As Latin America, and the world, continues to combat corruption, Mexico does so too. The 2016 Transparency International Corruption Perceptions Index ranked Mexico 123th out of 176,2 and the 2016 Latin American Corruption Survey found the country to be one of the four most corrupt countries in Latin America.3 But Mexico is determined to improve its situation and, to this end, has implemented various new measures at both the legislative and enforcement levels.
One of the most important new measures for combating corruption and bribery was the constitutional amendment of 28 May 2015, which paved the way for the creation of the National Anticorruption System (NAS) and other significant changes. As detailed below, the NAS is the mechanism that coordinates the three levels of government (federal, state and municipal) in order to prevent, detect and punish administrative violations, and acts of corruption in the private and public sectors.
On 18 July 2016, President Enrique Peña Nieto, signed the legislation that authorised the NAS. The secondary laws that this legislation created, or in some cases reformed, came into full force and effect on 19 July 2017. As discussed below, the NAS introduces stronger mechanisms to tackle corruption, and makes it illegal to, among other things, give or offer to give to a public official any type of bribe for obtaining or retaining a privilege or business advantage in the area of public procurement. It also requires that public officials declare their assets, conflicts of interest and taxes, subject to the applicable privacy laws.4 It allows individuals and private entities to mitigate any sanction imposed against them for bribery or corrupt activity (or both) by implementing programmes, internal manuals, codes and other protocols.
Because the legislation became effective in July of this year, it is too early to see what the results of the NAS will be. Further, the effects of the NAS will likely be realised over the long term. However, Mexico is taking steps in the right direction and its public and private sectors are making serious efforts to reduce corruption and improve Mexico’s business environment.
II DOMESTIC BRIBERY: LEGAL FRAMEWORK
Following the traditional Latin American approach, anti-corruption regulation in Mexico is considered part of the body of criminal law, and is, therefore, contained in Mexico’s Federal Criminal Code (FCC)5 and in the criminal codes of each of the Mexican states.6 The Federal Anti-Corruption Law in Public Procurement (LFACP) was abrogated by the recent enactment of the General Law of Administrative Responsibilities (GLAR), which also contained a description of bribery acts and sanctions. The GLAR, which is part of the NAS, also came into effect on 19 July 2017.
i Prohibitions on paying and receiving money
As currently defined in the FCC, a bribe is committed when:
- a a public official, either personally or through an intermediary, requests or receives money or any other gift for himself or herself or any other party, or accepts a promise, to perform or fail to perform any legal or illegal act in relation to his or her functions; or
- b a person, of his or her own volition, gives or offers money or any other gift to a public official to perform or fail to perform a legal or illegal act in relation to his or her functions.7
The GLAR makes it illegal to give or offer to give (directly or through a third party) a public official any type of payment or gift for obtaining or retaining a privilege or business advantage in the area of public procurement. That prohibition applies to anyone engaged in federal government contracting in Mexico – nationals, foreigners, and national and foreign companies – and includes bidders, participants in tenders, recipients of requests for proposals (RFPs), suppliers, contractors, licensees and concessionaires, as well as their shareholders, partners, associates, representatives, principals, agents, attorneys-in-fact, brokers, handlers, managers, advisers, consultants, subcontractors or employees. In addition, similar to the prohibitions in the US Foreign Corrupt Practices Act (FCPA), the GLAR prohibits Mexican individuals and companies from bribing foreign (i.e., non-Mexican) government officials. Unlike the UK Bribery Act, the GLAR does not cover commercial bribery.
As of 19 July 2017, the GLAR provides that:
Public officials will observe in the course of their employment, position or commission, the principles of discipline, legality, objectivity, professionalism, honesty, loyalty, fairness, integrity, accountability, effectiveness and efficiency governing the public service. For the effective implementation of these principles, the Public Servants shall observe the following guidelines:
ii. Behave righteously without using their employment, position or commission to obtain or seek to obtain any benefit, advantage or personal advantage for third parties, or seek or accept compensation, benefits or gifts of any person or organization;8
In addition, the GLAR provides the following restriction concerning private parties:
Any individual/entity that promises, offers, or gives any improper benefit listed in Article 52 of this law to one or more public servants, directly or through third parties in return for those public servants’ actions or failure to act related to their duties or those of another public servant, or abuse of their real or supposed influence with the purpose of obtaining or retaining, for himself/herself or a third party, a benefit or advantage, regardless of acceptance or receipt of benefit or for the results obtained, will be deemed to have engaged in bribery.9
ii Definition of public official
The Mexican Constitution defines ‘public official’ as any person who has been elected as a representative in a public election; members of the federal judiciary office and members of the judiciary office of Mexico City; and officers, employees and, in general, any person who holds a position or commission of any nature in the Federal Congress, the Mexico City Congress, the federal public administration, the public administration of Mexico City and autonomous agencies.10 As to the public officials of each of the states in Mexico, the Constitution provides that the local constitution of each state will determine who are considered public officials in that state.
The FCC considers a public official to be any person who holds a position or commission of any nature in a federal or district public administration, decentralised agency, state-owned company, state-controlled company, entity that is analogous to a state-owned company, public trust, the Federal Congress, the federal judiciary or the judiciary of the Federal District, as well as anyone who manages federal economic resources. State governors, representatives in all state congresses and justices of state courts are also covered.11
iii Gifts, gratuities, travel, meals or entertainment
The GLAR prohibits gifts or entertainment for public officials. However, the Ministry of Public Administration is currently preparing guidelines regarding delivery of gifts, gratuities, travel, meals or entertainment to public officials.
The FCC sets forth the following criminal sanctions for both domestic and foreign bribery:
- a If the value of the bribe does not exceed 500 times the updated measurement unit (approximately 37,745 Mexican pesos), the term of imprisonment ranges from three months to two years, fines range from 30 to 100 units of measurement and adjustment12 (from approximately 2,264 to 7,549 pesos), and any public officials involved may be removed from office for a period of three months to two years.
- b If the value of the bribe exceeds the above-mentioned threshold, the term of imprisonment is from two to 14 years, the amount of the fine ranges from 100 to 150 fine-days (from approximately 7,549 to 11,323 pesos), and any public official involved could be removed from office for a period of between two and 14 years.
- c Companies may be fined for up to approximately 75,490 pesos and, under exceptional circumstances, the court may also order the suspension of activities or dissolution of the company involved, depending on the degree of involvement and knowledge of the management regarding the bribery in the international transaction, and the damages caused or benefits obtained by the company.
The GLAR provides for the following sanctions for bribery and other illegal acts such as: fines (up to the double amount of the ‘benefits’ obtained and if no benefit was obtained up to approximately US$6.4 million), exclusion from public bidding (up to 10 years), suspension of business activities from three months to three years, dissolution of the company and compensation for damages caused to the government.
III ENFORCEMENT: DOMESTIC BRIBERY
In contrast with other countries, court files and the information concerning an investigation regarding corruption are not public in Mexico. Instead, the little information publicly available regarding the enforcement of the anti-corruption regulations and the penalties imposed on individuals or companies who commit such crimes is only published in the announcements published by the Ministry of Public Administration in the Federal Official Gazette when a company is being temporarily excluded from future bidding. However, such announcements only provide the term for which such a company will be excluded from bidding and do not provide further information on the bribery itself or on the fine imposed.
The NAS establishes a digital and public web page (which is still under development) that identifies, among other things, the private parties and public officials sanctioned for corrupt practices by the competent authorities.
IV FOREIGN BRIBERY: LEGAL FRAMEWORK
Currently, the FCC imposes the same sanctions for domestic and foreign bribery. Specifically, it refers to any person who, either personally or through an agent acting on his or her behalf, and with the intention of obtaining or keeping an undue advantage for himself or herself or any other person, in the development or dealing of international business transactions, offers, promises or gives money or any other gift, whether goods or services, to:
- a a foreign public official, or a third party designated by him or her, to handle or abstain from handling proceedings or resolving matters related to the functions inherent to his or her office, position or commission;
- b a foreign public official, or a third party designated by him or her, to carry out proceedings or resolve matters outside the scope of functions of his or her office, position or commission; or
- c any person, for him or her to contact a foreign public official and request or propose to carry out proceedings or resolve matters relating to the functions inherent to the office, position or commission of that official.13
i Definition of foreign public official
A foreign public official is defined in the FCC as:
any person holding an office, position or commission in the legislative, executive or judicial branch or in any autonomous public body in any order or level of government of a foreign state, whether designated or elected; any person in exercise of a function for a public or partially state-owned authority, government or company of a foreign country; and any official or agent of an international public entity or organisation.14
ii Corporate liability for bribery of a foreign public official
The FCC sets forth that when a foreign public official is bribed by an employee or a representative of a company, using means provided by the company and acting on its behalf or for its benefit, the court shall impose a fine of up to approximately 75,490 pesos and may, in certain cases and under exceptional circumstances, suspend the activities of the company or even dissolve it, depending on the degree of knowledge of the administrative bodies of the bribe and on the damage caused or benefit obtained by the company.
iii Civil enforcement of foreign bribery laws
Pursuant to the FCC anyone who, acting unlawfully, causes a tort, is liable for damages. Thus, an individual or entity who sustained damages as a consequence of bribery may also seek compensation from the individual or entity that committed it.
iv Agency enforcement
On a federal basis, the Ministry of Public Administration (MPA) is in charge of the administrative enforcement of anti-bribery laws.
In general terms, the Attorney General’s Office through the Anti-Corruption Prosecutor will be responsible for hearing complaints made by the internal control bodies regarding conduct that may be punished as criminal, as well as to investigate and sanction them.
Since 19 July 2017, the Federal Court of Administrative Justice (FCAJ) is in charge of resolving and sanctioning individuals, companies and public officials for corrupt practices. A specialised section of the FCAJ was created in order to hear cases and sanction the liability of severe offences made by public officials and offences carried out by companies; however, the judges that will comprise this new FCAJ section have not yet been appointed. In accordance with the GLAR, there are different kinds of sanctionable offences; serious offences will be sanctioned by the FCAJ and less severe offences will be sanctioned by the MPA.
v Prosecution of foreign companies for foreign bribery
The FCC applies to crimes that are committed abroad by Mexicans or by foreigners against Mexicans only if the crime has resulted or is intended to have effects within the Mexican territory; the offender is within the Mexican territory; the conduct is considered a crime in both Mexico and the foreign country; and the offender has not been tried in the country in which the crime was committed.15
V ASSOCIATED OFFENCES: FINANCIAL Record-keeping AND MONEY LAUNDERING
i Record-keeping laws and regulations
Various Mexican laws and regulations require accurate corporate books and records, effective internal company controls, periodic financial statements and external auditing. They include the following: the Commercial Code;16 the Federal Tax Code;17 and the Corporations Act.18
Sanctions for record-keeping violations
The Federal Tax Code imposes a term of imprisonment ranging from three months to three years for concealing, altering or destroying, totally or partially, financial records and the respective documentation that is required to be kept by law; and registering commercial or tax operations in two or more books or accounting systems with dissimilar content.19
Tax deductibility of domestic or foreign bribes
The Income Tax Law disallows deductions of expenses that are not ‘strictly indispensable’ for the taxpayer’s business activities.20 The Law also provides a list of non-deductible expenses.21 This list includes gifts and other courtesies, unless they are directly related to the sale of products or provision of services and are offered to all customers in a general way. Similarly, the deductibility of expenses for (the taxpayer’s) lodging, transport, meals, etc., is extremely limited (e.g., only 12.5 per cent of the amount spent on meals in restaurants is deductible, while anything spent in bars is not deductible at all). Representation costs are not deductible, nor are costs for customs agents (only the fee paid to the customs agency itself is deductible). Penalties, sanctions, etc., are also excluded.
It follows from the foregoing that bribes are not deductible under Mexican law. An unlawful payment cannot be strictly indispensable for a legal business, nor could it be a gift that is directly related to selling goods or rendering services and offered in a general way to all customers. The Tax Administration Service, in an effort to comply with the 2009 Organisation for Economic Co-operation and Development (OECD) Council Recommendation on Tax Measures for Further Combating Bribery of Foreign Public Officials in International Business Transactions, is still clarifying the language to be included in the Income Tax Law, explicitly disallowing the tax deductibility of bribes to foreign public officials.
ii Money laundering laws and regulations
Sanctions for money laundering violations
The FCC imposes a term of imprisonment ranging from five to 15 years for any person who, either personally or through an agent, purchases, sells, manages, exchanges, deposits, invests or transfers within the Mexican territory, or from the Mexican territory to abroad or vice versa, goods, funds or rights of any kind, knowing that they stem from an unlawful activity, with the purpose of concealing the source, location, destination or ownership of such goods, funds or rights, or encouraging an unlawful activity. The same penalty applies to officers and executives of financial institutions who knowingly assist in the aforementioned conduct.
The penalty is increased by 50 per cent when the crime is committed by a public official responsible for preventing, reporting, investigating or prosecuting criminal offences. In such a case, the public official is also ineligible to run for public office for a period equal to that of the imprisonment.24
The sanctions set forth in the Federal Anti-Money Laundering Law can be of an administrative or criminal nature. Administrative sanctions are applied in cases where the company does not comply with its obligations under the Law. Such obligations are imposed on companies who are active in high-risk industries, including lottery and gambling, financial institutions, private lending, construction, precious metals trading, real estate development, money transfer, arts and car sales. It also applies to professional service providers (such as bookkeeping, accounting, tax, financial and legal services) when they act as attorneys in fact. In essence, the law requires such companies or service providers to request certain information from their clients and to report it periodically to the authorities. In July 2014, several amendments to the Federal Anti-Money Laundering Law became effective to prevent high-risk activities. In addition, the competent authority has issued various guidelines and forms to make the regulation more effective .
The administrative sanctions imposed for violations of this law include fines or the revocation of permits, depending of the violation. The fines range from 200 to 65,000 fine-days (approximately 15,098 to 4,906,850 pesos).
The Law also subjects any person who provides false information to a ‘high-risk’ company to imprisonment of up to eight years. In addition, a public official or any other individual who unlawfully uses the information obtained from the companies who are subject to this law, provides such information to a third party, or informs a third party about an investigation being carried out, faces imprisonment of up to 10 years. The sanction is doubled if the offender is (or was within the past two years) a public official in charge of prosecuting or investigating crimes.
Disclosure of suspicious transactions
The following laws require Mexican companies and financial institutions to report suspicious financial transactions:
- a the Credit Institutions Act;
- b the General Act on Credit Organisations and Related Activities;
- c the Securities Act;
- d the Insurance Companies Act;
- e the Federal Bonding Institutions Act;
- f the Retirement Savings Systems Act;
- g the Savings and Loans Cooperatives Act;
- h the Investment Companies Act;
- i the Public Savings and Loans Act;
- j the Credit Unions Act; and
- k the Federal Anti-Money Laundering Law.
VI ENFORCEMENT: FOREIGN BRIBERY AND ASSOCIATED OFFENCES
In Mexico, access to information is treated the same for cases involving foreign bribery and cases involving domestic bribery, in that the court files and the information concerning an investigation regarding corruption are not public. Accordingly, the little information publicly available regarding the enforcement of the anti-corruption regulations and the penalties imposed on individuals or companies who commit such crimes can only be found in the announcements published by the MPA in the Federal Official Gazette when a company is being temporarily excluded from future bidding. However, these announcements only provide the term for which the company will be excluded from bidding but do not provide further information on the bribery itself or on the fine imposed.
The NAS establishes a digital and public web page (which is still under development) that identifies, among other things, the private parties and public officials sanctioned for corrupt practices by the competent authorities.
VII INTERNATIONAL ORGANISATIONS AND AGREEMENTS
Mexico is a signatory to the following international anti-corruption conventions:
- a the OECD Anti-Bribery Convention;
- b the United Nations Convention against Corruption;
- c the United Nations Convention against Transnational Organized Crime; and
- d the Inter-American Convention against Corruption.
Mexico is also a member of the Financial Action Task Force on Money Laundering (FATF) and an observer to the Committee of Experts on the Evaluation of Anti-Money Laundering Measures.
VIII LEGISLATIVE DEVELOPMENTS
As mentioned in Section I, on 28 May 2015, the constitutional amendment that paved the way for the creation of the NAS and other important changes to combat corruption became effective. On 18 July 2016, the legislation for the NAS was published in the Federal Official Gazette. The seven secondary laws that were created, or in some cases reformed, came into full force and effect on 19 July 2017. This anti-corruption amendment was a response to urgent public demand because of perceived high corruption levels. For example, in the national results of Transparency International’s Global Corruption Barometer (2013) survey, it was found that 91 per cent of respondents in Mexico felt that political parties were corrupt or extremely corrupt and Buen Gobierno (2010) stated that the bribes to obtain or facilitate processes or public services had reached 32 billion pesos. The amendment is one of the actions taken by the government in response to these concerns, in addition to the creation of the Specialised Prosecution Office Against Corruption in 2014 and the LFACP, which was recently abrogated.
The NAS establishes the mechanism that coordinates the three levels of government (federal, state and municipal) in order to prevent, detect and punish administrative violations and acts of corruption. Moreover, the amendment emphasises that the sanctions will be imposed on persons and companies for acts of corruption, and not just public officials. Among the most severe sanctions the amendment imposes for corruption activities are fines and disqualification from contracting with state entities. The FACJ will have the jurisdiction to judge and sanction public officials and private persons for the commission of acts of corruption.
The Specialised Prosecution Office Against Corruption has been created as an autonomous body for investigating and prosecuting acts of corruption.
Another novelty in the constitutional amendment is that the assets forfeiture procedure will be imposed on assets obtained by corruption or bribery. This procedure will result in the permanent loss of property for the commission of a felony.
In addition, penalties may be reduced if individuals and companies collaborate with the authorities during the investigation of corrupt practices, if the companies have business integrity programmes, or if they provide evidence that leads to a clarification of the facts relating to the corrupt practice.
Likewise, on 20 August 2015, the MPA issued the Code of Ethics for Public Officials of the Federal Government (the Code of Ethics), which emphasises the constitutional obligation of public officials to perform their activities in accordance with the values of legality, honesty, loyalty, impartiality and efficiency.
Moreover, on the same date, the MPA published the Guidelines to Promote the Integrity of Public Officials, through the Ethics and Conflicts of Interest Prevention Committee, which creates both a committee within each ministry and a federal governmental body authorised to implement the Code of Ethics, to issue non-binding recommendations to public officials who fail to comply with it and to receive reports from whistle-blowers within each office. Although these committees will not be empowered to impose sanctions against public officials that participate in acts of corruption, their creation does demonstrate the government’s efforts towards eradicating corruption and bribery.
The enactment of the NAS and the entry into force of secondary regulation facilitated new mechanisms for combating bribery and other corrupt practices. Of these:
- a the FCC was amended and modified. The additional amended and modified codes include, among others, the crimes of corruption activities and unlawful use of authority of public officials. However, the head of the prosecution agency related to corrupt activities has yet to be appointed;
- b the Federal Public Administration Organic Law for internal control was amended and modified;
- c the MAP will be in charge of, among other things, coordinating and organising the internal control system and monitoring federal expenses. The MAP will also be empowered to regulate the instruments and internal control procedures for the Federal Public Administration in accordance with the NAS; and
- d the General Law of the National Anti-Corruption System was passed, which establishes, among other things, legal grounds in order to prevent corrupt activities and administrative offences. As long as the NAS combats corruption at the federal, local and municipal levels, it also establishes the minimum coordination mechanisms. The General Law of the National Anti-Corruption System establishes these mechanisms by regulating the organisation and function of the NAS, which comprises:25
• the members of the Coordinator Committee;
• the Citizen Participation Committee;
• the Audit National System Guiding Committee; and
• the Local Systems by means of their representatives.
In general terms, the General Law of the National Anti-Corruption System sets forth the principles, policies and processes for preventing, investigating and sanctioning the unlawful activities and corruption activities that may be carried out by the public and private sectors.
Currently, only two states (Chihuahua and Veracruz) have not enacted local regulation to establish anti-corruption systems.
IX OTHER LAWS AFFECTING THE RESPONSE TO CORRUPTION
Other Mexican laws are relevant to the fight against corruption, although they do not technically address it. Examples include the General Transparency and Access to Public Information Act and the Personal Data Protection Federal Act.
In accordance with the GLAR, a sanction or any kind of responsibility will depend on whether and when companies implement compliance policies that require: (1) an organisation manual; (2) a code of conduct; (3) monitoring and control systems; (4) reporting services and channels; (5) training; and (6) human resources policies to prevent the hiring of individuals who may be a risk for the company.
XI OUTLOOK AND CONCLUSIONS
Corruption has been slowing down Mexico’s economic development for a long time. According to the World Economic Forum, the annual cost of corruption equates to 9 per cent of Mexico’s GDP.26 In view of the recent developments concerning Mexico’s fight against corruption, however, it is fair to say that there are grounds for optimism.
The GLAR fills some regulatory gaps and strengthens the Mexican anti-corruption legal framework. The biggest challenge for the country concerns enforcement. The creation of the Specialised Prosecution Office Against Corruption, with broad powers, is of vital importance to preventing and prosecuting corruption-related crimes, and essential to its success will be the appointment of its head. The most important aspect of the reforms and enactment of the NAS is that all levels of government, not just federal, are implementing changes. So far, all but two Mexican states have followed the government and created their own local anti-corruption systems in accordance with the NAS; Chihuahua and Veracruz have still not done so.
Although the government bears the main responsibility in the fight against corruption, the country’s private sector plays an important role as well. Companies will have to make efforts to adopt effective compliance programmes (which are not yet common in Latin America), train their employees, improve their internal controls and ensure protection of whistle-blowers.
Mexico has signed all relevant conventions against corruption, its Congress has enacted the appropriate legislation and its political leaders have clearly expressed their commitment to enforcing it. There are reasons to believe that the country, led by its public sector and with the collaboration of the private sector, is well equipped to fight corruption. It is also wholly necessary to do so as Mexico’s economy ranks 16th in the world, and, according to multiple projections, by 2050 it will be fifth.27
1 Oliver J Armas and Luis Enrique Graham are partners, and Thomas N Pieper is counsel, at Hogan Lovells. The authors would like to acknowledge the valuable research assistance of Julio Zugasti and Carlos Heredia (associates in Hogan Lovells’ Mexico City office).
2 See www.tm.org.mx/ipc2016/. (Mexico dropped 28 places compared with the previous year.)
3 See www.millerchevalier.com/portalresource/2016-Latin-America-Corruption-Survey-Full-Report.
4 Under the current formulation of the NAS, this information will not be made publicly available as it includes personal data, which is protected from public disclosure by the applicable privacy laws.
5 The NAS legislation contained in the FCC relates to: (1) corruption, (2) illegal exercise of public service, and (3) illegal use of authority, particularly in Articles 212–224.
6 Many states have adopted the federal provisions.
7 Article 222.
8 Article 7.
9 Article 66.
10 Article 108.
11 Article 212.
12 Unidad de Medida y Actualización.
13 Article 222 bis of the FCC.
15 Articles 2 and 4.
16 First Book, Title II, Chapter III.
17 Article 28.
18 Article 156.
19 Article 111.
20 See Articles 31 (companies) and 172 (individuals).
21 See Articles 32 (companies) and 173 (individuals).
22 Second Book, Title XXIII, Chapter II.
23 Article 2 No. I.
24 Article 400 bis.
25 Article 7 of the General Law of the National Anti-Corruption System.
26 See www.jornada.unam.mx/2010/04/13/index.php?section=economia&article=023n2eco.
27 See World Development Indicators Database, World Bank (18 September 2012). Also see databank.worldbank.org/data/download/GDP.pdf.