As Latin America, and the world, continues to combat corruption, Mexico does so too. The 2017 Transparency International Corruption Perceptions Index ranked Mexico 135th out of 180,2 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 Anti-Corruption 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) 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 has introduced stronger mechanisms to tackle corruption and, among other things, makes it illegal to 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 compliance programmes, internal manuals, codes and other protocols.
Because the legislation only became effective in July of 2017, and given that the NAS is still in its implementation phase (e.g., the anti-corruption prosecutor has yet to be appointed), 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 an aspect of criminal law, and is, therefore, provided for 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 on 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 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 official functions; or
- 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 official 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, 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, 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 (MPA) is currently preparing guidelines regarding the provision of gifts, gratuities, travel, meals or entertainment for public officials.
Notwithstanding this, President-elect Andrés Manuel López Obrador has apparently stated that during his administration gifts of up to 5,000 Mexican pesos in value provided to public officials will be allowed.
The FCC sets forth the following criminal sanctions for both domestic and foreign bribery:
- 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 2,418 to 8,060 Mexican pesos), and any public officials involved may be removed from office for a period of three months to two years.
- 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 days of fine (from approximately 8,060 to 12,090 Mexican pesos),13 and any public official involved could be removed from office for a period of between two and 14 years.
- Companies may be fined for up to approximately 80,600 Mexican 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 damage caused or benefits obtained by the company.
The GLAR provides the following sanctions for bribery and other illegal acts: fines (up to double the amount of the 'benefits' obtained and, if no benefit was obtained, up to approximately US$6.4 million), exclusion from public bidding (for 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 by the MPA in the Federal Official Gazette when a company is being temporarily excluded from future bidding. However, these announcements provide only the term for which the company will be excluded from bidding, but no further information on the bribery itself or on the fine imposed.
The NAS has a public web page identifying, 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 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;
- 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
- 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.14
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.15
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 80,600 Mexican 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 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) has been in charge of resolving and sanctioning individuals, companies and public officials for corrupt practices. A specialised section of the FCAJ was created to hear cases and sanction those liable for serious offences, whether public officials or companies; however, the three judges who will compose this new FCAJ section have yet to be appointed. In accordance with the GLAR, there are different kinds of sanctionable offences; serious offences will be dealt with by the FCAJ and less serious offences 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.16
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;17 the Federal Tax Code;18 and the Corporations Law.19
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 documentation that is required to be kept by law; and for registering commercial or tax operations in two or more books or accounting systems with dissimilar content.20
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.21 The Law also provides a list of non-deductible expenses.22 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 8.5 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 the goods, funds or rights, or of 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 cases, the public official is also ineligible to run for public office for a period equal to that of the imprisonment.25
The sanctions set out 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. These obligations are imposed on companies who are active in high-risk industries, including lotteries and gambling, financial institutions, private lending, construction, precious metals trading, real estate development, money transfer, and 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 days of fine (approximately 16,120 to 5,239,000 Mexican 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:
- the Credit Institutions Law;
- the General Law on Credit Organisations and Related Activities;
- the Securities Law;
- the Insurance Companies Law;
- the Federal Bonding Institutions Law;
- the Retirement Savings Systems Law;
- the Savings and Loans Cooperatives Law;
- the Investment Companies Law;
- the Public Savings and Loans Law;
- the Credit Unions Law; and
- 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 provide only the term for which the company will be excluded from bidding, but no 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:
- the OECD Anti-Bribery Convention;
- the United Nations Convention against Corruption;
- the United Nations Convention against Transnational Organized Crime; and
- the Inter-American Convention against Corruption.
Mexico is also a member of the Financial Action Task Force on Money Laundering 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 a high perceived level of corruption. For example, in the national results of Transparency International's Global Corruption Barometer (2017) survey, it was found that 51 per cent of respondents in Mexico paid a bribe when accessing public services and Buen Gobierno (2010) stated that the amount of bribes paid to obtain or facilitate processes or public services had reached 32 billion Mexican pesos. The amendment is one of the actions taken by the government in response to these concerns, in addition to the creation of the Special Prosecutor's Office for Combating 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) 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 on 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 Special Prosecutor's Office for Combating Corruption has been created as an autonomous body to investigate and prosecute 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 or compliance 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:
- 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;
- the Federal Public Administration Organic Law for internal control was amended and modified;
- the MPA will be in charge of, among other things, coordinating and organising the internal control system and monitoring federal expenses. The MPA will also be empowered to regulate the instruments and internal control procedures for the federal public administration in accordance with the NAS; and
- the General Law of the National Anti-Corruption System was passed, which establishes, among other things, legal grounds 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:26
- 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, all the states of the Mexican federal republic have enacted local legislation 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 Federal Law on Transparency and Access to Public Information, and the Federal Personal Data Protection Law.
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; (6) human resources policies to prevent the hiring of individuals who may be a risk to the company; and (7) mechanisms that will ensure the transparency and publicity of the organisation's interests at all times.
In that regard, in 2017 the MPA issued a Model Company Compliance Programme, which includes best practices and measures that might be taken by companies during the implementation of their surveillance, reporting, audit, training and organisation systems and mechanisms to avoid possible corrupt business practices.
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.27 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 Special Prosecutor's Office for Combating Corruption, which has broad powers, is of vital importance in preventing and prosecuting corruption-related crimes, and the appointment of its head will be essential to its success. The most important aspect of the reforms and enactment of the NAS is that all levels of government, not just federal, are implementing changes. All Mexican states have now followed the government's lead and created their own local anti-corruption systems in accordance with the NAS.
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. In that regard, the Model Company Compliance Programme could be an important measure for reducing corruption within the private sector.
Mexico has signed all relevant conventions against corruption, Congress has enacted the appropriate legislation and the country's political leaders have clearly expressed their commitment to enforcing it. There are reasons to believe that the country, led by the 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 was ranked 15th in the world in 2017.28
Finally, President-elect Andrés Manuel López Obrador, speaking of his upcoming presidency, has made several statements regarding the fight against corruption. This has raised an expectation of possible changes to applicable regulations and the legal regime, and we recommend, therefore, constantly reviewing and keeping abreast of developments in this area throughout his presidency.
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, associate at Hogan Lovells.
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 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 Under Article 29 of the FCC, the term 'day of fine' is considered to be the 'daily net income of the individual who commits the crime'.
14 Article 222 bis of the FCC.
16 Articles 2 and 4.
17 First Book, Title II, Chapter III.
18 Article 28.
19 Article 156.
20 Article 111.
21 See Articles 31 (companies) and 172 (individuals).
22 See Articles 32 (companies) and 173 (individuals).
23 Second Book, Title XXIII, Chapter II.
24 Article 2 No. I.
25 Article 400 bis.
26 Article 7 of the General Law of the National Anti-Corruption System.