In the second installment of Risk Advisory’s three-part series on compliance and security challenges in Mexico, we discuss an issue frequently cited by security managers operating there: extortion by local community groups.
Mexico has a long history of communities demanding compensation to let companies operate freely. Various parties engage in the practice including formal groups like trade unions and informal workers’ associations, among others. While most demands are for money, some simply request employment for their members or contributions of whatever good the company is producing.
The issue can be particularly challenging for oil companies which tend to operate in remote locations, where the rule of law is usually weak and where municipal law enforcement is at best unreliable, and in some areas, complicit. Oil companies also have to deal with Pemex’s legacy on this issue. For decades local communities made the same demands on the national oil company. It managed the problem by paying money to residents and using informal patronage to reduce local resistance to its projects.
Mirroring this approach is not a credible option for international oil companies. Making any direct payment could violate their internal compliance procedures and potentially expose them to anti-corruption legislation. However, such arguments fall on deaf ears to the local communities. They are either unable or unwilling to distinguish between private operators and Pemex and continue to demand the compensation they have become used to.
The methods they use to try and extract such payments are various. One of the most common tactics is to establish roadblocks to prevent access to work sites. The states where we have heard this reported the most this include Veracruz, Campeche and Tabasco. The practice has also escalated in recent years: both in terms of the frequency of roadblocks and the amount of money being demanded.
Offshore operators are not immune from such activities either. In one instance, the members of a local fishermen’s organisation used their boats to block access to a drilling platform after the oil company refused to provide its members with fuel. In an apparent attempt to pressure the company to do so, the fishermen subsequently breached the safety perimeter by bringing their vessels alongside the platform. In response, the rig had to be temporarily shut down.
Our experience is that these efforts are designed to bring cost and project delays to companies and they rarely lead to violence. However, groups have threatened to pass their grievances on to criminal gangs to try and force companies to meet their demands. It can be difficult for security managers to accurately gauge this threat but our experience is that they take it seriously. In part, this is because Mexican crime groups have demonstrated their willingness to target employees of international companies. For example, in 2015 criminals kidnapped 16 local workers from several Canadian mining companies operating in Guerrero State and three were subsequently murdered.
A proactive approach
Mitigating the risks of extortion requires proactive and preventative measures. Those with experience of operating in Mexico tell us key among them is early engagement with the local community, ideally before operations begin. This allows companies to understand the social environment they are entering and, in particular, what the local community expects from the company’s presence and what it will mean for them.
It also helps to be well-informed. Stakeholder mapping exercises can help companies identify local influencers: usually local community groups, trade unions, local politicians and law enforcement agents. As a measure of the depth of this exercise, security managers have told us it should include an understanding of the personal relationships between these people and the extent of any ties they may have to local crime gangs.
A longer-term step mentioned by several security managers we spoke to is to invest in the areas they are working in. By helping communities to provide for their everyday needs the risk of extortion is reduced. Examples we have been told of in Mexico include working with local NGOs to provide bus services for local school children, building community centres, schools or housing.
Such CSR projects are not a cure for all ills, or a substitute for proportionate physical security measures at a site level. But we have been consistently told that companies that actively engage with local communities in this way put themselves in a stronger position. By contributing to the diversification of local economies and to social development, such projects can also begin to change the culture of informal patronage established during the years of Pemex’s monopoly.
Demands for compensation from local communities are just one element of a wider spectrum of security issues that international oil companies are exposed to when entering Mexico. The issue shows how different risks and criminal tactics can often be intertwined, and that these differences can be difficult to immediately discern. It also reflects Mexico’s complex and changeable risk environment, which demands an in-depth understanding of social and criminal dynamics at the local level before operations begin.