous page, that approximately 15% of the kidnappings and extortions occurring actually are reported.

(It is important to note that accurate statistics regarding the kidnapping and extortion threats in Mexico do not exist, since the vast majority of kidnappings are not reported to authorities. However, one inquiry by a Mexican legislative committee estimated there are some 4,500 kidnappings per year in Mexico, only one-third of which are reported to police because families fear reprisals from the kidnappers and because the police often are involved in such crimes. This stat is several years old. What other updated info is out there? The rest of this paragraph still had info from 3 years ago. What is new? What are the conditions now? We can still caveat but there has to be some stats for reference since 2008. We can either dump this paragraph, or move the information from bottom of page 7 to this location.

Meanwhile, several groups devoted to KFR also operate throughout Mexico with varying degrees of sophistication. The more professional groups employ several teams with members assigned to specialized roles such as surveillance, counter-surveillance, and snatch and ransom negotiation. What is a recent example? On Aug 5, the federal police arrested five members of a kidnapping ring based in Mexico City, known as called the Los Cabezas de Puerco, which reportedly kidnapped people to extort large sums of money from the families of their victims for their safe return. The gang got its name by leaving the severed heads of pigs outside businesses and homes of targets to intimidate them. The gang is suspected of abducting a business woman in Mexico City in August

2010, as well as the attempted extortion of numerous textile companies.

On the other end of the spectrum, so-called “express kidnapping” gangs flourish in major metropolitan areas. These gangs snatch people off the street and take them on a tour of banks and ATMs where the victims are forced to withdraw cash from their bank accounts. Due to the nature of express kidnappings, these gangs do not have to be tactically skilled. What is a rencent example/s? Could not find any specific examples for 2011 Another kidnapping trend in Mexico is the phenomenon known as the “virtual kidnapping.” In one such scheme, the kidnappers position themselves at a mall or other youth hangout claiming to offer young people a chance to enter a contest for prizes such as iPods or Xboxes. The youths then fill out “entry blanks,” unwittingly offering up personal information such as addresses, home phone numbers and the names of parents. Afterward, the kidnappers follow the potential target until he or she enters a place where cell phones cannot be immediately answered, such as a school or movie theater. This provides the kidnappers with a window of opportunity to call the target’s parents, claim that they have abducted their child, describe details of authenticity such as what the person is wearing or where he was going, and demand that a ransom be paid immediately. While we are not aware any cases of kidnapping or extortion reported by U.S. manufacturers in Mexico IMPORTANT-we need to do another sweep to make sure this is still the case. The old report cited the auto sector because it was written for that specific unit, however JC is not just limited to auto components. What are some examples of kidnappings and extortions involving MNCs or their personnel in general?

Third, with Mexican security forces tied down in the cartel battle, common criminals not involved in the drug trade have flourished. Car thefts, robberies, muggings and pick-pocketing have long been staples in the Mexican crime scene, and such crimes have increased throughout the country in recent years. For example? We need evidence to back this up vs sticking with statements that are several years old. It is these more common crimes that are much more likely to affect Johnson Controls operations and personnel in Mexico than the cartel-related violence dominating the headlines.

I can also add to this during FC, but if you have any thoughts--What about cargo theft and other supply chain threats? According to STRATFOR sources [FreightWatch], cargo theft from rail cars has increased in Mexico over the past six months. Theft from containers has generated substantial losses to Ferrocarril Mexicano (Ferromex), Kansas City Southern de Mexico (KCSM) and their customers. According to Ferromex, theft from/of containers generated losses of $95 million pesos ($7 million USD) in 2011 [as of report date 4 Nov 2011]. About $4 million pesos ($300,000 USD) of the total amount involved loads of agricultural products and the remaining $91 million pesos ($6.7 million USD) involved metal loads, mainly aluminum and scrap metals. According to a recent Ferromex report, the locations with the highest theft rates in 2011 were: (1) Las Juntas in the municipality of Tlaquepaque, Jalisco state; (2) the Irapuato–Apase highway in Guanajuato state; (3) the metropolitan region of Monterrey in Nuevo Leon state; (4) the cities of Celaya and Salamanca in Guanajuato state. In Guanajuato state groups of underage gang members have been killed during confrontations with the Federal Police. Other hot spots for rail theft are the Port of Lazaro Cardenas and close to Ciudad Valles in San Luis Potosi. Rail theft has also been increasing over the past six months in the states of Tamaulipas and Sinaloa.    Police recently captured 45 members of an organized gang that targeted in-transit rail containers of metals passing parallel to the San Luis Rio Colorado highway in Sonora state. This large gang, which was responsible for hundreds of metal thefts, made its profits by recycling the metals.  The state of Guanajuato has been one of the most affected by rail theft. Most thefts in Guanajuato occur at night when trains stop or slow down in rural areas. Some families in the city of Celaya are suspected of regularly stealing corn from rail containers for years, usually to sell to local stores. Police have been blamed for turning a blind eye to these thefts, and some believe the police receive a percentage of the sale price.    Latest Incidents    Eight members of a gang specializing in stealing cargo from train containers were captured in Queretaro on November 3 after attempting to steal a load of construction materials from a Ferromex container in the municipality of El Marques, Queretaro.    Three cargo thieves were captured on October30 while attempting to steal sacks of grain from a Ferromex container in the

municipality of El Santo, Jalisco. The criminals were transferring the sacks into their own trailer, parked next to the train, when police arrived. The authorities recovered the entire load of 30 large sacks of corn and 38 sacks of wheat.    On October 18 a group of cargo thieves stole 30 plasma televisions from a train container in the municipality of Tezontepec de Aldama, Hidalgo state. Even though the train had an escort, authorities have been unable to determine exactly when the theft occurred. The TVs were valued at $150,000 pesos ($11,169 USD).   This is important for MNC operations. Also car theft:Armored cars have proved to be a particularly sought-after commodity, used by criminal groups as ersatz armored personnel carriers. Many MNC plant managers have requested these types of vehicles as the security situation has deteriorated inside the city. While armored vehicles are an option, STRATFOR advises against the use of highly visible and heavily armored luxury-style vehicles because they raise the targeting profile of corporate users who often lack sufficient training to handle the vehicles. In many cases, the handling and mobility problems caused by the heavy armor have actually hindered the ability of drivers to escape threatening situations. Instead, low-profile and less heavily armored vehicles are recommended if armored transportation is preferred.

Another threat which occasionally surfaces is an anti-technology or anarchist group. There are not many operating in Mexico, and only one has been tied to any events in the last six months. On Aug 8 a terrorist element calling itself the Individuals Tending to Savagery (ITS) claimed responsibility for two attempted mail bombings. One package bomb exploded and injured two professors at the Monterrey Technological Institute campus in a suburb of Mexico City. The other package was found before it detonated, at the National Polytechnic Institute also in Mexico City. ITS opposes development of nanotechnology worldwide and has been linked to similar attacks in European countries. The group claimed a third package bomb sent to the University of the Valley of Mexico in May 2011, but no reports of a related explosion ever surfaced for that location or time frame. According to media sources, the attorney general’s office issued warnings for both businesses and universities involved in nanotechnology (and presumably other cutting-edge technologies) regarding this security threat, advising increased security measures and vigilance regarding suspicious packages or activities. However, businesses not involved in this sector are unlikely to be targeted by this group.

On Nov 8, a biotechnology researcher with the National Autonomous University of MX was gunned down while driving in Cuernavaca, Morelos. No reports yet indicate whether the perpetrators have been identified or caught. While a cartel or criminal element cannot be ruled out, given the two mail bomb attacks in August in MXC by the anti-technology group Individuals Tending to Savagery, it is more likely that the killing of a biotechnology researcher is tied to ITS rather than a cartel action.

The obvious risk associated with these developments is that, while the government continues to make it difficult to traffic drugs, very capable drug-trafficking organizations and other criminal groups will continue to target businesses and citizens throughout Mexico for abduction and extortion to help build their revenue base. These trends can be expected to persist at least for the three year period, until the country’s security situation stabilizes.

Johnson Controls’ Areas of Operation/Interest

Ciudad JuarezJust across the border from El Paso, Texas, the Juarez Valley in the state of Chihuahua is a strategic point of entry for both legitimate commerce and illicit goods. Ciudad Juarez is the only major Mexican metropolitan area on the border with quick access to the U.S. interstate system within several hundred miles in either direction, making this area also extremely valuable to Mexican cartels. U.S. Interstate 10 runs directly through El Paso, where it also intersects with U.S. Interstate 25. This makes it easy to traffic drugs and other illicit goods east, west and north from Juarez. The Juarez Valley has been considered the most violent region in the world (outside of active war zones)

by the Citizen’s Council for Public Security.is that still the case, especially since violence has dropped?—this info is from 2010. According to the México Evalúa,Centro de Análisisde Políticas Públicas, A.C. report (Aug 2011), Durango state now ranks as the worst for overall violence, with Chihuahua state second, though for homicides that ranking is reversed. This region also happens to be where the Mexican government is most active in employing its new counter-cartel strategies (is that still the case or has the focus of NEW strategies since shifted to Tamaulipas? Need to be careful to make sure language is updated) The focus of the military has shifted to Tamaulipas, Durango, and Veracruz states over the last six to eight months, as the cartel conflict in Juarez slowed down to some extent. and where it has deployed the largest concentration of security forces in the country.

The conflict in Juarez over the last few years has evolved into three different layers of violence. The first layer is the street-level violence between local Juarez-based street and prison gangs backed by both the Vicente Carillo Fuentes organization (VCF) and the Sinaloa Federation. The second layer is the more traditional conflict between the enforcement wings of the Sinaloa Federation and the VFC—the Nueva Gente and La Linea, respectively. On Oct 5 The Mexican Army announced it had arrested Noel N, A High Ranking Drug Boss identified by authorities as ‘El Flaco‘ in Culiacan, Sinaloa. El Flaco is believed to have been responsible for the drug trafficking activities in Chihuahua state, and the founder and leader of Gente Nueva. Earlier this summer, on July 29 the leader of VCF’s La Linea wing Jose Antonio "El Diego" Acosta Hernández was arrested after a gun battle with federal police in an upscale subdivision of Chihuahua, Chihuahua.(Several top leaders of both enforcer wings were captured by military forces within the last several months, but it is not yet confirmed that either organization is neutralized by those losses. For example? Who and when? Addition directly above.)

The third is the Mexican security forces battling gangs and cartel enforcers. The first two layers are the primary reasons for the high levels of violence in the Juarez area. Members of the VCF-aligned street gang Los Aztecas (estimated in mid-2011 to number approximately 5,000 in Juarez) continue to serve as foot-soldiers, enforcers, and smugglers, while augmenting their activities by extorting nightclubs and other businesses. Any examples from 2011 that we can note? On May 11 a man was shot and killed inside a metal recycling business in colonia Morelos, either due to lack of extortion payment or in the process of a robbery. On Nov 7 a parking-lot attendant was attacked and severely beaten with clubs, probably because of an insufficient extortion payment. The Sinaloa

Federation utilizes proxy forces among the street gangs in Juarez as well, particularly the Mexicles

and Los Artistas Asesinos, to seize territory, steal drug shipments from the VCF’s operations, and serve as surveillance assets.

These three layers of violence often overlap, contributing to the area having the highest concentration of murders per 100,000 inhabitants in Mexico.-–is this still the case with the drop year to year though? Yes, as explained at bottom of pg 7. Beginning in mid-April 2010? yes, the violence in Juarez increased markedly with May through October monthly totals of cartel-related deaths ranging from 262 to 352 per month (October being the worst). However, the violence began to subside at the end of 2010 into the Spring of 2011. For example, the deaths in the month of February 2011 dropped steadily from 231 to 156 cartel-related deaths in June this year. A spike in street battles during July elevated that month’s total to 216, however the violence once again subsided to an extent. Overall, between Jan 1 and Oct. 31 of this year, the number of cartel-related homicides in Juarez and surrounding communities totaled 1,738, while the same time frame in 2010 had a total of 2,700 cartel related homicides.

Most of the military presence in the city and surrounding region has been withdrawn, while at the same time, the Sinaloa Federation has been able to maintain greater control greater Valley of Juarez region surrounding Ciudad Juarez from the New Mexico border to the Texas points of entry in Ysleta and Fabens. Predominantly due to the lowered pressure on the cartels following the removal of the military from Juarez and a weakened VFC because of Sinaloa constriction, inter-cartel fighting has decreased during this time. Still, flare-ups of violence in the Juarez area can be expected to continue as the VCF retains the loyalty and services of the Aztecas street gang. If the Sinaloa Federation succeeds in completely cutting off the VFC organization from its drug supply lines, which is possible within the next 12-24 months, the Aztecas may abandon the Juarez cartel or shift their loyalties to the Sinaloa Federation, which could spur clashes between what remains of the VCF organization and its rivals as the VCF attempts to reopen supply lines.

Regarding Juarez security, the conclusions which can be drawn are that – absent direct pressure from a large military presence – the rival Sinaloa and Juarez cartels (and their proxy street gangs) were able to turn more attention to building revenues, but the standoff over control of the city’s lucrative ports of entry (POEs) remains. The Juarez cartel is known to retain control over the three main POEs that directly access El Paso and, though it is not known whether Sinaloa operations have been slipping contraband shipments through those POEs as well, the Sinaloa cartel does control the POEs on both sides of Juarez and most of the lower Valley of Juarez. Effectively, Sinaloa forces encircle the city of Juarez, though the Juarez cartel currently is demonstrating its continuing access to its narcotics supplies. We anticipate that, probably within the next 12 to 24 months, when the Juarez cartel no longer has its supply line from the interior of Mexico and the organization’s revenues shrink proportionally, it is likely that we will see a shift in loyalties by the Azteca gang – for while that gang’s loyalty to the Vicente Carrillo Fuentes organization has been long-standing, it has been a purchased alliance. We expect that at some point the highest bidder for the huge street gang will become Chapo Guzman’s organization. The likely indicator that the Juarez cartel is nearing financial starvation probably will be a very sharp and violent surge in cartel battles as they struggle to reopen their supply lines. If that sudden upswing in violence materializes, we will look then for a significant shift in the alliances of the players. If the Azteca street gang indeed changes its alliance and accepts a high bid from the Sinaloa cartel, the balance of power – and the control of the POEs in Juarez – will shift in Sinaloa’s favor. Should that eventuality materialize we expect violence in Juarez will subside – significantly lower than what is currently the case – whether the Juarez cartel is wiped out by its rival or manages to survive by coming to an accommodation with Sinaloa. To date Vicente Carrillo Fuentes has displayed no willingness to become a vassal of Chapo Guzman as the Arellano Felix organization has done, but STRATFOR sources in the El Paso-Juarez area believe that at some point in the next two years such an accommodation will be reached. When that occurs, security for corporations operating in the Valley of Juarez will improve – and likely to a fair degree. (To be updated further after comments from Victoria) If that sudden upswing in violence materializes, we will look then for a significant shift in the alliances of the players. If the Azteca street gang indeed changes its alliance and accepts a high bid from the Sinaloa cartel, the

balance of power – and the control of the POEs in Juarez – will shift in Sinaloa’s favor. Are we saying then that the VCF has no chance in ultimately gaining control of all of Juarez again? Unless something profound happens to Chapo and his lieutenants, yes, that is likely to be the case. Should that eventuality materialize we expect violence in Juarez will subside – significantly lower than what is currently the case – whether the Juarez cartel is wiped out by its rival or manages to survive by coming to an accommodation with Sinaloa. To date Vicente Carrillo Fuentes has displayed no willingness to become a vassal of Chapo Guzman as the Arellano Felix organization has done in Tijuana, but STRATFOR sources in the El Paso-Juarez area believe that at some point in the next two years such an accommodation will be reached. When that occurs, security for corporations operating in the Valley of Juarez will improve – and likely to a fair degree.

Coahuila State overview Though most of Coahuila state has tended to be quiet by Mexico standards for the last several years, with Los Zetas holding the border cities of Ciudad Acuña and Piedras Negras along with most of the rural territory, the cities of Saltillo and Torreon stand out as significant exceptions. The state is sparsely populated, lacks high-volume interstate highway arteries and remains a largely undisputed Los Zetas territory. Several recent events however, along with an increasing Mexican military presence, could point to a coming change in Coahuila’s security conditions.

According to official government news releases and confirmed STRATFOR sources in the region, there has been a gradual increase in the deployment of military assets to Coahuila resulting in an increase in a military offensive against cartel elements in the state during the summer and fall months of 2011. As the military presence has grown, their patrols began to have an impact on what now appears to be the “back room storage area” for Los Zetas. On June 1, 2011 Mexican army personnel found 38 narcofosas, or hidden graves, in the village of Guerrero, located 50 kilometers (30 miles) southeast of Piedras Negras. It is not yet clear how many victims were disposed of at the Guerrero sites as the meter-deep pits contained thousands of bits of charred human bones, metal buckles, buttons, and other personal items. Three 55-gallon drums also were found in which human bodies had been cremated.

By no means are these recent events in Coahuila unique for Mexico, but the increase in military personnel and operations in the sparsely populated state is notable. As the military presence grows, significant clashes between Los Zetas and Mexican troops are likelypossible. Generally, the cartel’s operators have demonstrated a tendency to fade away and not engage the military unless pressed or cornered, but there appears to be a concerted effort on the part of the military to ferret out Los Zetas’ assets in Coahuila, which may push Los Zetas into reacting. Mexican cartels have generally demonstrated that they will absorb a low level of losses as “the cost of doing business.” However, losses can reach a point where they are no longer acceptable to an organization and violent countermeasures tend to result. In the quieter areas of Coahuila, particularly in the western and northern regions of the state where the Sinaloa Federation and Gulf cartel have not bothered to contest Los Zetas’ control, Los Zetas may soon respond to the Mexican government’s inroads with direct and violent action against the military and to deter against any attempts by other cartels to make inroads to those regions should they deem the Los Zetas to be on the defensive.—safe to say? yes

Santiago de la Monclova Monclova, a small crossroads city in Coahuila, has seen limited cartel-related violence, although it is not entirely immunity to such activity. Within a few miles of the city, several large munitions and narcotics caches belonging to Los Zetas were found by the military during May and June 2011. The stashes included a metric ton of cocaine, just under one metric ton of methamphetamine, 11 kg of heroin, 378 assault rifles, 600 sets of camouflage or black uniforms (with boots), several grenade launchers, three sniper rifles, and over 122,000 rounds of ammunition. The threat of loss of other munitions and narcotics caches in the vicinity (for there probably are many more) may cause the cartel to defend them violently if cornered, nor or more huh? Mean or they will move them if they have advance warning?yes likely to seek to move the stashes quickly. The latter possibility creates

a concern for MNC operations and assets as there is the possibility (given what we have seen Los Zetas do in the area of Monterrey—safe to say?yes) that cargo trucks and vehicles used to carry legitimate goods or belonging to employees may be stolen or high jacked for use in moving supplies or unauthorized use of structures owned by Johnson Controls. How would that really happen? Is a cartel really going to go to a MNC factory and tell them store my drugs? Or you mean hide on their property and claim later? Yeah, I was aiming more at the potential for cartels to clandestinely hide stuff on MNC properties, particularly those which are not necessarily running at full capacity because of the cartel violence…. But as you mention Those plants are usually fenced off so how would that work? Don’t know. I may have been going in a stupid direction, purely because I have no earthly concept of what any of the MNC facilities look like, how they’re configured, equipped, manned or secured………….

SaltilloSaltillo has seen less cartel-related violence than other large cities in northeastern Mexico in recent years but that condition has been deteriorating. The nature of conflicting information information like what-about who controls what? Ingeneral conflicting info occurs often regarding the cartels, but in this case we’ve been seeing violence in Saltillo, while my source who travels to or through Saltillo fairly often says that it’s quiet…. That sort of conflicting info. from STRATFOR sources in the region tells us that Saltillo is becoming a hot spot in the war between Los Zetas and the Gulf-Sinaloa alliance for control over this narcotics transshipment route? yes—why are they fighting here, is Saltillo an important route? Saltillo is on a major cross roads. The longstanding stability in Saltillo (and much of Coahuila state) according to some sources results from the presence an old aristocracy power structure which has been described as a tough “still-on-horseback” type of aristocracy in the old Latin American style. That pre-existing aristocracy is said to have little tolerance for “cartel nonsense” if there is commotion, and that they are not intimidated by the cartels. That said, the Saltillo aristocracy reportedly is not concerned if drug shipment activities pass through their area so long as it does not disrupt the general level of stability yes. However, an increase in cartel clashes has been reported in the city and is notable in that there appears to be occasional sharp spikes in violence throughout 2011 thus far, rather than a steady escalation of pandemic violence month-to-month as seen in other hotly contested cities.

Highlighting notable sparks in violence, running gun battles took place on March 5, 6, and 22 in which groups of Gulf cartel gunmen drove through the city, provoking battles with Los Zetas. Reports of gun battles flared up in central Saltillo again on May 18, involving mobile gunmen from either the Sinaloa Federation or Gulf cartel “heating up the plaza”—essentially conducting random attacks to stir up the Los Zetas local to the city and cause law enforcement and military troops to respond. The next series of events reportedly occurred in the vicinity of the Cathedral de Santiago, on May 29, during which machine-gun fire and several grenade blasts were reported by residents.

On Nov. 1, beginning at about 2 p.m., several running gun battles ensued in neighborhoods on the east and northeast portions of Saltillo. In one firefight, rival groups of gunmen from the Gulf cartel and Los Zetas fought through the neighborhoods of Los Cerritos, Praderas, Magisterio, Los Maestros and Guanajuato. The inter-cartel battles triggered responses from local and federal authorities. Another gun battle occurred that same day? Yes. Everything mentioned in this para occurred on 1 Nov, within a 3-hr time span in the immediate vicinity of the Instituto Tecnologico de Saltillo campus between a group of gunmen and Mexican marines. Fighting spread through the east and north-central portions of Saltillo over several hours before it subsided.

STRATFOR is paying close attention to the dynamics evolving in and around Saltillo, specifically watching for indications that the aristocracy has had enough and reacts powerfully what can they really do besides set themselves up to get kidnapped? They’ve got their own security forces, and have had for generations, or that the younger generations within the old families opt to seek an accommodation with the cartels active in the region. The security conditions in Saltillo, we believe, pivot on the reactions of the aristocracy over the next six to 12 months, given that until fairly recently conditions have been stable but now appear to be escalating.It is on this point that we

perceive ??Since you mentioned that the aristocracy dynamic has contained violence in the past, what are they going to do about it now? Can they really do anything? I’m not sure I understand why that factor matters. Cartel violence is not acceptable anywhere ah, but it is, and it has been. The point is that the general citizenry has become a populace of victims – gawd-awful shit happens daily in most of the country, but whether because of the ban on gun ownership, fatalistic que será será attitudes, or just apathy, the cartels have had free rein. The end result is that the violence may be “morally unacceptable” but in practice is accepted as unavoidable…. The impression I have been getting of Saltillo’s old aristocracy is that they’re not of that mindset, historically, and may at some point in the near future react to shove out the cartels if their corner of Mexico gets too messy. really by the citizenry but the cartels don’t give a hoot so why is this any different?

What about examples of the crime threat here? According to STRATFOR sources [FreightWatch], cargo theft is increasing in Coahuila state, with a 167% increase in reported cargo thefts during the third quarter of 2011 over the same time frame in 2010. Trucks loaded with industrial and building materials being the most heavily targeted, and of those cargo types the commodities stolen most were steel, copper, and aluminum materials. For the third quarter of 2011, Saltillo ranked third in the country for thefts, particularly because of the jump in steel and copper thefts.

Ramos ArizpeRamos Arizpe, the seat of the municipality of the same name, straddles a main transportation artery, Mexico Highway 54, just north of Saltillo. It also is sandwiched between two strategically important cross-roads: Saltillo, which gives access to Laredo (TX) and the border terminus of US Interstate 35 to the north, Zacatecas (Zacatecas) to the southwest; and the interchange on Highway 54 with the NW/SE-running Nuevo Leon—Monclova highway. The placement of Ramos Arizpe in close proximity to these transportation corridors certainly is of benefit for manufacturing and industry – and the same is true of the drug trafficking organizations, and their benefit from controlling these vital crossroads.

Similarly to Saltillo, there have not been cartel conflicts in Ramos Arizpe, certainly none of the scope as are seen regularly in the cities closer to the US border. Nothing notable has occurred in the municipality this year, or none significant enough to be discussed in the media. Because of its proximity to Saltillo, we expect the cartel activity in Ramos Arizpe to be tied to that of Saltillo. That said, given the presence of several MNC operations in the immediate vicinity, there likely have been cargo thefts from trucks arriving, departing, or transiting through Ramos Arizpe. Need section on this city located outside of Saltillo. What are the cartel and crime dynamics here with examples?

TorreonCartels must not only move contraband into and out of the country, but also across it. Situated in central Mexico at the intersection of a couple of major highways, Torreon is a critical hub for cartels moving product to northern Mexico and, eventually, into the United States. Control of Torreon helps facilitate the movement of product from Mexico’s Pacific coast across the country to smuggling corridors, such as Nuevo Laredo and Ciudad Juarez, on the U.S.-Mexico border. Because cartels understand the importance and vulnerability of their own supply routes, such gateway cities have become hotly disputed territory.

In July Over the past week in Torreon, Coahuila state, 10 decapitated bodies were found piled in an SUV. According to the Mexican attorney general’s office, the heads were not with the bodies but were scattered around the city. At least one message was found, reportedly with the bodies, but authorities have not released its contents. On Aug. 20 a gunfight erupted in Torreon, Coahuila state, at around 8 p.m., after a three-vehicle convoy of gunmen reportedly crashed through a security checkpoint outside the Territorio Santos Modelo soccer stadium. No one was killed or seriously injured during the shootout. The gunmen evaded arrest by using caltrops (small, four-pointed spikes used to deflate vehicle tires) to slow pursuing authorities. Their truck was found

abandoned and containing three high-caliber weapons and two grenades.

Los Zetas and the Sinaloa Federation have been fighting for control of Torreon for some time, and members of one or both of those groups were very likely among those involved in the shootout. What shootout? See above. Need to give examples of this violence? Overall, given the widespread conflict among the cartels for control, Torreon’s geographic location predisposes it to such violence. We can expect to see continual violence in the city over what timeframe over the next two to three years, as Los Zetas and the Sinaloa Federation continue to vie for unfettered control of these strategic transit routes. How is the military responding here? The military has been conducting operations in Coahuila state since early summer, and as the cartel violence in Torreon, Monclova, Saltillo, Piedras Negras and Acuna all appear to be trending gradually upward, it is likely that the military presence will remain for the foreseeable future. Do we see this Zetas-Sinaloa fight escalate to the point where more deployments happen? What threats can MNC expect to continue to see? MNCs operating in Torreon and elsewhere in Coahuila should be prepared for sporadic gun battles, likely between cartel and military elements. Furthermore, as Los Zetas and Sinaloa cartel elements are engaged in a battle for control of the strategically crucial crossroads at Torreon, there will be the potential for running gun battles, cartel blockades, thefts of MNC-owned or contracted tractor trailer rigs used for blockades, and the added complication of military responses to cartel battles.

Also, Discuss crime threat and provide examples. As was discussed in the other cities in Coahuila state, cargo theft is expected to remain a constant security issue, particularly of industrial materials and metal stock.

Tamaulipas state overviewIn the last four months, it has become apparent that a schism within the Gulf cartel (CDG) over divided loyalties is evolving into a split with large and violent consequences. During 2009-2010, the organization was led by co-leaders Antonio Ezequiel “Tony Tormenta” Cardenas Guillen and Jorge Eduardo “El Coss” Costilla Sanchez. This arrangement shifted when “Tony Tormenta” was killed in a six-hour standoff with Mexican military forces in November 2010. The split within the CDG that we are now watching began to a large extent with the death of “Tony Tormenta.” At the time, it is believed that Rafael “el Junior” Cardenas, the nephew of Osiel and Antonio Cardenas Guillen, expected to replace his uncles as one of the co-leaders of the CDG. Instead, Costilla Sanchez assumed full control of the organization. The schism became wider as two factions formed, specifically Los Metros, which is loyal to Costilla Sanchez, and Los Rojos (aka “Los Erres” for the letter R), which is loyal to the Cardenas family.   Early in the second quarter of 2011, the Calderon administration deployed several thousand military troops to the northeastern Mexico region, predominantly in Tamaulipas state, during which time 22 municipal police departments were suspended or dismissed pending corruption investigations and vetting procedures. Those police officers were suspecting of having loyalties to different cartels operating in the region, which provided no legitimate counter to drug trafficking operations and inter-cartel fighting. During the summer in 2011, the Mexican government then moved to further stabilize Tamaulipas state by deploying multiple military operations to capture or kill Los Zetas and CDG cell and plaza leaders in cities and town across the state. Out of necessity-elaborate as conditions in Tamaulipas have not stabilized and there remains the potential for an explosive conflict within the Gulf cartel, those military operations are expected to continue well into 2012.

As these militarythe military’s operations began to bring results, and likely a fair amount of actionable intelligence for the Mexican government, the rift within the CDG began to emerge and indicated that the organization had been far less cohesive than was believed by authorities on either side of the border. Those military operations against the CDG resulted in the capture of several plaza bosses over the last three months, specifically Abiel  “El R-2” González Briones, Manuel “El Meme” Alquisires García, Ricardo Salazar Pequeño and José Antonio “El Comandante” Martínez Silva. Then on Sept. 3, 2011, authorities in Reynosa found the body of Samuel “El Metro 3”

Flores Borrego who had been the trusted lieutenant of Costilla Sanchez and served as his second in command as well as Reynosa plaza boss. These two men were at the top of the Metros faction. Also critical to the schism between the CDG, on Sept. 27, in a brazen hit on U.S. soil, gunmen in an SUV opened fire on another vehicle traveling along U.S. Route 83 east of McAllen, Texas. The driver, Jorge Zavala from Mission, Texas, who was connected to a branch of the Gulf Cartel, was killed. Though his role in the cartel is unclear, he was believed to be close to a senior Gulf plaza boss, Gregorio “El Metro 2” Sauceda Gamboa, who was arrested in April 2009. As indicated by his “Metro” nickname, Sauceda had also been aligned with the faction of the Gulf cartel that supports Costilla Sanchez.   Following those hits against the Los Metros faction, on Oct. 11, the Mexican navy reported that the body of César "El Gama" Dávila García, the CDG’s head finance officer, was found in the city of Reynosa, Tamaulipas. According to a statement from the Ministry of the Navy, the body was found in a home, dead of a gunshot wound. El Gama had been Antonio Cardenas Guillen’s accountant, which would have made him loyal to the Los Rojos faction? Probably yes, but unconfirmed, but after the 2009 death of Tony Tormenta, El Gama was assigned to be the plaza boss of CDG’s port city of Tampico for a period of time, then placed back in Matamoros as the chief financial operator for the cartel. Many questions arise from this killing, but for STRATFOR it indicated deepening of the internal CDG conflict.

Further indication of active internecine conflict came when U.S. Immigration and Customs Enforcement agents arrested Rafael “El Junior” Cardenas Vela on Oct. 20 after a traffic stop near Port Isabel, Texas. The Los Metros faction has a strong incentive to take out the Los Rojos leaders and is in a good position to have or acquire information on Cardenas Vela’s whereabouts and his likely hideouts. Cartels usually try to avoid conducting hits on U.S. soil, which suggests that Costilla Sanchez’s faction may have tipped off U.S. authorities, instead of killing him.

There has not been any confirmation that Los Metros was responsible for the tip to U.S. authorities, but it will benefit from Cardenas Vela’s removal from the cartel dynamics in the region. It appears Costilla Sanchez has already begun efforts to consolidate power before the Los Rojos faction has a chance to reorganize and name a new leader. Such efforts will likely include putting out orders to kill other Los Rojos faction leaders, which may explain why Jose Luis “Comandante Wicho” Zuniga Hernandez, believed to be Cardenas Vela’s deputy and operations leader of the Matamoros plaza, reportedly turned himself in to U.S. authorities without a fight near Santa Maria, Texas, on Oct. 28. The Los Metros faction of the CDG will try to move quickly before the Sinaloa cartel or Los Zetas conclude that now is the time to make a move to seize control of the Gulf cartel’s territory. Though the CDG split has been quietly widening for two years, the apparent eruption of internally-focused violence during the past quarter indicates the division may be about to significantly worsen. The consequences of a violent rupture within the CDG likely include moves by Los Zetas and the Sinaloa Federation to take advantage of the CDG’s weakness and grab territory. This new dynamic is expected to further heighten violence beyond the already volatile conditions created by the three-way battle between Los Zetas, the CDG and government forces for control of Mexico's northeast. The cities that would be specifically affected by these developments are Matamoros, Reynosa, and Tampico, along with the smaller communities along the network of roads connecting them. Since July 2010 the U.S. State Department has maintained an active order to restrict the travel of U.S. diplomatic personnel in the northern tier of Mexico’s states, but Tamaulipas state has been of particular concern regarding personnel security. All recommended corporate security precautions should be adhered to stringently.

MatamorosIn regards to Matamoros specifically, the city sits just south of the Rio Grande River from Brownsville, Texas, and has been home to one of the most prolific Mexican drug trafficking organizations since the 1990s—the Gulf cartel or CDG. With its long history of organized criminal activity, Matamoros has grown accustomed to periodic bouts of violence, but the sustained high

levels of violence which began in February 2010 are continuing through 2011. In the 17 months since the Gulf cartel and Los Zetas began fighting in the Tamaulipas border region, Matamoros remained a stronghold for the Gulf cartel. During 2011, Matamoros continued to be a target for Los Zetas to carry out raids against the Gulf cartel, and running firefights in the streets of Matamoros became almost a weekly -- and sometimes daily -- occurrence. For example, please cite some recent incidents.

Repeatedly over the course of 2011 Los Zetas have conducted incursive operations in Matamoros. In mid-June a Zeta force estimated to be between 40 and 60 members strong pushed deep into Matamoros and multiple gunbattles flared up as Zeta and CDG clashed. City busses were stolen and placed as roadblocks in an effort to keep the responding military forces out, though the fight devolved into a three-way battle. Several days later another Zeta incursion took place as Los Zetas made another attempt to oust the CDG from Matamoros. In that event, heavy fighting penetrated the city to the area of Lucio Blanco, near the Free Trade Bridge Port of Entry at the US Border.

The security threat to Johnson Controls facilities in the Matamoros area over the next six to 12 months stem from the abovementioned schism within the Gulf cartel due to increases in intra-cartel combat, Los Zetas forces pushing into the area with large forces to take advantage of Gulf weaknesses, Sinaloa Federation forces attempting to make the same move (and fighting against Los Zetas), and the very real necessity of increased military actions against all parties. MNCs and their employees should expect to see running gun battles in any zone of the city, both between rival cartels but also with the military. In addition, cartels commonly carry out roadblocks to allow passage of their own forces along certain routs and to block countering cartel or military forces (often funneling traffic into ambush kill zones). In addition, auto theft is a concern in the Matamoros area, specifically the theft of SUVs, heavy-duty trucks and four-wheel-drive vehicles. This can be directly related to the cartel need for these vehicles to transport drugs and people.

I added this from the old report since we need to discuss other crime threats in the city too---Regarding other forms of crime in Matamoros, the Gulf cartel has not traditionally engaged in large-scale extortion schemes against companies, unlike its rival, Los Zetas, who are known to be quite ruthless in this practice. Is this still the case? To my knowledge, yes, though Stick may have more info than I. However, given the state of flux in which the Gulf cartel currently finds itself, an increase in extortion schemes is likely in the Matamoros region over the next two to three years. It is important to note that media coverage of any new extortion operations will likely be hard to come by due to the threat of retaliation, which will make it more difficult for MNCs operating in Matamoros to anticipate and navigate around the threat.

While in many larger Mexican cities the conflict between the Gulf cartel and Los Zetas and between the cartels and Mexican security forces has allowed lower-level criminal organizations to flourish, open- source reports indicate that lower-level criminals in Matamoros are fleeing the city for fear of getting caught in the crossfire. As a result, Matamoros has been somewhat sheltered from petty crimes like pick-pocketing and mugging. Is this still the case? I doubt it, but again Stick may have better info than I.

ReynosaReynosa, just across the Rio Grande River from McAllen, Texas, is certainly no stranger to violence. The Reynosa area has been under the control of the Gulf cartel following the Los Zetas’ strategic retreat to its strongholds in Monterrey, Nuevo Laredo, and Veracruz in July 2010. However, the Gulf cartel control has been regularly and violently contested by Los Zetas over the last 16 months.

Currently, the Tamaulipas border region is the front line of a conflict between the Gulf cartel and Los Zetas – with occasional assistance to the Gulf by the Sinaloa cartel. Reynosa is caught right in the middle. In addition to the running gun battles, skirmishes between the Mexican military and the cartels have paralyzed the city for hours at a time. Need recent examples. Los Zetas have, over the course of 2011, engaged in random raids into Reynosa in which gangs of younger Zetas drove into

and around the city, throwing grenades as they went. This practice often is referred to as “heating up the plaza” and such activities endanger MNC assets and employees. Specifically, a spate of grenade attacks during the first week of June incurred civilian casualties. Nine civilians were hurt when a grenade was thrown toward a crowd on Calle Benito Juarez. Later the same day a group of gunmen engaged in a gunbattle along Calle Margarita Maza de Juarez, during which one person was killed, another wounded. Five days later, a grenade was thrown at a bus stop near the LG plant in the Reynosa Industrial area near the airport. In that attack, ten maquila workers at the bus stop were injured.

The competing cartels have been known to deploy their own checkpoints in the area in an effort to catch rival cartel members. We continue to see both Zeta and Gulf elements utilize roadblocks to impede the response of Mexican soldiers and police to cartel activities. Typically there is a heavy rash of vehicle thefts of tractor-trailer rigs and other heavy commercial vehicles within a few hours of a major cartel clash, as gunmen either aim to keep out or hem in military, law enforcement, or rival cartel forces.

What about other crimes like kidnappings and extorition? Threats to MNCs and Mexican nationals working for them? Along with the everpresent threat of running gun battles in any area where Los Zetas are trying to push CDG forces out, there are kidnapping gangs operating with impugnity, as well as local street crime and extortion rackets. In June, approximately 2,800 military troops dismissed the municipal police, and took over running 22 police departments across Tamaulipas, including Reynosa, pending investigations of all personnel for corruption and collaboration with the drug cartels. In early August, four Reynosa municipal officers and two other individuals were indicted on kidnapping charges involving 68 immigrants found during a raid of a stash house in April 2011.

Tampico—need section on this city for cartel and crime.Tampico is one of the three main territories of the Gulf cartel, the other two being Matamoros and Reynosa at this point in time. Just as they have been elsewhere, Los Zetas have been engaged in regular efforts to displace the CDG in Tampico. The city’s bustling container ship terminal has high strategic value for whomever controls it, both for importing cocaine and methamphetamine precoursers but as an export point for shipping narcotics to Europe and the African continent.

As with nearly every other city in Mexico where there is a strong cartel presence, the law enforcement personnel tend to be bribed or intimidated into a non-intervention behavior pattern, which leave the field open for street criminals as well. The full spectrum of criminal activity should be expected, from cargo theft, vehicle theft, to kidnapping and extortion.

Monterrey Metropolitan AreaThe greater Monterrey metropolitan area, in Nuevo Leon state, is the third largest population center in Mexico and the country’s industrial and manufacturing hub. In addition to being a commercial powerhouse, Monterrey is a well-known stronghold for the Los Zetas organization. Strategically situated about 150 miles south of the Texas-Nuevo Leon border, the Monterrey metro area is a key transshipment point for legitimate commerce and illicit goods headed to northern Mexico and South Texas, largely because of the highway infrastructure that connects it to the important Reynosa and Nuevo Laredo border crossings. The conflict between Los Zetas and the New Federation spread westward into the Monterrey area during 2010 and, though the level of violence has not been nearly as intense as the conflict to the east along the South Texas-Mexico border, contingents of the Sinaloa and Gulf cartels have been targeting the Los Zetas support network in and around Monterrey in a regional offensive that began in the final weeks of 2010. Police officers and journalists who were known to be affiliated with Los Zetas were threatened, targeted for kidnapping or killed in a move to slowly undercut the Los Zetas organization in Monterrey.

This continued offensive by the New Federation has degraded the security environment in the

Monterrey region over the last 12 months. In Monterrey, Los Zetas have employed tactics similar to those seen in Reynosa. The groups will hijack and disable large tractor-trailers and other vehicles to block major thoroughfares throughout the city, stalling traffic for hours. Need recent examples. Unidentified men set up two roadblocks near the municipal palace in Monterrey following a reported firefight April 27, Milenio reported. Authorities responded after the men used buses and a taxi to set up the roadblocks. Los Zetas typically use this tactic while conducting operations against rivals or moving large quantities of drugs through a particular part of town, in order to hinder a response by Mexican security forces. Los Zetas have also engaged in the use of improvised explosive devices to deter law enforcement and military personnel. In the most recent event on Oct. 20, a small sedan apparently filled with cartel gunmen rapidly pulled in front of a military vehicle, drawing the military patrol into a car chase in downtown Monterrey. After a brief pursuit, the vehicle carrying the cartel gunmen turned at an intersection. As the military vehicle slowed to negotiate the turn, an improvised explosive device (IED) concealed in a parked car at the intersection detonated. The incident appears to have been intended to lure the military patrol into a designated attack zone. While the ambush did not kill any soldiers, it did cause them to break off their chase.

Due to the economic importance and size of Monterrey there have long been significant numbers of troops and Federal Police agents in the city, yet there have not been significant federal deployments (this is confusing since you note there were significant numbers of troops there ) to augment these forces. Theywho? are currently positioned throughout the Monterrey area at checkpoints and as quick-reaction forces to thwart possible cartel activities or operations. Should anyone associated with Johnson Controls encounter a military or law enforcement checkpoint, the person should stop and follow the directions of security personnel. Failure to do so could result in security forces firing upon the vehicle. Several innocent civilians have lost their lives when they have tried to avoid these checkpoints or disobey directions.

Do all those cartel dynamics apply for Apodaca, Cienega de Flores, San Pedro Garza Garcia, General Escobedo and Garcia. Does one cartel control those areas more so than the other?

What about crime? Lay out what the threats are there. You can use the following taken from the other report but make sure it is updated!! Also you need to give some references and examples of the specific Monterrey metro areas noted in the activation order—Apodaca, Cienega de Flores, San Pedro Garza Garcia, General Escobedo and Garcia.

As the industrial and manufacturing hub of Mexico, Monterrey is ripe for cargo theft. While about 50 percent of such incidents occur in the Mexico City area, the Monterrey area is the second most active area for cargo theft in Mexico. Large volumes of everything from raw materials to high-end finished goods travel in and out of Monterrey every day, creating a target-rich environment for cargo thieves. Additionally, being about 130 miles from both the Nuevo Laredo and Reynosa border crossings, within the 200-mile border zone in which most cargo theft occurs, the Monterrey area provides criminals ample time to stalk, stop and interdict shipments. Mexico’s two major highway corridors, Federal Highway 85 to Nuevo Laredo and Federal Highway 40 to Reynosa, are the lifelines that pump products from Monterrey into the United States. Since there are no alternative routes, these highways offer lucrative hunting grounds for Mexican cargo thieves, who are growing increasingly active.

The threat of kidnapping also is increasing in the Monterrey area, even though the city has not experienced the same level of KFR cases that other regions in Mexico have seen. STRATFOR has been anticipating an escalation in kidnappings in the Monterrey area due to the large concentration of wealth in the region and to the defensive posture Los Zetas have had to assume because of their ongoing conflict with the New Federation. The threat of kidnapping in Monterrey has increased to such an extent that the U.S. State Department ordered the departure of all minor dependents of U.S. diplomatic personnel in the region in August 2010. The State Department also issued travel warnings on Sept 10, 2010 and again

on April 22, 2011, for US citizens. According to anecdotal reports from the U.S. State Department and open-source information, kidnapping-for-ransom cases have increased dramatically over the last six months, including the targeting of U.S. business executives.

Regarding the metro cities of Apodaca, Cienega de Flores, San Pedro Garza Garcia, General Escobedo, and Garcia, there does not appear to be a singular cartel element in control. As metropolitan cities, all in proximity to the major transportation corridors which fan out from Monterrey, all of the cities of interest are potentially in the path of future cartel battles – should the Sinaloa cartel, or the military for that matter, make large-scale pushes into the city to eliminate Los Zetas. Apodaca:On March 9, Soldiers opened fire on a group of unidentified gunmen in Guadalupe, Nuevo Leon state, killing one. Later, several gunmen kidnapped an injured man receiving treatment for a gunshot wound at an aid station. After the kidnapping, roadblocks were reported in the municipalities of Guadalupe, Juarez and Apodaca. Then on Mar 11 several roadblocks set up by gunmen using stolen vehicles were reported in the municipalities of Apodaca and San Nicolas, Nuevo Leon state. The roadblocks began after an attack on a police patrol car that left one police officer dead and another injured. On May 2, Soldiers in the La Hacienda neighborhood of Apodaca, Nuevo Leon state, chased and killed two suspected cartel gunmen in a car. A third gunman reportedly escaped, leaving behind a suitcase full of ammunition. On Sept 15 gunmen in two separate incidents attacked transit officers in Apodaca, resulting in the deaths of three officers and the kidnapping of another.

Cienega De Flores:On Sep 21, soldiers killed five hitmen during a shootout on the road that connects Monterrey to Nuevo Laredo, in the municipality of Cienega de Flores, on the outskirts of Monterrey. The cartel affiliation of the hitmen has not been reported.

San Pedro Garza Garcia:A significant facet of Monterrey’s strategic value to the cartels made the news May 25 when four casinos were robbed. Heavily armed gunmen reportedly emptied out the cashier cages at Casino Hollywood, Casino Royale, Casino Red and Casino Miravalle Palace, all in the same general area between Monterrey proper and the westside city of San Pedro Garza Garcia. Then on Aug 25, attackers set fire to the Casino Royale, leaving 53 people dead and 12 injured. In response, the Mexican government announced a deployment of 500 soldiers to catch the perpetrators.

General Escobedo:There appear to have been little cartel activities here, with only two events of note. On Jan 30 six charred bodies were found between the bypass road on Highway Loop on the city limit with Salinas Victoria, in a gap known as El Palomo. Though no cartel connection was identified, some reports containing mention of large quantities of tape and the thoroughly incinerated bodies indicate cartel methods and, therefore, involvement. The second incident involves the arrest of five individuals believed to be Los Zetas, including one who is thought to be the paymaster for Nuevo Leon state, on Nov 11. The military was investigating an anonymous tip regarding a residence in the Hacienda Las Palmas neighborhood.

Garcia:On Sep 9 the mayor of Garcia, Jaime Calderon Rodriguez, began the fourth stage of a set of comprehensive courses for municipal security for the city’s administration, judges, and citizens. The overall project begun following Calderon Rodriguez’s inauguration, includes self-defense training, first aid and emergency procedures, surveillance, and information sharing. Other than two attempts on the mayor’s life by cartel gunmen, on Feb 25 and March 29, there does not appear to be substantive violence or criminality in Garcia.

Nuevo Laredo-need cartel and crime overview with examples

Nuevo Laredo has been a stronghold of Los Zetas for at least two years (Stick, check?). Cartel violence has been a regular fixture of the city. Manuel Farfan Carriola, the chief of the Public Safety Secretariat for Nuevo Laredo, Tamaulipas state, was executed along with one of his top aides in an ambush by a group of armed men in several vehicles minutes before midnight Feb. 2. Farfan Carriola, a retired Mexican army brigadier general, had only been serving as the top law enforcement officer in Nuevo Laredo since Jan. 1, the day Nuevo Laredo’s mayor appointed him when the mayor himself took office. Farfan Carriola was in the process of selecting his staff for the Nuevo Laredo Public Security Secretariat, and STRATFOR security sources have advised that some of his personnel decisions led to his assassination. On Feb 26, security forces discovered four decapitate bodies at the Cristobal Colon monument on Avenida Paseo Colon. On March 25 the military intercepted a large shipemtn of munitions when army personnel stopped a tractor trailer. Three gunmen inside the trailer with the cargo opened fire on the soldiers when they opened the trailer door to inspect the cargo. A fire broke out inside the trailer, causing a large quantity of ammunition and grenades to cook off in the heat. After the fire was put out the remnants of a very large shipment of guns, ammunition, tactical radios, an RPG launcher, and three belt-fed light machine guns.

Durango- need cartel and crime overview with examplesAccording to a mid-2011 report on cartel and crime statistics, Durango state moved into first place for overall violence, and reported incidents of kidnapping. Currently there are three main cartels fighting for control of the state: Sinaloa, the Cartel Pacifico Sur (CPS), and Los Zetas.

During April and May, clandestine graves found in Durango contained at least 180 bodies, and authorities believe that at least some of them had been foot soldiers from the Sinaloa cartel’s “Los M” and “Los Cabrera” factions. Others among the dead appeared to be kidnapping victims and other innocents. That particular part of Durango state is dominated by the Sinaloa cartel, leading STRATFOR to the possibility that the mass graves resulted in part from internal purges by Chapo Guzman.

It has been reported that authorities in Durango view the cartels there as “a parallel state” in which the cartels collect extortion money and “maintain peace”. In such an environment, it is likely that there is little street crime, and therefore less day to day risk for the average citizen – so long as they faithfully and fully pay their “taxes” to the cartel. In that environment, too, MNCs likely will have less crime and theft to worry about, but only if they pay the extortion.

This section has to be included-Forecast of the Cartel WarEverything below was taken from the most recent Mexico report we did for OCCG. Take this and update it (I don’t expect much has changed in our forecast). However, we need to elaborate on the following—will there be greater U.S. involvement in the efforts to combat the cartels in Mexico during the next three years? Do we see the US getting more involved either from an undercover LE or over military operation perspective or both and why or why not? What about just on the diplomatic front like Merida?

Violence in Mexico is reaching a saturation point politically and socially, and something is going to have to change. As we see it, there are two possible scenarios: One involves the eventual involvement of the United States in the conflict. There is mounting pressure for the United States to take a more active role in counternarcotic efforts, but political and social sensitivities in Mexico have prevented a significant U.S. presence on the ground in Mexico. There are indications that this sentiment in Mexico is softening. U.S. intelligence analysts and operatives have been assigned to the Juarez Intelligence and Operations Fusion Center to better facilitate information sharing and, more recently, the president of the Mexican War College said Mexico cannot handle the cartel problem on its own. Any other more recent indicators?

STRATFOR believes the trigger for a dramatic increase in U.S. involvement would be the targeting of a U.S. elected official or high net worth individual on U.S. territory by Mexican drug cartels. With an increase in U.S. involvement, the situation in Mexico could become similar to the situation in Colombia, where U.S. advisers trained and sometimes led Colombian troops and law enforcement personnel in counter-cartel operations as part of Plan Colombia. It would also mean an increase in aid to Mexico in addition to the $1.4 billion Merida initiative already in place, through which U.S. federal drug-enforcement agents provide equipment and limited training to their Mexican counterparts. This U.S. assistance would give Mexican security forces a distinct advantage in combating cartel power throughout Mexico. Once Mexican security forces are able to reduce drug-related violence to politically acceptable levels with more direct U.S. assistance, Mexican security forces can then divert excess resources to focus on other crimes, such as kidnapping, extortion and cargo theft, which permeate Mexico’s security landscape and affect foreign business operations.

There have been several highly publicized attacks against Americans in Mexico, specifically the attack against U.S. Immigrants and Customs Enforcement (ICE) agents in San Luis Potosi in February 2011, the killing of a missionary in a botched carjacking in Tamaulipas in January and the Falcon Lake shooting incident in late September 2010. These three incidents were caused by uncontrolled foot soldiers within the Los Zetas cartel. With the continuously high levels of inter-cartel combat and increased counternarcotic activities of the Mexican federal forces, Los Zetas have not had the ability to train new recruits to the degree they did in the past, resulting in less discipline, younger, less-experienced fighters and a larger potential for random violence not ordered by Zeta leadership. Following each event, STRATFOR noted an increase in U.S. counternarcotics activity and the increase of U.S. law enforcement operations and personnel north of the border. It is important to note, though, that the level of political pressure to keep U.S. assets out of Mexico prevented those incidents mentioned above from triggering a direct and dramatic U.S. response. Unless cartel forces directly strike U.S. interests by conducting a high-level attack or engaging in extreme violence on U.S. soil, a dramatic increase in U.S. involvement is still not expected.

The second scenario would be to restore the balance of power among the cartels and the Mexican government, which conceivably could be achieved over the next three years. In order to create this equilibrium, an agreement must be reached between the cartels and the Mexican government that does not necessarily involve President Calderon shaking hands with Sinaloa Federation leader Joaquin “El Chapo” Guzman Loera. A unified drug cartel that is able to consolidate and prevent itself from fracturing would be the most likely candidate to enter into such an agreement. It is not unreasonable to assume that sometime between now and within the next three years one cartel will have co-opted or destroyed most of its competitors and emerged as the dominant cartel in all of Mexico’s embattled regions.

Currently, the Sinaloa Federation appears to be the most likely choice. The Sinaloa Federation is engaged in just about every region of Mexico, giving it a geographical advantage compared to more isolated organizations. Also, while many of the regions in which Sinaloa is engaged are considered disputed territory, the cartel is often on the winning side. The Sinaloa Federation is benefiting from the fractionalization of allies and foes alike, as the cartel has been absorbing territory wherever the smaller organizations are distracted with infighting. In the past 18 months, it has cemented its control over the Tijuana smuggling plaza and violence there has dropped. Sinaloa has also made progress in its efforts to take over the Juarez plaza and recent months have seen a decrease in violence in that city. We anticipate that Juarez will follow Tijuana and this trend will continue in the coming months as Sinaloa further consolidates its control over Juarez and the wider Juarez Valley region.

If the Sinaloa Federation were able to consolidate its power and gain hegemony in the world of Mexican drug trafficking, the cartel would be able to divert some of its enforcement resources to quell the activities of other criminal organizations that have emerged in the chaos. This is not to say

that crime in Mexico would disappear. Rather, when it did occur its perpetrators would run the risk of Sinaloa blowback or at least be heavily regulated by the cartel. However, this kind of transition would take time, and the security situation in many parts of the country would remain chaotic. Should the Sinaloa scenario play out, businesses operating in Mexico would likely have to deal with the cartel in some manner, possibly by making extortion payments.

However, even if the Sinaloa Federation is able to consolidate its power under this second scenario forecast for the cartel war, this kind of transition into a more stable operating environment would still take time. In this scenario, the level of violence in Mexico's northeast and along the Pacific coast will get worse, at least in the short term, before it improves. This is because a single entity will have to take control of geography from multiple groups, or at least beat or threaten these groups into submission. Though violence may lessen within the three-year time frame in certain areas, as seen in Tijuana and forecast in Ciudad Juarez, the security situation in many parts of the country could remain chaotic for the foreseeable future.

In both scenarios, the level of violence would get much worse before it improved. A single entity would have to take control of geography from multiple groups, which would defend their turf ferociously. However, the eventual domination of the geography by a single entity would force the weaker groups to move away from traditional methods of generating income, i.e., drug trafficking, to other criminal activities.