Financial Crimes Haunt Mexico’s Economy: Report Uncovers Surprising Trends

Financial crimes are a significant obstacle for Mexico’s economy, with a new report shedding light on the complex dynamics between financial crime and foreign direct investment in the country.

Dominant Criminal Groups Boost Economic Activity

The study, published in the Journal of Conflict Resolution, analyzed foreign direct investment trends in Mexico from 2000 to 2018. Surprisingly, it found that dominant criminal groups tend to reduce violence levels, making it a more attractive destination for investors.

• The report highlights the case of Campeche state, where foreign capital flows increased significantly during the mid-2010s when the Zetas were the dominant criminal force.
• When a single criminal group controls an area with no competition, levels of violence are lower, leading to increased opportunities for investment.

“Kingpin” Strategy Can Have Negative Impact

However, the report also found that the “kingpin” strategy - targeting high-ranking criminal leaders - can have a negative impact on foreign direct investment. The study suggests that arresting or killing criminal leaders often leads to more violence and instability, as rival groups seek to take advantage of the power vacuum.

• This can drive away foreign investors, who are deterred by the increased risk and uncertainty.
• The report cites examples of PepsiCo and Coca-Cola’s scaled-back operations in Guerrero state, which were affected by brazen attacks on foreign companies.

Underreporting Financial Crimes a Significant Issue

Furthermore, the report highlights the issue of underreporting financial crimes targeting foreign firms in Mexico. Many businesses prefer to pay off extortionists rather than reporting incidents to the authorities, creating a false sense of security.

• The study suggests that brazen attacks on foreign companies can have serious consequences for investment.
• Underreporting financial crimes can also hinder efforts to combat organized crime and create an environment conducive to investment.

Lessons for Other Countries

The findings of the report could hold valuable lessons for other countries grappling with organized crime, such as Italy, Colombia, and El Salvador. Governments may benefit from understanding which types of crimes are most detrimental to foreign direct investment and reconsidering their strategies for combating organized crime.

• “In Mexico, I think it’s in the interest of a lot of parties to sort of keep things secret,” said Brian J. Phillips, co-author of the report. “But if we’re going to effectively address these issues, we need to be able to see them clearly and understand the consequences of our actions.”
• The study’s conclusions could inform policy decisions in Mexico, where foreign investment is crucial for economic growth.

By acknowledging the complex dynamics between financial crime and foreign direct investment, policymakers may be better equipped to create an environment that attracts investors while addressing the root causes of organized crime.