Mexico has passed sweeping new anti-corruption reform that will make it easier for government authorities in the country to uncover and prosecute acts of corruption committed by companies, individuals, and government officials.
Mexican President Enrique Peña Nieto late last month signed into law constitutional reforms that effectively will expand upon and give teeth to anti-corruption legislation that Mexico enacted in 2012 under the Federal Law Against Corruption in Public Procurement. That law bars individuals and companies from offering money or gifts to obtain or maintain a business advantage in the procurement of public contracts with the Mexican government.
In at least two respects, Mexico’s current anti-corruption law goes beyond the U.S. Foreign Corrupt Practices Act: It bans bribery of foreign and domestic government officials, where the FCPA only bans bribery of foreign officials. Mexico’s law also bans facilitation payments—similar to the U.K. Bribery Act; but unlike the FCPA, which does not.
“What the amendments do is complement the legislation that’s already in place, so that we can now more successfully combat corruption and penalize corruption,” says Fernando Cano-Lasa, formerly in-house counsel for Pemex, and now of counsel at law firm Squire Patton Boggs.
Mexico’s Congress must now enact secondary legislation within one year to implement these new anti-corruption reforms—which is to say the real work now begins. “We need to put on paper how to implement this reform, how to move those principles from principles to execution,” Cano-Lasa says.
The most significant part of the reforms for the first time will create a new National Anti-Corruption System (NAS) designed to coordinate the efforts of Mexico’s federal, state, and municipal government agencies in rooting out corruption among governments, businesses, and individuals.
The reforms further call for establishing a Coordinating Committee to oversee the NAS. One aim of the Coordinating Committee will be to “create efficient communication between all the different agencies across the country, so that you can track corruption regardless of where it takes place,” says Rodrigo Dominguez Sotomayor, a partner in the law firm Morgan Lewis.
The Coordinating Committee also will have responsibility for issuing guidance, which is likely to describe the type of anti-corruption policies and controls that companies should have in place to prevent acts of corruption. “Anyone operating nationally within Mexico, or internationally outside of its borders, certainly needs to take steps to ensure proper controls are in place,” says Alison Tanchyk, a partner with law firm Morgan Lewis.
The new reforms also create an Administrative Justice Court to serve as the main tribunal in Mexico for hearing cases. This court will have jurisdiction to hear all cases on violations of the anti-corruption legislation that will be enacted as a result of the constitutional amendments.
“What the amendments do is complement the legislation that’s already in place, so that we can now more successfully combat corruption and penalize corruption.”
Fernando Cano-Lasa, Of Counsel, Squire Patton Boggs
Importantly, this tribunal will not be limited by other laws in Mexico that protect banking transactions and tax records—restrictions, Sotomayor says, that historically made access to banking records of private parties and government officials quite difficult. ”Those restrictions will no longer apply when it comes to investigating and prosecuting acts of corruption,” he says.
The new reforms also expand on the range of penalties that companies can face for participating in acts of corruption. In addition to monetary penalties and debarment, companies in cases of serious administrative violations may also be subject to forced dissolution, “so the government may dissolve your entity and force it to liquidate its assets in Mexico,” Sotomayor says.
Enforcement History
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.
MEXICO’S ANTI-CORRUPTION REFORM
Below is a partial transcript of a speech given by Mexico President Enrique Peña Nieto, describing the country’s sweeping new anti-corruption reforms.
Mexico is currently experiencing one of the most important processes of institutional transformation in its modern history. For the first time in decades, the main political forces have thoroughly reviewed and reorganized our political, economic and social systems on the basis of 11 major reforms.
…In 2014, Transparency International’s Index of Perception of Corruption ranked us 103rd out of 175 countries. While it is true that corruption is perceived in every country in the world, it is unacceptable for Mexico to have such a low assessment.
As a result, I will enact the constitutional reform to fight corruption [on May 27]. This is a vital change, resulting from an unprecedented exercise of discussion and the construction of agreements in which all of the political forces, and above all civil society, participated, enhancing the initiative with its ideas and proposals.
Mexico will now have a National Anti-Corruption System. This agency will coordinate authorities tasked with preventing, investigating and punishing possible acts of corruption, as well as those responsible for overseeing public resources. The system includes a Public Participation Committee made up of five distinguished Mexicans, who, together with the authorities, will ensure society’s interests.
The Superior Audit of the Federation (ASF) will be established as the highest organ of control and, therefore, the cornerstone of this new scheme. Its new responsibilities will allow real-time auditing when possible crimes are being committed. Now, it will also be able to monitor the performance of federal contributions and the trusts that use public resources.
This amendment means that the Public Account will be able to be overseen from the first day of the year onwards rather than in April, as has been the case so far. Moreover, with full commitment to legality, the statute of limitations for administrative gross negligence will be extended to seven years, meaning that administrative justice will be able to be applied beyond a single presidential term.
…[T]he most significant change in this new paradigm is that, for the first time, our Constitution recognizes that both citizens and public servants share the responsibility of combating corruption. In fact, officials, private individuals and companies who have participated in such acts will be able to be punished. Government officials from all spheres of government may be sanctioned with prison sentences while firms may be dissolved. These types of decisions will be made by independent courts, such as the Federal Court of Administrative Justice, which includes the new legal framework, or its equivalent in the states.
Source: Mexico’s Presidency of the Republic.
Nor does the country have a good record for enforcing acts of corruption. “We really need to work on penalizing corruption,” Cano-Lasa says. “We hear cases of corruption, we see cases of corruption publicly, and then we see no punishment. That’s something that needs to change.”
Tougher enforcement of Mexico’s new anti-corruption laws is significant for another reason: For the first time in nearly 80 years, Mexico has opened up its energy market to the private sector and to foreign companies. In 2013, Mexico’s Congress passed long-awaited reform and amended Mexico’s constitution to end the country’s state-owned energy monopoly held since 1938 by oil company Pemex.
Passage of the legislation means that private companies—both foreign and domestic—can now invest in all energy activities in the country. That means the need to assure foreign investors of a “fair, transparent market for investment in Mexico is critical,” Cano-Lasa says.
Due Diligence
Companies that operate in Mexico should review their compliance programs in light of these new anti-corruption reforms.
“We believe that companies must adopt best practices on international anti-corruption measures—such as the FCPA, the Anti-bribery Convention of the OECD, and the United Nations Convention against Corruption, among others,” says Sandro Castañeda, a partner with PwC Mexico. Castañeda says that establishing comprehensive corruption prevention programs will “greatly help” companies to diminish their anti-corruption risks.
“Mexican-based companies that previously may not have had any concerns about these kinds of issues should consider starting to invest in compliance functions,” Tanchyk says. “One of the ways to prevent violations, or at least mitigate the impact of them, is to ensure strong compliance controls.”
Those compliance controls include the usual best practices:
Written policies and procedures prohibiting corruption;
Guidance to employees on what are and are not proper payments;
Internal audits to check not just the strength and effectiveness of financial controls, but also compliance controls;
Monitoring what types of conduct third-party agents are engaged in; and
Conducting due diligence on third-party agents and making sure those relationships are governed by written contracts, and that expectations are clearly communicated.
Training also is important, Tanchyk says. That includes formal training or informal communications from senior leadership regarding their expectations for behavior, not just of employees but of third-party agents, as well, she says.
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.
For multinational companies with operations in Mexico, the long-term effects may not be felt for at least another few years or more. Matteson Ellis, a member of law firm Miller & Chevalier says, “The new laws will make local enforcement easier, and that will result in lower levels of impunity for local officials, which will ultimately change the risk environment on the ground for multinational companies.”
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