With a fentanyl crisis deepening across North America, US drug authorities in 2021 identified dozens of Mexican companies suspected of trafficking the narcotic’s key ingredients. They took their findings to the country’s financial-intelligence chief at the time.
(Bloomberg) — With a fentanyl crisis deepening across North America, US drug authorities in 2021 identified dozens of Mexican companies suspected of trafficking the narcotic’s key ingredients. They took their findings to the country’s financial-intelligence chief at the time.
The two sides agreed to cooperate on a crackdown of the companies allegedly involved, according to current and former officials from both countries. Three people close to the US Drug Enforcement Administration say the arrangement included plans to freeze the accounts of the 50 Mexican businesses the agency had named as alleged traffickers.
More than a year and a half later, the effort has stalled, said the people close to the DEA, who asked not to be named because they aren’t authorized to speak about operations. The Mexican official, Santiago Nieto, departed in late 2021, and only one company on the US list has had its account blocked, they said.
The collapse of what US officials describe as a once-promising sign of cooperation underscores the fraught relations between the countries at a time synthetic drugs are killing Americans in record numbers. The explosion of fentanyl has become a particularly pressing issue for Mexican President Andres Manuel Lopez Obrador, who has denied the narcotic is being produced in his country and frequently uses his daily press conferences to blame the US as an insatiable customer.
The past few weeks alone show the complexities of their drug-enforcement ties. A delegation of Mexican cabinet members in April traveled to the US and were met by mostly lower-level officials. After the meeting, the countries agreed in a statement to step up the fight against fentanyl production and illegal firearms trafficking to Mexico.
The next day, the US Justice Department indicted four sons of drug lord Joaquin “El Chapo” Guzman on charges of running “the most prolific fentanyl trafficking operation in the world.” Lopez Obrador repeatedly criticized DEA investigations the following week, saying they had violated Mexico’s sovereignty.
On May 9, Lopez Obrador spoke again with President Joe Biden about migration, drug trafficking and gun smuggling to Mexico, saying on Twitter that the two leaders reaffirmed a commitment to work together. The same day, the US Treasury sanctioned one of Guzman’s sons, who are known as Los Chapitos, for allegedly helping to manage “super labs” and trafficking illicit drugs.
The countries have fallen into a “spiral of worsening and worsening relationships,” said Vanda Felbab-Brown, a senior fellow with the Brookings Institution, who has provided testimony to the US Congress on Mexican organized crime.
“Los Chapitos provided powerful evidence of the vast fentanyl production in Mexico,” she said. “Now we have to see whether the recent high-level meetings will lead to better and adequate cooperation over time.”
Pablo Gomez, who replaced Nieto as Mexico’s head of financial intelligence in 2021, said that US officials haven’t complained about any lack of action on specific companies. In an interview with Bloomberg News, he said he didn’t know about any plan with the DEA to freeze accounts and that his unit had blocked the accounts of dozens of companies linked to fentanyl trafficking.
“There is nothing that is not analyzed and acted upon based on our cooperation framework,” Gomez said.
Gomez didn’t identify the companies whose accounts had been frozen. Of the DEA’s top 50 list of suspected ingredient traffickers, only Grupo Pochteca, the country’s biggest locally owned chemical distributor, has had its accounts frozen since 2021, according to the people close to the matter. The company has denied any illegal activity.
Accounts can only be legally frozen if there is a formal request from the US government, Gomez said, adding that there has been criticism of how Pochteca’s accounts have been handled. He said it doesn’t necessarily make sense to block accounts to a company that has thousands of workers because of the actions of a few people potentially involved in importing drug chemicals.
The DEA declined to comment. Mexico’s office of the president didn’t respond to requests for comment.
Chemical Imports
The efforts to target chemical traffickers who may be supplying drug cartels with key ingredients had been a rare front where US and Mexican authorities at first seemed to be making progress. Upon taking office in late 2018, Lopez Obrador broke from the close, operational cooperation with the US that recent governments had embraced. He dismissed the strategy of targeting high-level drug lords and blamed his predecessors for unleashing violence with their war on cartels.
Drug-related relations then sank to a new low after the surprise arrest of Mexican General Salvador Cienfuegos by US officials in late 2020 on charges of aiding traffickers. He was later exonerated by a Mexican probe.
In Mexico, the case helped fuel a deep-seated distrust of the DEA among government officials and the belief it uses so-called cowboy tactics that ignore local laws and sensibilities. Lopez Obrador and other Mexican officials have pointed to what they called shoddy information from drug traffickers that was used by the DEA to get charges filed against Cienfuegos.
The US, meanwhile, was struggling with a surge of fentanyl overdose deaths during the pandemic, heightening the urgency of stopping the chemical trade. The flow of drug ingredients, known as precursors, out of Mexico came under increasing focus after China banned exports of synthesized fentanyl in 2019.
Prior to that year, only two Mexican companies were regularly importing a chemical called 4-piperidone, according to import data collected by the DEA and viewed by Bloomberg. It is a necessary ingredient to make fentanyl, which has legitimate medical uses.
In 2019, five small companies, located in nondescript buildings in industrial and residential areas near the Mexican capital and key ports, began importing significant amounts of the chemical, the import data and public records show. More companies soon popped up that were openly importing 4-P, as it’s known.
By early 2021, US DEA agents had identified a top 10 list of firms that they thought were clearly supplying drug gangs with precursor chemicals. But despite accumulating evidence of trafficking, they were unable to get a coordinated response from Mexican authorities, the current and former DEA officials said.
The DEA found an ally in Nieto, who took a previously behind-the-scenes post and became one of the most visible members of the Lopez Obrador administration as it engaged in a crackdown on tax evasion by the elite and big companies. He eventually agreed to a strategy of simultaneously freezing the bank accounts of 50 companies, owners, their wives and other top shareholders, the people said.
A Mexican official close to the situation offered a differing account, saying Nieto’s office was hesitant to act just on the appearance of suspicious shipments and committed to only freezing all the accounts if they found other evidence.
A representative for Nieto, who is now attorney general in the state of Hidalgo, declined to comment.
Singled Out
Pochteca, the country’s biggest locally owned chemical distributor, wasn’t on the DEA’s top 10 list, according to the officials. Its accounts were frozen in late October 2021.
The company has denied supplying traffickers, or ever importing the key chemicals used to make fentanyl. It said in a statement to Bloomberg that it has both Mexican and US certification for its tracing programs of so-called essential chemicals that have widespread legitimate uses but are also used to make synthetic drugs. It is still fighting to get its accounts unfrozen.
Pochteca’s chief executive officer is the co-founder of anti-crime group Mexico Unido Contra la Delincuencia, which has criticized Lopez Obrador’s security strategy and filed court challenges to his reforms that have empowered the military and a new National Guard.
Nothing happened with the 49 other companies on the DEA’s list of suspected precursor traffickers. Shortly after Pochteca’s accounts were frozen, Nieto held a lavish wedding in Guatemala that attracted widespread media attention and clashed with Lopez Obrador’s push for austerity throughout his administration. Nieto stepped down, saying on Twitter that he wanted to avoid affecting the president’s political project in the face of the reports about a “personal and transparent” event.
He had a history of being more aggressive with freezing accounts than his predecessors. While previous illicit-finance chiefs had frozen an average of less than 3,500 accounts a year, Nieto froze more than 21,000 in 2020, according to public records.
Lopez Obrador replaced Nieto with Gomez, one of the politicians that had been integrated into the president’s leftist Morena party.
Gomez told Bloomberg that there were formal channels to work with the US, such as requests from the US Treasury’s Office of Foreign Assets Control or the Department of Justice. He said the financial intelligence unit isn’t an investigative division responsible for site visits.
“If someone from the DEA tells us ‘hey, there is a laboratory in Iztapalapa that produces fentanyl,’ you are coming to the wrong place,” he said. “You have to go talk to other officials.”
The Mexican navy has entered the discussions on investigating chemical traffickers and promised to do surprise inspections at companies flagged by the DEA, but it’s unclear if they have taken any such action. Navy forces confiscated 304 kilograms of 4-P at the Mexico City airport in January and more than 3,100 kilos of another fentanyl precursor at the port of Manzanillo in February, according to publicly available government presentations.
The prospects for increasing cooperation appear dim. In February, a US jury convicted Genaro Garcia Luna, the former head of Mexico’s security forces, on charges of protecting the Sinaloa cartel, based on the testimony of convicted drug traffickers. Garcia Luna had been symbol of US-Mexico cooperation during former president Felipe Calderon’s bloody battle against cartels.
The conviction, based on DEA probes, won’t encourage any Mexican officials to start working more closely with the US, said Guillermo Valdes, who worked alongside Garcia Luna as the head of Mexico’s national security agency during Calderon’s administration, and is now a partner at consultancy GEA. Meanwhile, the presidential elections in both countries next year may only deepen the hard-line nationalist positions of AMLO and US Republicans.
“There is a profound crisis of confidence between the security agencies of both countries that is going to take a long time to recover,” Valdes said.
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