Drug cartels muscle in to piracy business

When hundreds of Mexican police crashed through the doors into a warren of mysterious warehouses and humming laboratories, they uncovered one of the largest illegal manufacturing centers of pirated movies and music ever found in Latin America.

The pre-dawn raids last month netted 12 tons of movie disks and more than 1,000 DVD burners, enough machinery to produce a staggering 500,000 counterfeit copies of “Kung Fu Panda 2” a day, if the factories were running at capacity.

Defenders here in the rough barrio of Tepito, famous for its black-market bazaar, threw spikes down into the street to blow the tires of the crusading police. No arrests were made, and Mexican officials shrug that they do not know who ran the laboratories. But according to U.S. officials and American producers of the stolen films, music and software, Mexican drug cartels lurk in the shadows.

Led by the notorious La Familia and Los Zetas drug mafias, Mexican cartels now take a big cut of the hundreds of millions of dollars in bootleg disks sold in Mexico each year, according to U.S. officials and representatives of film studios and software manufacturers.

“This is no longer a victimless crime. There is blood on the product,” said Federico de la Garza, managing director of the Motion Picture Association in Mexico City, whose own investigators work closely with the Mexican attorney general.

Disk piracy and U.S. copyright violations are a challenge around the world, but in Mexico the sale of bootleg copies of “Toy Story 3” and Microsoft Windows XP are funding the powerful mafias whose relentless violence has left more than 35,000 Mexicans dead in the past four years.

Mexico has become the pirate capital of Latin America, exporting so many bootleg movies to Central America, for example, that the major studios no longer bother to sell their products on the shelves there, according to industry watchdogs.

And in Cancun or Monterrey or Tijuana, when you buy a bootleg Disney movie for the kids, it is as likely as not to bare a stamp that shows it was distributed by the Zetas (a stallion) or La Familia (a butterfly).

Video piracy is ubiquitous in Mexico, where more than nine of 10 movie DVDs sold are counterfeits. Mexican authorities rarely seize products from street dealers or market stalls. U.S. officials in Mexico suspect many vendors give kickbacks to local authorities to allow them to operate.

The bootleg units sell for about $1, versus the $12 charged for legal disks, and though the sound and picture are sometimes inferior, the copies are generally decent. Box-office blockbusters are available on the street a couple of days after they open in theaters in the United States.

About 26 million legitimate DVDs are sold in Mexico each year; another 235 million are bootlegs, according to the motion picture industry, which claims the bootlegs account for $300 million to $600 million in lost revenue. Some critics suggest that U.S. film studios are selling their product at a price point far above what the average Mexican is willing to pay and thus are stoking the piracy boom.

On Saturday in Mexico City, counterfeit copies of “The Hangover Part II” were already on sale at metro stops, two days after the picture premiered.

Asked if he thought it was a crime to buy a pirated DVD, Juan Figueroa, a college student, said, “nope.” He acknowledged that it was wrong, but compared it to littering. Plus, he said, the price was right. He paid 10 pesos for the film, about 85 cents.

“The resources the cartels gain from these enterprises is considerable,” Mexico’s deputy attorney general, Irving Barrios Mojica, said in an interview.

Barrios said the cartels probably don’t manufacture the disks themselves but have muscled into the business, forming partnerships with distributors and extorting vendors, demanding a monthly cut. “Organized crime, for example, will charge the vendors a thousand pesos a month — about $90 — to do business,” Barrios said.

There are hundreds of thousands of such small vendors to shake down in Mexico. A 2009 study by the attorney general here found that La Familia could generate as much as $2 million a day through video piracy.

The Mexican attorney general has discovered that pirate disk suppliers are offering their distributors a form of insurance: For an extra peso per disk, they will replace any film confiscated by authorities.

A U.S. official in Mexico with knowledge of piracy, but who could not be named because of security protocols, said the cartels are continuing a pattern of exploiting new business opportunities, moving from drug and arms smuggling to human trafficking to petroleum theft and now to piracy.

A bipartisan caucus in the U.S. Congress last week announced the creation of a “watch list” of countries where piracy has reached “alarming levels” and is controlled by organized crime. The caucus named Canada, China, Russia, Spain and Ukraine, and members said that Mexico would probably be named soon — although they applauded the country for passing legislation last year that makes piracy a crime and establishes protocols for enforcement.

But challenges remain. Mexico has yet to make a major arrest. According to industry reports, 83 low-level distributors have been arrested this year, though only six are in jail. But the authorities are busy: 83 laboratories, 476 warehouses, 400 cyber-cafes and 72 bars have been busted this year, and more than 5 million DVDs, CDs and Blu-rays seized.

“Organized crime, the saying goes, is very organized, and we saw that two to three years ago, these criminal groups noticed a huge industry, a golden opportunity, and they seized it,” said de la Garza. “They are killers, but they are also good businessmen.”

Researcher Gabriela Martinez contributed to this report.

William Booth is The Post’s Jerusalem bureau chief. He was previously bureau chief in Mexico, Los Angeles and Miami.
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