This is a rush transcript from "On the Record ," March 25, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: And tonight, we are live in beautiful Monterrey, Mexico. Take a look at it. This city is so gorgeous. It's beautiful on the outside, but the inside -- terror. You have no idea how bad the violence is here. People are scared to death. And you know what? They have a good reason to be scared. A vicious and deadly drug war is raging here in Mexico, including right here in this beautiful city. The drug cartels have spread its terror to citizens. Members of the Mexican military have been executed, yes, even beheaded, our U.S. consulate in downtown Monterrey attacked, kidnappings, police gunned down, murdered at home, even out shopping.

There are so many murders just this year in Mexico, more than 1,000 killed this year alone. But that's not all. This violence is spreading over the border into the United States. We are getting involved in this war big-time, President Obama announcing that he plans to send federal agents to our border to help stem the violence.

Also, Secretary of State Hillary Clinton is right here in Mexico tonight. She will go "On the Record" tomorrow night. And in moments, you will meet a man who may have one of the most dangerous jobs in the world, the San Pedro chief of police. This man fears for his life. And guess what? That fear is rational. He has been the subject of attacks. He goes "On the Record" next.

But first, you go to the scene of the U.S. consulate in Monterrey, the site of an attack on October 12.


VAN SUSTEREN: Check out this busy road. We're in Monterrey, Mexico. This road goes right in front of the American consulate here in Monterrey, Mexico. The American consulate is about 100 yards behind me. Let me tell you an important timeline. October 12, 2008, about midnight, someone pulled up on this consulate, lobbed a grenade into the consulate -- it didn't explode, luckily -- and opened fire. No arrests. A couple weeks later, nine bodies found murdered, members of the Mexican military.

Fast forward to January 7 of this year, an attack much like the attack on the American consulate, this time a local television station. And again, a grenade was tossed and someone opened fire. And it gives you an idea of just the level of violence that's going on in this very busy city in Mexico.

Now, here's the good news. An arrest has just been made, someone arrested for drug-trafficking high up in one of these cartels believed to be behind the attack on the American consulate, the military members who were murdered and found buried, as well as the television station here in Monterrey, Mexico.

But once again, this is the scene down here in Mexico, and people are really on heightened alert because this is not getting better. This is a very serious problem in this country, and everyone is concerned about the level of arms and money coming into this country and the drugs leaving this country.


VAN SUSTEREN: Now, the man you are about to meet has a target on his back. His life is in danger every single day. Moments ago, the San Pedro chief of police went "On the Record."


VAN SUSTEREN: I think Americans, when they think of crime -- you know, we have home invasions. We have armed robberies. We have murders (INAUDIBLE) I think most Americans think that the entire crime base here is drug-related. How serious a problem are these drug wars that we're reading about?

SAN PEDRO CHIEF OF POLICE: Well, not everything is drug-related. Drug- related is like a separate issue (INAUDIBLE) a big one. What's happened is -- what's happened in the past has (INAUDIBLE) to today. Two of the biggest drug organizations, cartels in Mexico, began fighting for the turf in different areas they considered in Mexico strategic for their business. Why that happened, they (INAUDIBLE) we believe and they -- that everything begin with the attack in the United States on 9/11 because the borders (ph) came very close. So not every -- much of the drug went (INAUDIBLE) So they begin distributing the drugs in areas to pay for all the organizations.

VAN SUSTEREN: Have you lost police?


VAN SUSTEREN: How many have you lost?

SAN PEDRO CHIEF OF POLICE: In 2007, they killed seven police officers. We receive an attack to the -- to our building (INAUDIBLE) corporation, very hard attack. They shoot us from an ongoing vehicle with AK-47s (INAUDIBLE) bullets.

VAN SUSTEREN: It's astounding, shooting the police like that.

SAN PEDRO CHIEF OF POLICE: They throws a grenade to my office. It didn't explode at that time. And I have two (INAUDIBLE) officers and one -- one - - one people from maintenance was killed.

VAN SUSTEREN: Do you worry about yourself?


VAN SUSTEREN: Like, how serious a threat, though? I mean, I get a lot of kooks who threaten me. Of course, I'm not trying to solve a drug war. But I mean, what are the threats like? I mean...

SAN PEDRO CHIEF OF POLICE:For example, one day I was going to a reunion in (ph) the secretary of the state of the police -- state police. And I was in one of my armored vehicles, and my caravan supporting us (INAUDIBLE) one of the biggest of most important avenues here (INAUDIBLE) And suddenly, a car came and tried to crush me. So the bodyguard reacted. And I asked for -- for the support of the state (ph) police and they detained the two guys that were (INAUDIBLE)

When they do the investigation, they were armed, and they were trying to see how my bodyguards react because if they react bad (INAUDIBLE) they were waiting for me, OK? That was one of them.

The other was one day I was coming from my home here to the office. And one of them was (INAUDIBLE) And they didn't show (ph) me anything, so they went and detained these people. They have a complete agenda of what were my time, how I move (ph), how many bodyguards I have on one shift, how many the other one, of what time I go to the office. They were planning (INAUDIBLE) three day of going, checking me, what were my movements. And (INAUDIBLE) and they were telling me that (INAUDIBLE) if I don't stop doing drug raids, I have in the next 12 hours, I will be killed.

VAN SUSTEREN: In this country, a big problem, or are all the drugs just being -- going north? I mean, are there -- we have an enormous drug problem in our country. Do you have -- drug use. Do you have that problem here?

SAN PEDRO CHIEF OF POLICE: We have a problem. (INAUDIBLE) the United States. We have a problem. That's why (INAUDIBLE) because all the drugs that stay here in Mexico, they have to sell them in one place or another. So they begin selling (INAUDIBLE)

VAN SUSTEREN: But it almost seems like a business more than -- I mean, it's -- it's...

SAN PEDRO CHIEF OF POLICE: (INAUDIBLE) The problem with consumption of drugs (INAUDIBLE) because the main business of these guys is not here on the streets of San Pedro. It's not the streets of (INAUDIBLE)

VAN SUSTEREN: It's the United States.

SAN PEDRO CHIEF OF POLICE: It's the United States because when we detain the people (INAUDIBLE) dealers, yes, they have 1,000 pesos, 2,000 pesos. That doesn't (INAUDIBLE) like 20,000 pesos. But when you get mid-level people from the cartels, they -- they have, like, I don't know, $60,000 at the lowest. Why? Because the main business, the main market (INAUDIBLE) the United States.

VAN SUSTEREN: Is it fun that Secretary of State Clinton's coming?


VAN SUSTEREN: Have you ever met her?


VAN SUSTEREN: What are you going to say to her?

SAN PEDRO CHIEF OF POLICE: I don't know. Maybe the moment, I will think of something about, Thank you -- I don't know. We'll see tomorrow what I say. (INAUDIBLE) say to her.

VAN SUSTEREN: She might be nervous meeting you. You know, when she sees all that you've done, she'll probably be nervous meeting you.

SAN PEDRO CHIEF OF POLICE: I don't know. We'll see tomorrow.

VAN SUSTEREN: Anyway, thank you very much, sir.


VAN SUSTEREN: Thank you.


VAN SUSTEREN: Joining us live is Manuel Roig-Franzia, writer for The Washington Post, also former Mexico City bureau chief for that paper. Manuel, when I talked to this police chief -- he's so brave. He's so tough. He's got threats on him. He's got guards. He's had attacks on him. His family's under guard. He's got police who are corrupt. I mean, it sounds horrible.

You were here for years in Mexico. Is it that bad?

MANUEL ROIG-FRANZIA, WASHINGTON POST: Oh, it's that bad, and it's worse. You know, recently, the police chief in Ciudad Juarez (ph) had to resign. He had been under threats from the drug cartels who were saying they were going to kill one of his officers every two days if he didn't quit. And just to prove it, they killed one of his officers, and he felt compelled to quit.

VAN SUSTEREN: Manuel, it -- coming down here, I didn't have a full appreciation of how dangerous it really is, that the military had to move in because the police are so corrupt. Is that throughout the entire country? I realize there's some good police officers, but is there a way to quantify the level of police corruption?

ROIG-FRANZIA: Well, Greta, while I was listening to your very interesting interview with the police chief there, I found myself flashing back to an interview I did not that long ago in the city of Reynosa (ph), not that far from where you are. It was with the police chief, the municipal police chief in Reynosa. The interview was in the mayor's office, in the presence of the mayor. And one month after our story ran, that police chief, who was talking to me about trying to clean things up, was arrested and put into jail and accused of conspiring with the cartels.

So there's major corruption problem across Mexico, especially along the border, but also out in the mountains, where all these drugs are being hidden and trafficked. And those police forces, especially in those little towns, if you talk to Mexican experts, they will tell you that some of them are absolute armed units of the cartels operating as bodyguards, helping with the transfer of the drugs, doing everything that you would expect a foot soldier in a cartel to do.

VAN SUSTEREN: All right. When you were, President Bush started an initiative, a partnership with the Mexican government. President Obama is picking that up. Secretary of State Clinton is here. What is that initiative that U.S. government is trying to push forward here?

ROIG-FRANZIA: Yes. It's called the Merida initiative. It was negotiated between President Calderon in Mexico and the Bush administration. It's $1.4 billion over the course of three years. The idea behind it is to give the Mexican government equipment that they need, especially things like helicopters, to combat the drug cartels.

But at the same time, a big component of this is that the United States government is going to be attempting to help the Mexican government reform its judicial system. A lot of people don't know this, but in Mexico, most trials, most criminal trials, aren't conducted in an open court. You can't go and watch the trial. It's all done by paper. And a lot of people think that makes it easier to rig the game, so to speak. So there are elements...

VAN SUSTEREN: And you mentioned...

ROIG-FRANZIA: ... of the plan -- go ahead.

VAN SUSTEREN: And you mentioned the -- and you mentioned they're rigged. We're going to do a little bit of that tomorrow night. It is stunning to see the rigging that we hear in the judicial system. Manuel, I know you'll be back tomorrow night. We got to go. Thank you, Manuel.

Up next, much more live from Monterrey, Mexico. And next you're going to hear the shocking story of a 30-year-old policewoman who arrested some members of a drug cartel, one week later had 100 gunshots in her body, most of them to her face -- 100.

Plus: I quit. An AIG executive quits the company, slams the CEO, and has a lot to say about the company's bonuses that caused so much outrage. You're going to hear what he says next.


VAN SUSTEREN: We're live in Monterrey, Mexico. And people here are terrified, and for good reason. No one understands this reason better than this man, who has the threat of death hanging over his head at all times. We continue now with the San Pedro chief of police.


VAN SUSTEREN: Do you have one of these cameras near, like, the American Consulate?


VAN SUSTEREN: OK. So the American consulate last fall, for instance, had an attack on it here.


VAN SUSTEREN: OK. So you pull up and you find out what cars were in the area, right?


VAN SUSTEREN: All right. Then you plug in each individual car and you see what's -- you know, where those cars (INAUDIBLE) whether they've gone through other checkpoints.



SAN PEDRO CHIEF OF POLICE: ... they give me, because of the surveillance cameras, the information.


SAN PEDRO CHIEF OF POLICE: And I see (ph) the system. And I say, Stay alert whenever this car passes here, immediately send me a letter (ph). I can (INAUDIBLE) police cars. Or let's see the background (ph) three months in the past, if this car has passed here to San Pedro. So we check, we see, we get the match, that exactly the day of the attack...


SAN PEDRO CHIEF OF POLICE: ... hours before, they were running (INAUDIBLE)

VAN SUSTEREN: So it's -- the interesting thing about it is -- actually, it's twofold. One is it's -- it's a technique so you can arrest someone, if you're looking for him because you know if his car's gone through. But even -- but even probably more interesting is the fact that you can actually use this investigative tool and see whether anybody's cased an area, whether anyone's been there, who they're hanging out with, what other cars, (INAUDIBLE) other cars pass through?


VAN SUSTEREN: You cross-reference this, and so you sit there, like -- like intriguing -- almost like computer board game...


VAN SUSTEREN: ... trying to find out what these cars are doing and why.

SAN PEDRO CHIEF OF POLICE: That's right. That's right.

VAN SUSTEREN: And you can -- you can -- you can locate by license, or you can pull up -- if you have an organized crime person (INAUDIBLE) you pull up the person's name, you know the car, where the car has been. You know the finances on the person. You know everything about the person, right, on this (INAUDIBLE) very fancy "24"-like board.

SAN PEDRO CHIEF OF POLICE: Every -- every -- every (INAUDIBLE) every research (ph) we do at the border of Mexico, in Mexico City, they know that we are doing it. So to avoid its use, these guys right now, the only one authorized to do the checks on (INAUDIBLE) Mexico. (INAUDIBLE) camera. If in Mexico City, the (INAUDIBLE) they said, Hey, they're checking on these. Let me see who he is. And they immediately went (ph), they ask for the reference number. And here, OK. You can check almost everything here, but you have to put an access code. They have you register. They have your biometric, fingertips and a DNA, so to avoid misuse.

The idea would be (INAUDIBLE) very expensive software (INAUDIBLE) on the cameras in the city. So we can do something like (INAUDIBLE) London has, Scotland Yard has. London has something (ph) human, immediately all the cameras follow. We -- right now, we cannot do it. We're going to do it, but right now, we don't have it.

For example, that...


SAN PEDRO CHIEF OF POLICE: There is a box there in an area that is secure (INAUDIBLE) object. You don't know if it's a bomb or something. And (INAUDIBLE) five minutes, immediately, we (INAUDIBLE) Hey, be careful.

You have something there?

VAN SUSTEREN: And now, that's the camera, obviously, where we are, where you and I are. Would this affect cameras in other parts of the city?

SAN PEDRO CHIEF OF POLICE: We used to have it in two cameras of the city. (INAUDIBLE) expensive.

VAN SUSTEREN: Just two? OK, so that's -- that's maybe to come.


VAN SUSTEREN: So you can identify objects as to whether they're peculiar or weird...


VAN SUSTEREN: Airports would probably be a good...

SAN PEDRO CHIEF OF POLICE: Yes. The idea is this system is going to be applied in all the other cameras of the city.

VAN SUSTEREN: So this is a memorial for some of your fallen police officers. Let me start first with this woman. What happened to her? Who was she?

SAN PEDRO CHIEF OF POLICE: Well, she was a leader of the SWAT team. She was a tough woman. A week after -- before -- sorry -- of she being assassinated, she make a big, big apprehension. She detained two (INAUDIBLE) in a drug raid. So she receive a threat. She didn't care. And one night, she was on his routine with one of the commander, and she was driving. And suddenly, four pick-ups cross (INAUDIBLE) the patrol car begin shooting at her with AK-47s. She receive 100 bullets. The car was completely damaged, destroyed. And the commander (INAUDIBLE) received, like, 10 bullets because of collateral damage. But she was the target.

VAN SUSTEREN: So she got -- this woman, who was on the SWAT team and made a big arrest, a week later gets 100 bullets pummeled (ph) in -- or shot into her, dead.

SAN PEDRO CHIEF OF POLICE: Yes. They destroyed completely the face. Even though she had a bullet vest, a bulletproof vest, she received most of the bullets in the head and in the arms. So when they do the autopsy, they couldn't recognize her. So the memorial was on a closed casket.


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