The recent enactment of a sweeping overhaul to Mexico’s anti-corruption regime serves as a stern warning to all companies with operations in the country that it’s time to revisit your anti-corruption compliance program.
Mexican President Enrique Peña Nieto late last month approved a series of secondary laws that effectively put into practice Mexico’s landmark National Anti-Corruption System (NAS), passed in May 2015. NAS is designed to coordinate the efforts of Mexico’s federal, state, and municipal government agencies in rooting out corruption among governments, companies, and individuals.
Mexico’s anti-corruption developments won the praise of the Organization for Economic Cooperation and Development. According to the OECD, passage of these laws “substantially transforms the anti-corruption architecture of Mexico by putting in place measures that the OECD considers effective.”
“Perhaps the most important game changer of the reforms is that they reach beyond the federal level and include all levels of government,” OECD Secretary-General Angel Gurría said in a statement. “Indeed, the new legislation requires the Mexican States to follow suit with their own local anti-corruption systems, thereby tackling some of the strongest footholds of corruption in Mexico.”
The amendments that implement the anti-corruption framework consist of three main pillars:
General Law of the National Anti-Corruption System;
General Law on Administrative Accountability; and
Organic Law of the Administrative Justice Federal Court.
The overall intent of the General Law of the National Anti-Corruption System is to coordinate the anti-corruption efforts of all relevant authorities at the Mexican federal, state, and municipal levels of government. In this vein, the law establishes a new coordinating committee responsible for the design, implementation, and effective coordination of anti-corruption public policies to be applied in the country. The agencies that will have a seat on the coordinating committee include the heads of various state departments as well as civil society.
“Perhaps the most important game changer of the reforms is that they reach beyond the federal level and include all levels of government.”
Angel Gurría, OECD Secretary-General
Of most importance to companies, however, is the new General Law on Administrative Accountability, which takes effect in July 2017. That law introduces for the first time administrative sanctions for private parties—both individuals and companies—for serious administrative violations, whereas previously only public officials were subject to administrative liability. Separate criminal liability is regulated by different laws.
Companies can be sanctioned for any improper conduct carried out by individuals acting on their behalf. This law applies to both Mexican companies and foreign companies operating in Mexico.
Under that law, companies and individuals can be held liable for a broad scope of violations, including:
Collusion in public bid procedures
Using false information during an administrative proceeding
Wrongful use of public resources
Wrongful hiring of former public officials who possess privileged information derived from their office, directly resulting in a competitive advantage
Companies found in violation of Mexico’s anti-corruptions law risk serious penalties, including a fine of up to twice the amount of benefits obtained (or up to USD$6 million if no monetary benefit was obtained), debarment, dissolution of the company, and indemnifying government agencies. They could also be deemed ineligible to participate in procurement, leases, services, or state-owned projects for up to 10 years. Individuals face similar sanctions and up to USD$600,000, if no monetary benefit was obtained.
Compliance credit
The good news is that companies can minimize their liability if the relevant authority determines that the company had in place an adequate anti-corruption and compliance program, which the law refers to as an “integrity policy.”
The law states that a company will be considered to have an adequate “integrity policy” that includes the following basic elements:
A procedures manual that is “clear and complete,” in which the roles and responsibilities of each of the company’s areas are delineated and clearly specify the different chains of command and leadership throughout the company;
A written Code of Conduct that is communicated to all employees and whose policies and procedures are applied in practice;
Adequate and effective controls that are continuously monitored and audited;
Adequate internal whistleblower reporting mechanisms and disciplinary consequences for those who act contrary to the company’s policies or Mexican law;
Training on the integrity measures of this law; and
Human resource policies designed to avoid the hiring of people who may cause a risk to the integrity of the company.
Regarding human resource policies, in particular, Mexico’s anti-corruption reforms general prohibit companies from hiring former government officials within the first year that the official left that position.
NATIONAL ANTI-CORRUPTION SYSTEM
The government confirms its commitment to preventing and fighting corruption, transparency and accountability.
As a result of the joint efforts of civil society, academia, the private sector and legislators, Mexico has a National Anticorruption System for the first time in its history.
The constitutional amendment that created the National Anticorruption System as a forum for coordination between the authorities of all orders of government was published on May 27, 2015.
During the Extraordinary Period of the LXII Legislature, seven secondary legislation packages were passed to prevent and fight corruption.
General Law on the National Anticorruption System. This provides the basis for coordinating the SNA at the federal and local level as well as the characteristics of the National Control System and the National Digital Platform.
General Law on Administrative Responsibilities. This establishes the administrative responsibilities and obligations of public officials, to submit declarations on their assets, conflicts of interest and taxes.
Law of Control and Accountability of the Federation, as well as amendments to the Law of Fiscal Coordination and the General Law of Government Accounting. This strengthens the capacity of the Chief Audit Office of the Federation to fight corruption.
Amendments to the Organic Law of the Federal Court of Administrative Justice. The Federal Court of Fiscal and Administrative Justice becomes the new Federal Court of Administrative Justice, which will now be able to sanction both public officials and private individuals for grave offenses.
Amendments to the Organic Law of the Attorney General’s Office. These reate the Special Prosecutor’s Office for Combating Corruption, as an autonomous body for investigating and prosecuting acts of corruption.
Amendments to the Federal Penal Code. These establish the sanctions that will be applicable to those who commit acts of corruption: public servants and private individuals.
Amendments to the Organic Law of Federal Public Administration. These strengthen the Public Administration Secretariat’s capacity to prevent and fight corruption
Source: Mexico's President of the Republic
Bringing on compliance experts who have broad familiarity of Mexican laws and culture is another way that companies can reduce their anti-corruption risks in the country.
Guillermo Larrea, a corporate and transactional lawyer with Jones Day, says Mexican subsidiaries of U.S. or U.K. companies that are already in compliance with the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act shouldn’t have too much extra leg work to do. “The real compliance work falls on Mexican companies, whose compliance programs are not as sophisticated as U.S. and U.K. companies,” he says.
The Mexican law also recognizes whistleblowers. Individuals who have committed an administrative offense can receive a reduction in sanctions if they confess and cooperate with authorities. In fact, whistleblowers can earn a reduction of between 50 and 70 percent of the amount of the sanctions imposed.
To support these anti-corruption enforcement efforts, the new Administrative Justice Federal Court now serves as the main tribunal in Mexico for hearing all cases concerning violations of the anti-corruption legislation and for sanctioning both public and private parties for serious administrative violations under the new National Anti-Corruption System. This court will replace the former Federal Tax and Administrative Court.
Importantly, the court's authority to sanction private parties doesn’t prevent other government agencies’ from imposing sanctions on companies or individuals. A newly appointed head of the Prosecutor’s Office also will be created.
U.S. relations
The sweeping overhaul to Mexico’s anti-corruption regime comes at a time when U.S. regulators are also demonstrating their enforcement to corruption in the region. As Compliance Week previously reported, Key Energy services, an oilfield services company, this month agreed to pay $5 million to the Securities and Exchange Commission in connection with a previously disclosed investigation into potential FCPA violations.
According to the SEC’s administrative proceeding, these proceedings arose from violations of the books and records and internal control provisions of the FCPA by Key Energy. From August 2010 through at least April 2013, Key Energy’s Mexican subsidiary (Key Mexico) bribed a contract employee at Mexican state-owned oil company Petróleos Mexicanos (Pemex), to provide Pemex inside information as well as advice and assistance on contracts with Pemex and amplifications or amendments to those contracts.
“The Key Energy settlement and recent changes in Mexican law prove that the state of play regarding interactions with government officials in Mexico is shifting, becoming increasingly fraught with risk,” law firm Ropes & Gray stated in an alert. “Given this reality, companies should consider how their past or future conduct may make its way into the public sphere and monitor the practical application of these new laws on the day-to-day operations of their businesses.”
For example, the alert states, “companies doing business in Mexico can protect themselves by ensuring they perform comprehensive, risk-based due diligence on engaged and prospective third parties, training and educating their employees on the risks associated with doing business in Mexico, and examining the company’s internal controls to ensure that the company has properly accounted for its funds, its presence in the country, and any interactions with government officials.”
Even with anti-corruption legislation and sweeping new constitutional reforms in place, Mexico still has a reputation as one of the most corrupt places in the world to do business. Transparency International gave Mexico a score of only 35 out of 100 in its 2014 Corruption Perceptions Index. Worldwide, Mexico ranks 103rd out of 175 countries on the Index.
“As with other crucial reform efforts that Mexico has undertaken, the key to real change lies in the implementation,” Gurría said. “This framework puts Mexico in line with OECD best practice, but we must now make it work.”
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