El Marro's transport companies. A lesson of unfair competition

"Redlogarythm" for Borderland Beat, images by "Hearst"

Source: Publimetro

    The Santa Rosa de Lima cartel, a Guanajuato-based criminal organization once led by Jose Antonio Yepez Ortiz aka El Marro, used to be in the headlines for being an organization specialized in the theft of hydrocarbons (a practice known as huachicoleo in Mexico). The method is easy, copying the technique used for the first time by corrupt elements of the State-owned Petróleos Mexicanos (PEMEX), they used local population and sometimes specialized workers to drill the pipes crossing Mexico.

    The leaders of huachicol networks are not idiots, they´ve been involved in this type of activity for a long time and know that in order to obtain the most profitable material they must drill pipes canalizing oil that has already been refined (in order to avoid the refining process which involves time and resources, thus diminishing the final profit) Once stolen, how do these groups dispose of their product? In my opinion it depends on the zone of Mexico we´re talking about. The Zetas, for example, used to drill oil and then smuggle it through the border to Texas where they sold it to American businessmen involved in the oil market at a lower price. After that Texan oil companies involved in the scheme were able to sale their existences at a considerably lower price thus getting involved in which is commonly known as dumping (unfair competition)

    Nevertheless Guanajuato, one of the most affected States by the huachicol networks, is far away from the border. The organizations operating here (one of them being the CSRL) commercialize their products in local markets. How? By operating as some of the oil-theft organizations existing in Africa and the Middle East. In the case of Nigeria (the biggest African oil producer), for example, there are plenty of criminal gangs (mainly lead by members of the Igbo tribe operating from the Biafra region) which drill pipes in the Niger river delta and then store it at vessels and ships disguised as fishing boats which then start travelling parallel to the coast selling the stolen oil at a very cheap price to the businesses or fishing villages in the Gulf of Guinea.

    Saving some differences we could say that El Marro´s group used to distribute its product through the local population in a similar way. Local farmers, local entrepreneurs and even mere civilians bought his cheap gasoline as a way of avoiding the official oil price imposed by the Gov. of Peña Nieto (during his time oil price increased by nearly 80%)

    Nevertheless, after gaining so much attention due in part to the turf war against the CJNG El Marro was targeted as a high-profile objective and the central Government started aiming at his organization. The deployment of troops began in 2016 through the implementation of the so called Operativo Jabalí and by October 18^th 2017 El Marro was officially identified as the huachicolero main leader operating in the State of Guanajuato. Furthermore, the coming to power of President Andrés Manuel López Obrador in December 2018 and the seriousness of AMLO´s office in the task of finishing with oil-theft activities in the certain hotspots such as Guanajuato´s red triangle, Puebla or Veracruz left Marro with his main profitable activity severely damaged. Thus, after several years of continuous pumping and stable economic activity undertaken by his organization El Marro faced two problems. First: a great stock of stolen oil which was continuously being stored in secret locations and disguised bunkers. Second: a high amount of cash (since street stolen gas sales are a cash intensive business) which had to be hidden properly in order to avoid detection and forfeiture by the UIF (Unidad de Inteligencia Financiera, a branch of the Treasury Department/Ministerio de Hacienda similar to the FinCen in the US) which had already marked as its second main the tackling of the huachicol organizations´ financial structures. Of course, much of these revenues were already invested in front companies such as real state, convenience stores and petrol stations (the best option for Marro since at the same time he could sell cheap gas and launder the profits obtained), restaurants, etc.

So, what could do an individual involved in the business of oil theft do to get rid of his existences, disguise the profits and at the same time avoid the attention of the authorities? The answer was quite brilliant although logic at the same time: the CSRL boss created two transport companies which owned several buses and trailers used carry people and goods through the State of Guanajuato. Nevertheless, the strongest point of this scheme was the fuel being used by the vehicles: it was stolen gas.

Borderland Beat has obtained the official corporate foundational acts of these two companies, although for obvious security reasons we will not disclose the identities of the people appearing as nominal owners. The first one was Agencia Logística de Celaya SRL de CV, created on December 19^th, 2013, in the town of Celaya (El Marro´s main operational center and logistical base) with an initial capital of 2 shares of 1,020,000 and 980,000 MXP each owned by its nominal owners Armando F and Guadalupe R. The second one was constituted 4 years later, on September 18^th 2017, also in Celaya. It was called Lonate Transportes SA de CV and two individuals (Armando F and Raquel G) appeared as the owners of its 2 only shares of 1,200,000 and 800,000 each. Interestingly enough, both companies had as their corporate headquarters the same address: a humble house in a working-class suburb of Celaya.

Lonate Transportes SA de CV founding document. For security reasons all names have been blurred

Agencia Logística de Celaya SA de CV founding document. For security reasons all names have been blurred

    Oversimplifying the operations of a complex market economy, if we take into account the portfolio of a transport company we can distinguish between fixed costs (those which do not vary and are always the same such as electricity, wages, tire repairing, facility renting, etc) and variable costs (such as the price of raw materials involved in the creation of a product) In the case of any serious transport company its main cost is, of course, fuel. Mexico used to be an oil net exporter. In the Mexican case, its huge oil reserves and the State approach to this industry through the PEMEX State monopoly has always been one of the country´s main legacies of its nationalist historical past. Nevertheless, the widespread mismanagement, a rampant corruption and the clientelism characterizing national politics has transformed the Mexican oil market into a chaotic and rotten industry which suffers huge price blows. In fact, one of the most common reasons for Mexicans to demonstrate in the streets has traditionally be the constant raising of fuel prices.

    Because of all this, as things stand for any Mexican transport company its highest variable cost is the combustible used by its vehicle fleet. Consequently, its accounting books are constantly out of balance due to the fluctuations of fuel prices.

    Mexico still is a rural country, in my opinion. A lot of the people living in these rural areas do not have access to cars or prefer to travel with more people for large trips across the States or the country. Thus, buses are a very common mean of transport.

    What would happen if suddenly a bus company started offering a fixed price for its trips? This idea came to El Marro´s mind at some point in during the 2010s. He had access to stolen fuel and controlled an area where people used public transport. Nothing prevented him from cutting costs by using a product which hadn´t been bought but stolen. Thus, El Marro´s vehicles could offer cheaper tariffs since they hadn´t to monetize an important part of their consumable assets.

    This fact enabled El Marro to get rid of his competence by offering lower prices in a market known for its instability. Such a practice is known as dumping and is usually used by bigger companies to get rid of smaller competitors. If a company is big enough to suffer profit loses during a certain amount of time by offering the lowest price the most probable thing is that its competitors won´t be able to offer an even lower price thus retiring from the market because of the fact they can´t afford to face a price-war.

    Dumping is in most of the cases illegal. In Europe, for example, this practice is commonly used by strategic alliances of big firms forming what is known as competence cartels. The European Commission, the European Union´s executive institution, takes this behavior very seriously and is constantly imposing penalties and fees to multinational companies for such practices.

    But in Mexico, in the turbulent State of Guanajuato, a place where the death toll increases each week who cares about fair competition between businesses?

    Yet it happened exactly that. El Marro´s transport companies started offering tickets so cheap that other local competitors couldn´t match tariffs and had to retire from business.

    As always happens in Mexico, the management of such a business isn´t possible for people who are mostly centered in running parallel criminal economies. They need individuals to grant the licenses, lawyers to form the companies, accountants to launder the profits and alter the books and relatives or trusted personnel to be used as front men.

    El Marro´s transport network wasn´t the work of a thug. It was conceived and executed by someone who was an expert in his/her field. As it usually happens in Mexico and other parts of the world where criminal economy prevails the figure of the operador financiero (financial operator) enters to scene. Entrepreneurs with financial difficulties and in hurry for cash, legal advisors and respectable lawyers with dubious backgrounds, local politicians and even successful businessmen are always involved in the financial arena of Mexican organized crime. In El Marro´s case the people appearing as nominal owners of the transport companies seem to be normal citizens used for anonymity reasons, but the real owner of the businesses, the person receiving illicit money and funneling it through the corporate structures was his wife, Elsa Marisol Martínez Prieto.

El Marro´s family tree. All of his relatives would play different and major roles in the criminal organization he led. Full Size Image of Family Tree

    El Marro´s economic strategy was not limited to these two companies though. Over the years he transformed himself from a normal thug stealing fuel with the help of a familial-based organization into a criminal strategist interested in trespassing State borders to invest his money into bigger and more profitable financial schemes.

    For doing so Elsa Marisol Martínez Prieto used several companies which acted as sponges. They received money legally and illegally and then, after posing such quantities as legal revenue, transferred them to a network of people that used it for various purposes. Thus, for example, El Marro´s wife wired Karina Mora Villarreal (his husband´s lover) millions of Mexican pesos used by her to buy a luxury mansion in Celaya´s Álamo Country Club where they both lived. Elsa Marisol Martínez Prieto also allowed El Marro´s sister Karen Lisbeth Yépez Ortiz to withdraw nearly 1.2 million MXP between 2017 and 2018 which were used in December 2018 to buy Swiss-imported fine cattle for 150,000 MXP directly from a company called Promotora Ganadera Campestre Sociedad de Producción Rural de Responsabilidad Limitada. 

Extract of Promota Ganadera Campestre´s founding document. Appearing as owners, former Chihuahuan Governor´s cousing and his son/daughters. The company was used by El Marro´s laundering scheme to buy cattle as a legal investement

This last company had been created in July 2014 in Hidalgo del Parral, Chichuahua, and was owned by Federico Guillermo Duarte Fafutis, his son Guillermo Federico and his two daughters Rebeca Liliana and Alma Elena. Interestingly enough, Federico Guillermo Duarte Fafutis was the cousing of César Duarte Jáquez, Governor of Chihuahua for the PRI between 2010 and 2016. According to official data, the back then Governor Duarte used his position of power of influence to steal both public resources and private land where he allowed his family to conduct extensive cattle breeding activities. Private investors where then encouraged to buy cattle from the Duarte family, among them El Marro´s financial operators, who bought Swiss cows for at least 400,000 MXP wired on December 27^th 2018.

    Through this the network El Marro not only laundered his ill-gotten gains but also got rid of his incriminating stolen fuel existences and at the same time entered into a market troubled by increasing costs in which by offering a fixed and low price he was able to destroy his competitors in an economic way, without using any type of physical violence but just the mathematical logic of the free market economy.

    The whole scheme was torn apart by the UIF in December 2019 when it was published that El Marro had already partnered with businessmen from the neighboring State of Queretaro to start offering his products there thus expanding even more his activities at a time when his native Guanajuato was being ravaged by a feud between the local CSRL and its rival CJNG. By the time of El Marro´s capture in August 2020, nearly 100 bank accounts linked to the boss and his trusted network had been frozen by national authorities.

 

Antonio Yépez Ortiz El Marro with one of the Swiss calves bought from César Duarte´s linked company

    What does this story tell us? In my opinion it offers a perfect explanation for the resilience and endurance of Mexican regionally based criminal groups. We should take into account that although the Mexican criminal panorama is overshadowed by news regarding big criminal organizations such as the Sinaloa Federation or the CJNG, much of the violence being suffered by the country is provoked by locally or regionally based mid-size groups whose core leadership is composed by a family clan. Normally the head of the group doesn´t manage the group´s financial operations, which lie in the hands of some of his closest relatives (wife, brother, sons, etc) It is these people that survive the arrest of the criminal boss that will end up in jail instructing his relatives to continue with the maintenance of illicit flows that perpetuate a state of affairs characterized by the splintering of former allied groups that will transform the local panorama into an even crazier and more violent ecosystem. It´s the story of Guanajuato and by extension of most parts of Mexico.

    The second and probably most interesting lesson arising from this article should be the effect that organized crime has in licit economies. We should not limit ourselves to the analysis of Mexican criminality in the field of the levels of violence. A rational criminal´s last objective is always to achieve profit. And when profits are so high that they end up constituting a considerable size of nation´s GDP it´s obvious that the future of such illicit financial flows will have an impact in the rest of the economy.

    How knows, in the twisted logic of the free market economy what a national Government might not achieve by the artificial manipulation of interest rates might be achieves by a regional criminal organization by altering competition conditions through the offering of cheap bus tickets.

Please check out our previous collaboration which covered the rise and fall of the Cartel Santa Rosa de Lima in Guanajuato, linked here.