It’s been a long time coming, but the scope of anti-corruption enforcement in Mexico just got a whole lot broader.
On July 19, Mexico’s General Law on Administrative Accountability took effect. It is just one element of a broader anti-corruption legal framework passed by Mexico’s Congress last year, implementing the country’s National Anti-Corruption System. NAS is tasked with coordinating the efforts of Mexico’s federal, state, and municipal government agencies in rooting out corruption among governments, companies, and individuals.
The newly enacted General Law on Administrative Accountability promises far-reaching consequences for any company with operations in the country that does not have a robust anti-corruption compliance program in place. It introduces new administrative sanctions for private parties—both individuals and companies—for serious administrative violations. Previously, only public officials were subject to administrative liability.
“It is being received in the compliance community as a positive step,” says Alexandra Wrage, president and founder of TRACE International. Although it is a good step forward on paper, however, the big question is whether and how it will be enforced in practice, she says.
The law applies to companies in Mexico, as well as those based outside of Mexico, and additionally applies to their affiliates and officers who do business in Mexico and have direct or indirect contacts with Mexican officials. Furthermore, companies can be held liable for any offenses carried out by employees or third parties acting on their behalf.
Under the law, serious offenses include:
Bribing public officials;
Misappropriation of public funds;
Using influence, economic or political power over a public official to obtain a benefit or to cause damage to a person;
Using false information during an administrative proceeding to obtain a benefit, advantage, or to cause damage to a person;
Participating in administrative proceedings at the federal, state, or municipal level after having been debarred by law or final resolution by competent authorities;
Colluding with other private parties to obtain a benefit or advantage in a federal, state, or municipal public procurement process; and
Hiring current or former public officials who acquired or possess privileged information derived from their office, directly resulting in a competitive advantage.
Potential penalties for violations also are significantly higher than they were previously. 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 US$6 million if no monetary benefit was obtained), possible debarment, suspension of activities, or dissolution of the company.
“It is being received in the compliance community as a positive step.”
Alexandra Wrage, President, TRACE International
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 US$600,000, if no monetary benefit was obtained.
Minimizing liability. A company can significantly minimize its liability, however, where it self-reports the misconduct, where the relevant authority determines that the company has in place an adequate integrity policy.
Jonathan Adams, who heads the compliance team in Mexico at law firm Baker McKenzie and is the global compliance practice group’s regional coordinator for Latin America, says companies that are already in compliance with the FCPA Resource Guide shouldn’t have too much extra leg work to do. “For companies that already have a world-class compliance program, we don’t foresee them having to do complete overhauls,” he says.
Mexico’s law states that an adequate integrity policy includes, at a minimum, the following elements:
An organizational procedures manual setting forth the functions and responsibilities of each company’s areas, the leadership throughout the company, and a clear chain-of-command;
A code of conduct that is communicated to all employees and whose policies and procedures are applied in practice;
Adequate and effective controls that are monitored and audited;
Internal whistleblower reporting mechanisms and disciplinary procedures for those who act contrary to the company’s policies or Mexican law;
Training on the integrity measures of the law; and
Human resource policies for preventing the hiring of people who may pose a risk to the company.
The “human resource” policy element in the integrity policy is notable, because companies often focus on third-party risk and don’t pay as much attention to the risks posed by internal employees. In that aspect, the law effectively acknowledges that not all acts of bribery are initiated by third parties. Making sure you spend at least as much time on potential employee risks as you do on third-party risk is important, Wrage says.
NATIONAL ANTICORRUPTION SYSTEM
Below is a message from Mexico's President of the Republic (Presidencia de la República).
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
The new law also introduced the concept of whistleblowers. Individuals who have committed an administrative offense can receive a reduction in sanctions if they confess and cooperate with authorities. Whistleblowers can earn a potential reduction in sanctions of between 50 and 70 percent.
For companies, bringing on compliance counsel who have broad familiarity with Mexican law, culture, and practices is another way to reduce their anti-corruption risk in the country. The integrity policy should be reviewed by Mexican counsel in to ensure that the terms and concepts used in the law are reflected in the materials, trainings, and the standards themselves, Adams says.
Compliance officers want to ensure that, when Mexican authorities look at the company’s anti-corruption compliance program, they’re seeing terms that are familiar to them, Adams adds. “Having everything in Spanish is very important,” he says.
Secondly, as it pertains to potential language barriers, employees should be comfortable and fluent in the language in which they’re being interviewed. It’s not uncommon for people to say they’re fluent in English, Adams says, until the interview process begins and language barrier issues can start to interfere with an effective internal investigation.
Labor and employment laws are another important consideration when conducting employee interviews and before taking any sort of action against employees in Mexico. “Labor laws are a lot more protective with respect to employees here in Mexico than they are in the United States,” Adams says.
An action that may be taken by a U.S. company in the normal course of business, such as putting an employee on administrative leave, may be perceived as aggressive or unacceptable in Mexico. Having counsel that are not familiar with these laws can create problems for the company, Adams says.
Practicing good record-keeping is also important to keep in mind. “The Mexican legal system is a lot more formal than the U.S. legal system,” Adams says. Failing to have documents on hand is “not going to be good enough for purposes of the Mexican law,” he says.
Moving forward, the real test lies in the implementation of Mexico’s anti-corruption law in practice. As for the law, itself, Adams says, “it is definitely something momentous in the history of anti-corruption legislation here in Mexico.”