Sept. 17 (Bloomberg) -- The two Mexican couriers were hauling a tractor-trailer full of cash: $3 million collected for drugs sold on the streets of Chicago. Juan Gonzalez and David Zuniga were driving their rig through Indiana in October 2011, transporting the money to Mexico. As they stopped to fix a flat tire, three members of the Gangster Disciples, Chicago’s biggest street gang, held them up at gunpoint.
The gang had bought the drugs -- and now these members wanted the money back. They pistol-whipped and handcuffed Zuniga. As the gangsters were hooking their own purple Kenworth cab to the money-laden trailer, Gonzalez fled through a cornfield and called the police.
After a 15-mile chase north along Interstate 65, lawmen intercepted the rogue truck, arrested the gang members and recovered the loot, Bloomberg Markets magazine will report in its October issue.
Gonzalez, who worked for Mexican drug lord Joaquin Guzman, made a surprising request that fall day: He wanted proof for cartel leaders that police had confiscated the $3 million.
“He knew, without a receipt, they’d kill him or his family in Mexico,” says Jack Riley, head of the U.S. Drug Enforcement Administration for a five-state region that includes Illinois and Indiana.
Such is the fear that Guzman inspires on both sides of the border. Operating from heavily guarded compounds in the Sierra Madre of northern Mexico, Guzman’s Sinaloa cartel supplies 80 percent of the heroin, cocaine, marijuana and methamphetamine -- with a street value of $3 billion -- that floods the Chicago region each year, the DEA says. Job seekers in Guzman’s 150,000-strong enterprise must list where their relatives live.
As far as the authorities can tell, 5-foot-6-inch (1.68-meter) Guzman, a grade school dropout known as El Chapo (or Shorty), has never set foot in Chicago.
Yet during the past seven years, Guzman, who’s now in his late 50s, has seized control of the supply and wholesale distribution of drugs in Chicago and much of the Midwest.
This steady flow of dangerous substances is sparking pitched and often deadly turf wars between Chicago’s splintered, largely African-American and Latino gangs.
“Most of Chicago’s violent crime comes from gangs trying to maintain control of drug-selling territories,” Riley says. “Guzman supplies a majority of the narcotics that fuel this violence.”
The Department of Justice indicted Guzman in absentia in Chicago in August 2009, charging him with conspiring to transport drugs across international borders. He has so far confounded all efforts by Mexican and U.S. authorities to put him and his cartel out of business. Two years after officers thwarted the Indiana hijacking, police still intercept drugs or cash heading in or out of Chicago every couple of weeks. That pales in comparison to what they miss.
“We’re lucky to stop a 10th of what’s going through,” says Terry Risner, sheriff of Jasper County, Indiana, 80 miles (130 kilometers) southeast of the city.
The pipeline of Sinaloa drugs to Chicago runs through the predominantly Mexican neighborhood known as Little Village on the city’s southwest side, authorities say. Yet four years after federal prosecutors indicted twins Margarito and Pedro Flores for being key Guzman distributors in Little Village, police don’t know who has succeeded them.
The drugs continue to pour in. In a 2006 conversation monitored by Mexican police, Guzman said he wanted to make America’s third-largest city his “home port.”
He’s done that, says Art Bilek, a retired detective who’s executive vice president of the Chicago Crime Commission, a public-safety group that in February named Guzman the city’s public enemy No. 1.
“We had freelance distributors in Chicago before,” Bilek says. “Guzman has taken them over one by one. He centralized everything -- the shipping, warehousing and distribution of drugs, and the collection and transport of money back to Mexico.”
Chicago had cartel drugs in the past but not cartel leaders, Bilek says.
“Now, Guzman has top people in here to make sure things run smoothly,” he says.
The link between drugs and crime, including violent crime, would be hard to overstate in Chicago. Eighty-six percent of adult males arrested in Chicago last year tested positive for drug use. Chicago, with a population of 2.7 million, had 506 murders in 2012, the highest per capita among the four most populous U.S. cities.
So pervasive is narcotics commerce along the Eisenhower Expressway, the city’s main east-west artery, that federal authorities have nicknamed it the Heroin Highway.
The expressway leads to suburban DuPage County, where State’s Attorney Robert Berlin recently declared a “heroin epidemic.” Since the start of 2012, an average of one heroin user has died every eight-and-a-half days in the county, Berlin says, many of them in their teens and twenties and snorting Sinaloa’s product.
As the setting sun casts long shadows on a hot Friday in June, young men in low-riding jeans cluster on porches and around liquor stores near Pulaski Road and Van Buren Street, ready to do business. Keeping an eye out for police, the men lean into car windows, quickly consummating their transactions.
Gang members pay for their turf with blood. Harold “Noonie” Ward, a leader in the Gangster Disciples before going to jail in 1994 for selling drugs, links the persistence of street violence to Guzman’s stranglehold over supply. Ward says Chicago gangs were once able to pick among several Latin American vendors.
With Guzman gaining near-monopoly control, they can’t negotiate prices: He personally dictates how much distributors pay his operatives, court documents allege. In the past decade, wholesale heroin prices have doubled in Chicago to the current cost of $80,000 a kilogram, says Nick Roti, head of anti-gang enforcement for the city’s police. For street sellers to keep profits flowing, they must seize ground in sometimes lethal block-by-block combat.
“The supplier has all the power now; he can set prices,” says Ward, 51, who’s chief executive officer of Block 8 Productions LLC, a record and film company. “It used to be honor among thieves,” he says of gang protocol that punished renegade behavior like the hijacking in Indiana. “Now, it’s by any means necessary.”
Memorials that have sprung up south and west of downtown reflect a grim statistic: The city suffers an average of more than five shootings and more than one murder every day.
The crimes tell a tale of two Chicagos. The number of murders in the city is half what it was during the crack epidemic of the early 1990s. Yet on portions of the South and West sides, killings are actually more common today, according to research done by Daniel Hertz, a graduate student at the University of Chicago. On the north side, with its parks and high-rise residences abutting Lake Michigan, murders have declined so much that the area now rivals Toronto as an oasis of urban safety, he says.
“Over the last twenty years, at the same time as overall crime has declined, the inequality of violence in Chicago has skyrocketed,” Hertz wrote.
The city prepared for another potential bout of bloodshed when schools reopened in late August: After Mayor Rahm Emanuel permanently closed 47 elementary schools in June, mostly in the murder-plagued south and west, the city agreed to hire 600 monitors to escort children through gang boundaries to their new classrooms.
Three days into the academic year, dismissal at one elementary had to be delayed because an 18-year-old woman was shot a few blocks from the school.
Across the street from the community center in Altgeld Gardens, a housing project on the far South Side where President Barack Obama once worked as an organizer, names of gunshot victims line a yellow-brick hallway.
In the South Shore neighborhood, a deflated heart-shaped balloon droops above candles, teddy bears and two white crosses. Police say the victim, 24-year-old Jordan Jefferson, was a Black P. Stone gang member who was on parole for a narcotics violation when he was gunned down on June 30. A note written on the wall behind the makeshift shrine reads: “Love you always. RIP. Your Mom.”
Eight people were killed during the Labor Day weekend. Four days around the Fourth of July holiday were even bloodier: 47 shootings left 11 people dead, according to the Chicago police. Two boys ran up behind 14-year-old Damani Henard and shot him in the head as he rode the bike he’d received for eighth-grade graduation home from playing video games. Factions of the Four Corner Hustlers are battling over the neighborhood, and Damani was an unintended victim, police say.
“The streets of Chicago belong to gangbangers,” says Damani’s mother, Yolanda Paige, who, on the day Damani was killed, had made him tacos before leaving for a 16-hour day working two jobs as a nursing assistant.
“We’re losing our children,” she says.
Guzman grabbed control of Chicago partly by exploiting the disarray among its gangs. From the 1970s into the 2000s, organized mega-gangs divvied up drug-selling territories from public-housing towers, says Jody Weis, a former Federal Bureau of Investigation agent and Chicago Police Department superintendent from 2008 to 2011. The city razed the housing projects just as federal prosecutors were using new racketeering laws to convict and incarcerate gang leaders.
Rudderless, Chicago’s more than 70,000 gang members split into an increasing number of warring factions. When police searched for the reason murders were on a pace to climb past 500 last year, they identified about 625 gang offshoots, including 100 they hadn’t previously known about.
“The biggest driver of violence in Chicago -- and where it’s becoming difficult to address -- is the factionalizing or breaking down of the bigger gangs into these smaller cliques,” Police Superintendent Garry McCarthy says.
Guzman stepped into the vacuum in Chicago by first winning a key stronghold in Mexico: the transshipment border town of Ciudad Juarez. He was born 300 miles south in the mountain village of La Tuna de Badiraguato, according to Malcolm Beith’s “The Last Narco: Inside the Hunt for El Chapo.” Relatives sponsored his rise in the drug trade, the book says.
Guzman set his sights on Juarez, a sprawling city of 1.5 million, when cartel leader Amado Carrillo Fuentes died during plastic surgery in 1997.
Incarcerated in a Jalisco, Mexico, prison on murder and drug-trafficking convictions, Guzman escaped in a laundry cart in 2001 and unleashed a spree of assassinations starting seven years later, police say. By 2012, he’d won much of Juarez and the route through El Paso, Texas, and highways north.
A 26-year-old member of the rival Aztec gang recounts those deadly days. Sitting in a sweltering room on a west Juarez street where a table fan strapped to a wooden beam provides no respite from the suffocating heat, the man runs his forefinger under his chin to show how he slit throats.
He recalls how hard it was to sever the arms and legs of one of his victims with a hacksaw because bones are so strong. In all, more than 10,000 people died in the mayhem that cemented Guzman’s grip on the Juarez crossing.
Today, Sinaloa hit men and kidnappers called the New People patrol the city, says Alejandro Hope, a former intelligence officer for Mexico’s government and now a security analyst at the Mexican Competitiveness Institute. The New People and allied gangs lure recruits -- and gain information -- with gifts, says the gang member, whose waist swims in his baggy jeans.
“They know all of our movements because they’re our friends,” he says, asking not to be identified because he feared reprisals.
Chicago’s connection to Mexican drugs goes back decades. Local Mexican-Americans sold brown heroin called Mexican mud in the 1970s, says Luis Astorga, a sociologist at the National Autonomous University of Mexico. Guzman inherited and improved that network along with channels that Ward, the former Gangster Disciple, says he set up in the early 1990s in Detroit, Minneapolis and elsewhere.
Law enforcement officials say Guzman chose Chicago for the same reasons Sears, Roebuck & Co. once centered catalog sales in the city: It’s a transportation hub where highways and rail lines converge and then fan across the Midwest. The disappearance of factory jobs and the struggle of public schools on the city’s South and West sides also give Guzman tens of thousands of willing salesmen who are jobless and poorly educated.
In 2009, a Guzman distributor ran 11 warehouses and stash houses in Chicago and southwestern suburbs. One was in Bedford Park, steps from a facility used by FedEx Corp., operator of the world’s largest cargo airline.
“He’s a logistical genius and a hands-on guy,” Riley says, adding that Guzman is also a billionaire. “If he had turned his talents to legitimate business, he’d probably be in the same situation moneywise.”
The Chicago police strategy of saturating high-crime areas with patrols appears to be cutting the homicide rate. Murders through Sept. 8 fell 21 percent -- to 297 from 377 -- from the 2012 period. Yet the authorities have made scant progress in cracking Sinaloa’s supply chain.
In January, 70 investigators led by the DEA set up what they call the Chicago Strike Force in a three-story building. One investigation spurred the indictment and arrest of 21 defendants in June for distributing heroin and cocaine in Illinois, Indiana and Wisconsin. Riley expects more arrests, though the narcotics keep flowing.
“The rivers of drugs coming into Chicago are diverse and sufficient to meet demand,” says John Hagedorn, a criminologist at the University of Illinois at Chicago. “This is not a war you can win.”
Civic leaders and police vowing to reduce the gunfire have homed in on gang-against-gang retribution. On the fifth floor of their South Side headquarters, police use facial-recognition software to scan images from 24,000 city surveillance cameras. Within minutes of a shooting, they send e-mails and texts about gang affiliations -- and potential locales for retaliation -- so patrols can swarm the trouble spots.
In the neighborhoods, a Chicago nonprofit called Cure Violence tries to reduce shootings by removing potential attackers and victims from the streets. Frankie Sanchez, a former gang member who works with the group, drove members of the Gangster Two Six Nation, one of Chicago’s biggest Latino gangs, to a Wisconsin lake after several shootings in June. After another, he hustled them to the city’s Grant Park. The tactic worked: Nobody else got shot, at least not in the critical period immediately following the crimes.
In addition to destroying lives, the violence is bad for business, says Toni Preckwinkle, Cook County Board president.
“It’s terrible for our region because it makes it seem like this is an unsafe place to live and work,” she says.
While the city’s tourism numbers have held up so far, Moody’s Investors Service in July cited crime when it reduced Chicago’s general-obligation debt rating by three grades -- a magnitude unprecedented for a major U.S. city, according to data since 1990.
“The city’s budgetary flexibility is already burdened by high fixed costs, including unrelenting public safety demands,” analysts wrote.
Skeptics in Mexico say U.S. authorities are defending their own interests by exaggerating Guzman’s impact.
“It’s easier to sell the need for a bump in your budget if you speak about evil Mexicans than if you present a complex web of gangs,” says Hope, the Mexican Competitiveness Institute analyst.
In Chicago, the DEA-led strike force concentrates its anti-Guzman efforts in Little Village, where immigrants have congregated for a century.
On a sunny June afternoon, traffic snarls on 26th Street as diners enjoy tortillas and roast pork at $25 for four people. The Two-Six gang takes its name from this thoroughfare, which is lined with currency exchanges for buying identification cards and wiring cash back to Mexico.
The DEA is zeroing in on so-called choke points in Little Village where drugs change hands between distributors and street gangs.
“The middlemen tend to be Mexican gang members from the Latin Kings, Two-Six and Maniac Latin Disciples,” says Roti of the Chicago police. “From there, it flows to African-American gangs, who control the street.”
Luis Lopez says he’s proud to be a Two-Six member. Since grade school, he says, he never wanted to do anything but join members of his extended family in the gang. From the sidelines of a softball game in July, Lopez, 18, describes the links between Little Village and Mexican smuggling.
“Since we’re Latino, we know more people who are tied to the cartel,” he says. “The black guys, they need us for drugs and guns because we have the right connection.”
The top-ranked Sinaloa operatives in Little Village are obsessed with secrecy, criminologist Hagedorn says. They deal whenever possible with family members and have no interest in leading a Chicago gang.
“Why would you want that hassle when you’re busy making money?” he asks.
Little Village police commander Maria Pena understands how gangs operate after growing up in nearby Logan Square.
“In my district, Latinos are more territorial than gangs in other parts of the city,” says Pena, a 25-year veteran who once walked a beat. “They won’t allow opposition gangs to come through. They only sell drugs to known individuals.”
A few blocks north of Little Village, black gangs peddle Sinaloa drugs near the Eisenhower Expressway, the Heroin Highway. Riley says Guzman keeps the price of cocaine artificially high to push a more profitable and easily transportable product his chemists refined -- a snortable heroin that lures suburbanites wary of needles.
“They think if they snort or smoke it, they won’t end up injecting,” says R. Gil Kerlikowske, director of the Office of National Drug Control Policy. “Very quickly, they do.”
The Flores twins in Little Village were the cornerstones of Guzman’s U.S. business from 2005 to 2008, federal court documents allege. They took delivery of 2,000 kilograms (4,400 pounds) of cocaine a month from Sinaloa and associated cartels, plus heroin, the documents say. Their trafficking approached $700 million in 2008.
The twins used local warehouses to break down loads from Mexico for retail distribution around Chicago and shipment as far away as Vancouver. They encoded ledgers to track cash sent to Mexico for drugs purchased on credit and to note which couriers handled each step of the process.
The system ran smoothly until early 2008. Guzman began a war with boyhood friend Arturo Beltran Leyva over, among other things, the loyalty of the Flores brothers, according to federal court documents. As the Guzman-Beltran Leyva battle claimed hundreds of lives in Mexico, the twins offered during the summer of 2008 to help the DEA investigate Guzman, Patrick Fitzgerald, then-U.S. attorney for the Northern District of Illinois, said in court documents.
The twins recorded their phone calls with Guzman and their visits to his mountain stronghold. In an October 2008 meeting that included Margarito Flores, Guzman and subordinates complained that Mexican authorities had ceded power to the U.S. in the war on drugs.
“They are f---ing us everywhere,” he said. In a taped phone call in November 2008, he approved Pedro Flores’s request for a 9 percent drop in the charge for Chicago heroin -- to $50,000 a kilogram -- citing poor quality.
“That price is fine,” Guzman said.
The Flores twins also taped Jesus Vicente Zambada Niebla, son of Ismael Zambada, who court documents identify as a principal Sinaloa leader along with Guzman. Mexican soldiers arrested the younger Zambada in March 2009. He was extradited to Chicago, where he’s awaiting trial on drug-trafficking-conspiracy charges. He pleaded not guilty on all counts. Charges against the Flores twins are still pending.
Police deconstructed a further piece of Guzman’s Chicago network with the August 2010 arrest of Erik Guevara, whom they say has family ties to Sinaloa in Mexico.
They charged Guevara, 31, with conspiracy to supply heroin after discovering a secret compartment under the floor of a house in suburban Forest Park, Illinois, court records allege.
The building had been owned by an 86-year-old woman who died five years earlier. Guevara, who lived nearby, appropriated the vacant home to stash money and drugs. He was arrested in 2010 with 7.7 kilograms of heroin stuffed in a drive shaft he was transporting in his Jeep, the Justice Department says. He pleaded guilty and began a 30-year jail sentence in January.
Sinaloa leaders orchestrate punishments from afar. In 2011, they sent a list of targets to a clan of Chicago roofers who served as cartel enforcers by night, says John Blair, intelligence director for the Cook County Sheriff’s Office. The dossier contained names of people Guzman’s cartel believed had robbed it in Mexico.
Blair suspects roofer Arturo Ibarra was among Guzman’s U.S. hit men. Police shot and killed Ibarra as he fled from a north side neighborhood just as two men named in the dossier lay bleeding to death from stab wounds.
The Gangster Disciples who tried to hijack Guzman’s cash in 2011 have avoided Sinaloa reprisals so far, says Jasper County prosecutor Kathryn O’Neall. An Indiana judge sentenced the trio on May 28 to three years in prison for money laundering. Gonzalez and Zuniga, who cooperated with authorities, weren’t charged.
Guzman’s grip on the U.S. Midwest may actually be strengthened by a move Mexican authorities hailed as a victory in their war on trafficking. In July, they arrested Miguel Angel Trevino Morales, head of the Zetas cartel, which Sinaloa has been battling over a route through Nuevo Laredo on the U.S. border.
“Trevino’s arrest makes it easier for Sinaloa to conquer territory,” says Jorge Chabat, a security analyst at the Mexico City-based Center for Economic Research and Teaching.
The reach of Sinaloa and its elusive leader extends from the rugged Sierra Madre to the dusty streets of Juarez to Chicago and beyond.
“They’re the pre-eminent organized crime group in the world today,” the Chicago Police Department’s Roti says. “They have almost unlimited resources.”