I ENFORCEMENT POLICIES AND GUIDANCE
An unprecedented amendment made to Article 28 of Mexico's Constitution in June 2013 resulted in competition acquiring a new status, and made revamping the entire competition landscape in Mexico a state priority.
Mexico was the first country to have a complete ban on monopolies added to its Constitution (in 1857). Notwithstanding, there was neither a competition policy nor any supplementary law to regulate such a ban. The current 1917 Constitution reiterated the ban on monopolies and added that 'the law will punish severely and the authority will prosecute efficiently . . . any combination of [companies or individuals] that effectively cause consumers to pay exaggerated prices'. The wording of Article 28 of the 1917 Constitution authorised an aggressive approach to banning and punishing cartel behaviour. Despite such a strong mandate, the supplementary laws that regulated Article 28 of the Constitution dated 1926, 1931 and 1934 were rarely applied and failed to create an effective competition authority, a true state policy on competition and an efficient fight against cartels. Although the 1931 Federal Criminal Code provided for some crimes addressed to individuals and related to monopolistic matters (including cartels), in reality they were vaguely drafted, notably unconstitutional and have rarely been applied in practice, at least during the past 80 years.
In fact, Mexico has been slow to follow free-market principles on competition. By 1950, Mexico had enacted a post-Second World War law that entitled the executive branch (president) to determine maximum prices of certain products, which resulted in most basic products falling within such a price list. This reduced competition, created national private monopolies and gave rise a significant growth of state monopolies. As such, it was not uncommon for the executive branch to gather the views of competitors to determine a maximum price for essential products of the economy. In this context, fair competition meant that competitors were coordinated and sought the protection of the state to order the market and fight inflation. This state of mind of competitors had a pervasive effect since fair competition was identified with competition coordination and not with free market principles.
This business culture prevailed until the rules of the game changed dramatically with the enactment of the 1993 Federal Law of Economic Competition, which installed efficiency-oriented principles in the new legislation, thereby departing from government intervention in the Mexican economy and leaving business decisions to free markets. Cartel behaviour under the 1993 Federal Law of Economic Competition was heavily punished, but there were several drawbacks:
- Fines, although considerable, were not sufficiently dissuasive.
- There were no leniency programmes available (they first appeared in 2006).
- Class actions were not available (they first appeared in 2011).
- Cartel behaviour – as set out in the competition statute – was not deemed properly criminal behaviour until express amendments to the Federal Criminal Code in 2011 and 2014.
The 2013 constitutional amendment brought about the following vital changes to the competition framework:
- the creation of two constitutional autonomous agencies for competition matters: the Federal Institute for Telecommunications (IFT), entrusted with competition matters in telecommunications, radio and broadcasting; and the Federal Economic Competition Commission (Cofece), entrusted with competition matters in all other sectors of the economy;
- the separation of the investigator (the investigating authority) from the decision-making body (the Plenary of Cofece or the IFT);
- the creation of specialised federal administrative district courts and collegiate circuit courts (that eventually were based only in Mexico City) devoted to hearing challenges against definitive and other decisions made by the competition authorities;
- the elimination of an administrative challenge and confirmation that definitive decisions made by the competition authorities can only be challenged through indirect amparo or a constitutional challenge through a subsequent federal appeal before specialised collegiate circuit courts;
- confirmation that there is no possibility of a suspension or stay of the proceedings during amparo proceedings, except in decisions relating to fines and divestitures of assets issued solely by Cofece;
- the authority for Cofece and the IFT to issue decisions relating to determining essential facilities, eliminating barriers to entry and ordering divestitures of assets;
- the order to Federal Congress to update the relevant statutes dealing with competition matters; and
- the order to Federal Congress to punish severely (from the criminal standpoint) monopolistic practices (i.e., cartel behaviour).
As a consequence of the 2013 constitutional amendment, the Federal Congress passed new federal legislation, the Federal Economic Competition Law (FECL),2 which is applicable within the entire Mexican territory. Mexico has no state competition statutes. The FECL – built from its predecessor – regulates and sanctions cartels, horizontal agreements or collusive behaviour, referred to in the FECL as 'absolute monopolistic practices' or per se rule violations.
Cartel behaviour comprises any horizontal agreements, understanding and covenants among competitors that have as their purpose or effect any of the following behaviours:
- output restriction;
- market allocation;
- bid rigging; or
- information exchange with any of the above purposes or effects.
Unlike in other jurisdictions (i.e., the United States and the European Union), there are no further behaviours that differ from those so established in the FECL. Therefore, the FECL lacks a catch-all provision since it could be considered unconstitutional for violating legal certainty principles enshrined in the constitution as affirmed by the Federal Supreme Court in the 2003 Warner-Lambert case.3
The enforcement of the FECL is entrusted to Cofece and the IFT in their respective jurisdictions. Each competition authority has a separate investigating body entrusted with investigating cases, and these bodies have significant powers, such as issuing requests for information, compelling the appearance of individuals and, more importantly, ordering dawn raids. In November 2013, Cofece and the IFT issued their own regulations of the FECL (the Regulations). These Regulations provide a legal framework to enable Cofece and the IFT to comply with their constitutional mandates.
As a formal requirement to commence an investigation relating to a cartel offence, the statutory framework provides that there must be an objective cause4 that justifies the opening of an investigation. That cause could comprise indications of the existence of a cartel offence.
Article 3 of the Regulations provides that there are at least four independent hypotheses or presumptions of conduct that indicate the existence of a cartel offence:
- an invitation or recommendation addressed to one or several competitors to coordinate prices, output or the conditions to produce, commercialise or distribute products or services in a market, or the exchange of information for such an objective or effect;
- the sale price offered within the national territory by two or more competitors of products or services that are the subject of international trading are considerably higher or lower than their international reference price, or the trend of their evolution for a specific period of time is considerably different from the trend of international prices within the same time period, except for those cases in which the difference arises from tax provisions or transportation or distribution expenses;
- instructions, recommendations or adopted commercial standards by business chambers, associations, professional associations or similar to coordinate prices, offer products or services or other conditions to produce, distribute or commercialise products or services in a market, or the exchange of information for such an objective or effect; and
- two or more competitors set the same minimum or maximum prices for a product or service, or adhere to a sale or purchase price of a product or a service that was issued by an association, business chamber or competitor.
In addition, Cofece has issued documents (guidelines and technical criteria) that, although not legally binding, include formal guidance for the interpretation and application of the FECL when prosecuting and sanctioning cartels, as follows:5
- Guidelines to Initiate an Investigation against Offenders of Monopolistic Practices;
- Technical Criteria to Request Dismissal of a Criminal Prosecution against a Cartel Offender;6
- Guidelines whereby the prosecuting authority sets forth the methodology to carry out its investigations against cartel offences;7
- Guidelines to Regulate Information Exchanges among Economic Agents that could trigger competition concerns,8 under which Cofece will use worldwide best practices on this topic;9 and
- Technical Criteria related to Provisional Measures during investigation procedures.10
Cofece has made the fight against cartels its main priority. For instance, Cofece's 2014–2017 Strategic Plan11 states that the fight against monopolies and the eradication of conduct that might harm competition are its priority and constitutional mandate, and deems cartel offences to be the most harmful of all anticompetitive practices.12 Consequently, Cofece now has a strong message regarding its zero-tolerance policy (except for immunity applications) against cartel offences. The current Strategic Plan 2018–202113 (dated 30 November 2017) confirms prior objectives, namely (1) timely investigation of anticompetitive practices and (2) consolidation of the leniency programme.14
II COOPERATION WITH OTHER JURISDICTIONS
The Inter-American Development Bank (IDB) has recognised that competition policy enforcement is no longer a national task. During the 2013 Regional Competition Agreements
for Latin America and the Caribbean, the IDB and the Regional Competition Centre for Latin America acknowledged that:
in a globalized economy, with many economic actors operating in international markets (regional and global), it is difficult to continue conceptualizing competition policy as a strictly domestic phenomenon or national jurisdiction. The internationalization of markets brought the internationalization of anticompetitive behaviour and these, in turn, brought the need to internationalize regulations.15
Many jurisdictions worldwide are seeking the consistent application of their competition policies as a result of the versatile international economy. Mexico is no exception, especially where the structural reforms in the finance, telecommunications, competition and energy sectors are concerned. Cofece has publicly recognised that an adequate competition policy reduces high market concentration and diminishes possibilities for collusion, and has indicated its strong commitment to eradicating cartel behaviour.16 Therefore, for a period of more than 20 years, Mexico has executed cooperation agreements with several authorities and countries around the world. In addition, Cofece has participated extensively with the International Competition Network to adopt the best international practices on cartels.
For instance, Mexico has several bilateral cooperation agreements in place with the United States17 and Canada,18 under which these countries agree to fully collaborate with their local competition authorities. On the other hand, the World Economic Forum has recognised that the economic resilience of the Latin American region will depend on its capacity to strengthen the fundamentals of its economy by boosting its level of competitiveness.19 In this context, 2014 and 2015 have seen the consolidation of local competition policies in Latin America, since most of the jurisdictions in this region have reformed their local legislation to adopt and renew their local regimes.20
Hence, the Mexican competition authorities are open to supporting international cooperation, although the scope of their cooperation is limited to the legal boundaries of Mexico's local legislation. This means, however, that the Mexican competition authorities are cooperating with other agencies worldwide to achieve an adequate and strong competition policy.
Although the Mexican competition authorities could conduct a coordinated investigation with other jurisdictions if an investigated cartel offence had also taken place in Mexico (or had effects in Mexico), neither Cofece nor the IFT has the capacity to cooperate with information requests or extraterritorial discovery from other authorities, as both require the intervention of the Mexican judiciary and a set of different international treaties.
Cooperation agreements executed by the Mexican authorities are limited to local legal boundaries and restrictions. Non-public information and evidence that the Mexican competition authorities obtain directly from cartel members during their prosecution cannot be shared with other authorities if the information or evidence is protected under local confidentiality laws or is obtained without gaining the consent of the investigated party (which is highly unlikely to occur).
A similar circumstance arises in the context of, for example, extradition cases.21 Although Mexico could eventually accede to extradition requests, as its local legislation and international treaties formally contemplate such a faculty,22 there are several hurdles, such as:
- complying with the statutory formalities under the extradition principles and rules;23
- the complexity of local procedures to endorse the extradition;
- the inconsistency between international treaties and local and foreign legislation; and
- the lack of formal, legally binding obligations between nations to force extradition.
These are only some of the factors that indicate that multi-jurisdictional cooperation is not enough.
Hence, interagency cooperation is limited as a form of enforcing a competition policy and the strategic measures that need to be adopted to prosecute anticompetitive practices worldwide. However, the Mexican competition authorities are under an obligation to act independently and autonomously from other authorities. The existence of several international cooperation agreements does not relegate any local obligations to which the Mexican competition authorities are subject.
III JURISDICTIONAL LIMITATIONS, AFFIRMATIVE DEFENCES AND EXEMPTIONS
The FECL clearly outlines a general rule applicable for the sanctioning of a cartel (as previously mentioned, known as an absolute monopolistic practice).
Article 53 of the FECL states that any agreement or combination among competitors will be sanctioned if it has the purpose (objective) or the effect of any of the following:
- restraining output;
- allocating markets;
- bid rigging; or
- exchanging information with such purposes or effects.
The general rule provided in Article 53 has no jurisdictional limitations for its enforcement, and it does not make a distinction as to whether the agreement or collusion should be performed by an economic agent that has a physical presence in Mexico, or whether it is related to Mexican markets. There are also no de minimis rules. It is immaterial whether the cartel offence was formally executed locally or abroad, or whether it has an impact that harms Mexican markets or consumers, or both; the offender could be considered to be liable in all the extensions of the law. Likewise, absolute monopolistic practices are considered by statute null and void, and no longer render any legal effect.
Moreover, Article 53 not only sanctions the tangible execution of an anticompetitive agreement or combination, but also the intention of executing the conduct even if it is never formally executed, and the effects that might arise from the anticompetitive conduct even if the offender did not have any such intention.24 Administrative liability is independent of civil and criminal consequences that might arise.
Contrary to what occurs in other jurisdictions, there are no exceptions to the application of competition law in Mexico; therefore, every person must abide by its content. However, liability in cartel prosecutions has been a hotly debated topic in Mexico, especially where the Mexican competition authorities render a final decision and resolve to make parent companies liable for actions executed by their subsidiaries, as neither the former Competition Act nor the current FECL fully regulate this controversial topic.
Owing to the lack of clarity in the statutory framework, the Mexican Supreme Court of Justice decided a relevant precedent in the matter. When resolving an appeal in 2007 of a cartel investigation against the Coca-Cola Export Corporation,25 the Supreme Court resolved that to prove the existence of an economic group through which parent companies should be held liable for the actions of their subsidiaries, at least two elements were required: a control element and a coordination element.
The Supreme Court decided:
In order to consider the existence of an economic group and that it might be considered as an economic agent in terms of the Federal Economic Competition Law, it should be analysed if the company, directly or indirectly, coordinates the activities of the group to operate in the market and, furthermore, it can exercise a decisive influence or control over the other company, either de jure or de facto.
In this regard, the Mexican liability attribution system is based on the fact that the authority has the obligation to prove, without doubt, the nexus of liability between the execution of the anticompetitive conduct and the actual intervention of the offender. Parent companies should not just be held liable for having an equity participation in their subsidiaries in the absence of their directions to the offender; rather, the authority has the obligation to evidence that the execution of anticompetitive conduct was a result of a parent company's decisive intervention. This was illustrated in April 2018, when a specialised Mexican Federal Competition Court (Specialised Collegiate Circuit Court), in a landmark decision, clarified the rules concerning liability of a parent company for the cartel behaviour of its subsidiary. In short, the Federal Collegiate Circuit Court ruled that controlling the stock of a subsidiary does not imply the extension of liability for the unlawful behaviour of a subsidiary to its holding company. The ruling sends a clear signal to the Mexican competition authority that in order to find a holding company liable for offences committed by one of its subsidiaries, there must be evidence of illegal collaboration. Therefore, this judgment represents a significant move forwards and reinforces rules regarding the investigating authority's burden of proof, which require it to provide evidence that a particular company participated in an offence and, in turn, confirming that parental liability implies complying with such a burden.
Furthermore, courts have recently issued a number of landmark decisions. For instance, a specialised federal court issued jurisprudence recognising that companies could be held responsible despite the fact that the individuals who executed the conduct on their behalf are not their formal or direct employees.26 Additionally, the Supreme Court decided at the end of 2015 that, in accordance with Article 28 of the Constitution, cartel offences will be sanctioned despite their lack of effect on competition or even when they do not provoke a price increase or the payment of exaggerated prices, despite the express wording of the constitutional provision.27
IV LENIENCY PROGRAMMES
The FECL provides a leniency programme for cartel offences.28 The leniency programme provided in the FECL is similar to leniency or amnesty programmes in other jurisdictions. The Mexican programme grants immunity to those cartel offenders who appear before the authority to self-report a cartel violation.
The leniency programme grants immunity to cartel offenders who request it by exempting them from criminal prosecution and disqualifications,29 and reducing the fine to its lowest possible amount. There is no exemption for damages in private or class actions. However, leniency protection is granted only if the following occurs:
- a cartel member is the first to apply to the programme and recognises its participation in the cartel;
- a cartel member provides enough evidence that allows the investigating authority to initiate an investigation procedure or at least allows the authority to presume the existence of a cartel;
- the applicant fully and continuously cooperates with the competition authority throughout the entire procedure by providing information and collaborating with all requests; and
- the applicant implements all necessary actions to terminate its participation in the cartel.30
If there is already a first leniency applicant, the remaining cartel offenders can obtain other types of benefits, which include partial fine reductions and full criminal prosecution immunity when they provide additional evidence related to the conduct being investigated. The following table outlines what type of benefit applicants might receive.
|Applicant||Reduction of fines||Disqualification sanction||Criminal prosecution|
|Maximum fine reduction*||Immunity||Immunity|
|30% to 50% fine reduction||Immunity||Immunity|
|20% to 30% fine reduction||Immunity||Immunity|
Fourth and subsequent
|Up to a 20% fine reduction||Immunity||Immunity|
* The minimum applicable fine is equivalent to one UMA (the official unit for determining fines), which in 2018 was set at 80.60 pesos (approximately £3.08, according to the exchange rate as at 22 November 2018).
As in other jurisdictions, the marker system in Mexico is very relevant when applying to the leniency programme. Pursuant to the provisions set forth in the FECL and the Guide for Leniency Application Programmes issued by Cofece,31 a leniency applicant will obtain a marker after applying for the leniency programme.32 Nevertheless, it is common practice that, prior to formally requesting the leniency benefit, external counsel conducts an informal telephone call or meeting with the investigating authority or his or her director for cartel investigation, or both, to review whether there is a prior applicant in a specific market without having to disclose the identity of the cartel applicant. Likewise, when formally submitting the leniency application, the applicant does not need to provide relevant information related to the cartel, as it can provide this subsequently.
According to Article 103 of the FECL, the investigating authority is under an obligation to preserve as confidential the identity of the leniency applicant at all times and without exceptions. Likewise, information provided by the leniency applicant will be classified as confidential, and no third party (including private practitioners or external counsel) should access this information.
Mexico's leniency programme witnessed a remarkable rise in applications in 2015 and 2016, which has since trailed off.33 In 2013 and 2014, Cofece received, respectively, four and six leniency applications. The numbers jumped to 18 in 2015 and 26 in 2016, before declining to 15 in 2017.34 The decline is attributed to several concerns regarding the certainty of the immunity programme.
The International Competition Network's best practice suggests that the success of any leniency programme depends on the certainty that it provides to those who want to resolve their criminal liability. To provide that certainty, the authority should be explicit in defining the leniency requirements. Additionally, if the corporation meets the leniency requirements, the agency shall have little to no discretion to deny the request.35 For example, the US Antitrust Division attributes part of its success to its 20-year record of honouring leniency agreements, which provides comfort to potential applicants.36
Mexican lawyers believe that Mexico's deviation from this best practice has been problematic. Specifically, lawyers have cited the lack of certainty as a leading factor for the declining number of leniency applications. For instance, the attraction to leniency has decreased partly as a result of a couple of cases, in which Cofece withdrew the benefits of leniency to applicants for a failure to cooperate sufficiently, thus reducing certainty and predictability for would-be applicants. Additionally, 'Mexico saw its first-ever private damages claim in 2016, followed by a widely publicised lawsuit in a New York federal court against banks for their participation in an alleged cartel that fixed the price of Mexican government bonds'.37
Furthermore, concerns regarding new anticorruption laws have caused applicants to fear using the antitrust leniency regime because they could simultaneously implicate themselves criminally under the country's new anticorruption laws.38 These factors have contributed to an unwillingness to apply for the leniency programme. Nonetheless, Cofece, believes the diminishing number of applications can be directly attributed to a lack of awareness of the existence of the leniency programme.39
Moreover, Mexico has adopted a noteworthy deviation in its leniency programme. Whereas in most jurisdictions a ringleader cannot be granted full immunity, this is not the case in Mexico. Unlike in other jurisdictions, the FECL makes no distinction. A benefit of the Mexican system is that cartel members are more likely to come forward when they do not have to worry about the uncertainty of who the ringleader is. Thus, international cartel applicants should note that although they may be ineligible for certain types of immunity in jurisdictions like the United States, they may still be eligible in Mexico.
As a result of the June 2013 constitutional amendment, the incentives for collusion have changed in Mexico. The amendment to Article 28 of the Mexican Constitution introduced a series of new and tougher penalties against cartel offences.
Pursuant to Article 127 of the FECL, any company or individual who actively participates in a cartel, or who contributes, induces or cooperates in cartel behaviour, can be held liable. Monetary sanctions may vary according to the degree of participation of the company or individual as follows:
|Type of intervention||Monetary sanction|
|Active participation in the conduct||Up to the equivalent of 10% of the income of the offender|
|Participation through contributing, inducing or propitiating the conduct||Up to the equivalent of 180,000 times the Units of Measure*|
* Currently, this fine may be raised to 14.5 million pesos
Article 130 of the FECL provides that certain elements should be taken into consideration by the competition authority when calculating fines, including:
- harm caused;
- indications of intentionality;
- market share;
- market size;
- duration of the conduct; and
- the economic capacity of the offender.
Recidivism or a second offence entitles the competition authority either to double the fine (i.e., up to the equivalent of 20 per cent of the income of the offender) or to order the divestiture of assets, rights, equity participation or shares under the terms of Article 131 of the FECL.
Individuals who participate either directly or indirectly in the commission of a cartel offence as a representative of a company might be disqualified from acting as a board member, administrator, director, manager, officer, agent or representative for a period of up to five years, and might be subject to a fine that could be equivalent to 200,000 times the Unit of Measure.40 Cofece boasts that, in 2017, those who violated the FECL attracted some of the largest fines41 – Cofece issued the highest sanction imposed to date by the Commission, which totalled 1,100 million pesos.42 The case was related to collusive agreements conducted by financial institutions in retirement fund management services.43 Fines are not the only sanctions applicable against cartel offenders. In addition to the major constitutional reform and the issuance of the new FECL, the Federal Criminal Code has been modified to deter cartel behaviour.44
Although the criminalisation of cartel offences is not entirely new to the Mexican competition system,45 the applicable sanctions have been toughened up, with imprisonment sanctions being modified to a minimum of five years and a maximum of 10 years.46 Under the current criminal rules, there is no possibility of commuting a prison sentence into another sanction. Therefore, a cartel offender in Mexico who is criminally prosecuted and sanctioned will necessarily serve time in jail.
Criminal prosecution can only be initiated by a formal request from the competition authority to the Federal Criminal Prosecutor. A major change is that Cofece or the IFT could give criminal notice to the Federal Attorney's office once a statement of objections has been rendered, and not just at the time the competition decision has become res judicata. In fact, in February 2017, the first criminal prosecution request was filed by the Investigative Authority of Cofece before the Attorney General Office47 in a cartel investigation related to the pharmaceutical industry.
Both the FECL and the Federal Criminal Code grant the competition authorities discretional powers to request a dismissal of the charges only when the offender requests it, the offender complies with all administrative sanctions, there is no legal action to challenge a Cofece or IFT decision and there is no recidivism by the offender.48
There is no Mexican legal tool that allows settlement for cartel behaviour. However, corporate criminal liability49 is a new legal tool that entered into force in June 2016 and, given the overhaul of the criminal justice system, will serve as a deterrent to cartel behaviour. To date, there is no corporate criminal liability for cartel behaviour crimes (Articles 11 bis and 254 bis of the Federal Criminal Code). Notwithstanding, in October 2017, a member of the Federal Mexican House of Representatives introduced a bill to amend – inter alia – the shortlist of crimes that could be the subject of corporate criminal liability and introduced that cartel behaviour could be prosecuted from the corporate criminal liability standpoint. If this bill is finally approved after all the legislative process, it would mean that cartel behaviour would not only be addressed and sanctioned to individuals (natural persons) but also to corporations and legal entities. The discussion on this issue will be vital because the current debate in specialised competition courts concerns the parent-liability to assert administrative liabilities and fines. Thus, the combination of corporate criminal liability and parent-subsidiary responsibility could not be discussed and implemented lightly. If this bill is passed, it will make companies reinforce their compliance and antitrust programmes.
VI 'DAY ONE' RESPONSE
The reinforcement of the investigating authority's powers to obtain information during an investigative procedure is strong and somewhat disproportionate50 when considered in connection with certain legal vacuums (i.e., proper regulation about the protection of attorney–client privilege and confidential information).
The FECL provides a facility for issuing written requests for information without having the obligation to identify the party that is required to provide the information. A similar circumstance occurs when the investigating authority requires individuals to appear before the authority to testify.
Failure to provide information when these kinds of requests are issued or when an individual is required to testify before the authority (without even having the option of a proper defence through an attorney who can formally intervene during the declaration) will result in the imposition of heavy fines and will not excuse the required party from its obligation to provide information.
Likewise, dawn raids are executed with a certain amount of uncontrolled force, as the FECL and its regulatory provisions enable the investigating authority to issue a dawn raid warrant without an authorisation from the judiciary. Moreover, during a dawn raid, the authority can access any section, department, IT data or location that is part of the premises specified in the search warrant. In addition, neither the FECL nor its Regulations clearly delimit the extension of their dawn raids as none of the statutes regulates, for example, whether the investigating authority can perform a dawn raid in private domiciles, how to manage attorney–client privilege and confidential information, or whether the prosecuting authority can intervene in all types of information, are other legislative issues absent from our statutes.51 On 21 December 2017, the First Specialised Competition Collegiate Circuit Court handed lawyers a victory on the recognition and protection of attorney–client privilege on antitrust matters.52 This has been one of the most keenly awaited judgments in Mexico, and even though it is not a binding precedent for the other specialised competition courts, this landmark decision represents a very significant leap forward for competition law in Mexico and more generally for the exercise of the legal profession.
Moreover, dawn raids can be executed with such excessive force because of the fact that, with the recent amendments, the Federal Criminal Code has introduced a new misdemeanour of obstructing, altering or destroying information and impeding the proper execution of a dawn raid,53 which is penalised with imprisonment for between one and three years. These recent amendments have empowered Cofece to easily conduct dawn raids; Cofece reports the execution of 16 dawn raids between 2015 and 2017.54
Therefore, an immediate response against the investigative powers of the prosecuting authority is highly recommended and should include a well-trained response team and advice from external specialised counsel because of the increased sophistication of the investigating authority.
VII PRIVATE ENFORCEMENT
Private enforcement and class actions against cartel offences have not had the same degree of force in Mexico as they have in other jurisdictions. The prosecution and sanctioning of cartel offences can only be executed by the competition authorities. This means that, as a result of the new reformed competition regime, only the constitutionally autonomous bodies, Cofece and the IFT, have a relevant role, as no private enforcement can commence without a prior decision by the competition authorities.
On the other hand, local civil legislation has always made it possible to claim damages that arise from an antitrust violation, and since 2011 it is possible to initiate class actions. However, there are still several hurdles to jump before such legal actions can occur.
Article 134 of the FECL provides that a damages claim will only proceed when the decision rendered by the competition authority is definitive. Furthermore, the Supreme Court of Justice has issued case law on the matter, recognising that for a damages claim to proceed, the specialist authority should have proven the existence of the administrative offence.55 The cases available regarding this subject have been favourable to respondents, although they have dealt with vertical restrictions and not cartel behaviour.
In addition, the Federal Code of Civil Proceedings governs class actions that require a res judicata decision from the competition authority, clearly evidencing the existence of a cartel offence. Therefore, although there has been a collective effort during the past few years to encourage class actions and damages claims against cartel offences, there are certain rules that make implementation difficult (i.e., the need to prove individual damage in ancillary proceedings).56 This is an area in which changes are likely; for instance, the Organisation for Economic Co-operation and Development and Mexico's Secretary of the Economy has released a study detailing the problems currently being faced in private enforcement and proposes future policy changes.57
VIII CURRENT DEVELOPMENTS
A great deal of legal development – including revamped legislation and newly created authorities – has occurred in Mexico in recent years, sending out a clear message to deter cartels in the markets. Cofece is very active in the enforcement of local policy as constant investigations against cartel behaviour have taken place during the past few years. Industries such as pharmaceutical, poultry, ground and maritime transport, pension funds and auto parts have been under constant scrutiny.
The revamped legislation and newly created authorities seek to send a clear message to deter cartels in the markets. This zero-tolerance enforcement policy will have to be tempered by future legislation on cartel settlements to avoid the burden of a full administrative proceeding. Likewise, specialised courts have had a very active role in setting boundaries and limits on what the competition authorities can do when asserting cartel behaviour.
One example is a case in which, for the first time in 10 years, Cofece revoked leniency benefits during the course of a cartel investigation. Mitsubishi Heavy Industry (MHI) and Denso Corporation (Denso) were sanctioned for price-fixing and unlawful information exchanges, with fines equivalent to 72 million pesos.58 Based on the merits of the case, MHI and Denso colluded over a private tender regarding the acquisition of air-conditioning compressors.
In 2013, one of the impeached parties applied for leniency benefits, a circumstance that triggered the initiation of the investigation. However, Cofece's Plenary revoked such benefits when rendering the final resolution as a result of not 'fully cooperating' in the procedural phase of the investigation.59 This was a strong message from the principal body of Cofece; the main objective of eradicating cartel behaviour was addressed along with the fact that, when leniency has been requested, the competition authority expects full cooperation at all times. The case is currently under judicial review by the Collegiate Circuit Specialised Court, whereby a first decision has been rendered by the specialist district judge reverting Cofece's decision and setting a 'precedent in the sense that despite applying to leniency benefits, legal defence rights cannot be limited by Cofece as a tool to secure the leniency effectiveness'.60 The Mexican competition policy still needs to shape a settlement procedure for cartels to provide a means of exit to offenders without the need to incur the burden of a full procedure that converts a dilemma into an all-or-nothing situation. This is the case even if no leniency benefits were granted, as the current mechanism contemplated by the FECL obliges the parties to face complex and time-consuming procedures despite admitting guilt.
Moreover, another relevant recent case refers to a civil action relating to a cartel investigation. The case concerned a bid-rigging cartel by certain laboratories against the Mexican Institute of Social Security, which was sanctioned by Cofece in 2010. The case, which was later confirmed by the Supreme Court, led the social security institute to file a civil action against all impeached laboratories, claiming a total cumulative award of 192 million pesos.
The case – the first of its kind in Mexico – has been admitted by one of the specialist district judges and is awaiting a decision.61 This case is expected to open the door for new legal actions against cartel offenders (of which there had been none in Mexico until 2016) and thus strengthening local private enforcement.
1 Omar Guerrero Rodríguez is a partner and Martín Michaus Fernández is an associate at Hogan Lovells (Mexico). The authors also received research assistance from Cecilia Serrano Hernández-Romo (associate) and John Lechuga (intern) of Hogan Lovells (Mexico).
2 The FECL was issued on 23 May 2014 and became effective on 7 July 2014.
3 See Amparo en Revisión 2617/1996, Supreme Court of Justice of the Nation.
4 Article 73 of the FECL.
5 Cofece intends to update its Guidelines to provide greater clarity on the procedural aspect of the leniency programme and applicants' obligations when applying to the programme (as well as the requirements that must be fulfilled for the granting of leniency benefits). The new Guidelines will be submitted by the end of 2018 for public consultation, so that an improved set of guidelines is made available by 2019.
6 These technical criteria were the subject of a public consultation period that ended in November 2015. Cofece issued the final document on 16 December 2015. They were subsequently amended and republished on 28 November 2016.
7 These Guidelines were the subject of a public consultation period that ended in October 2015. Cofece issued the final document on 21 December 2015.
8 These Guidelines were the subject of a public consultation period that ended in October 2015. Cofece issued the final document on 17 December 2015.
9 Cofece basically referred to experience from the United States and the European Union.
10 These technical criteria were the subject of a public consultation period that ended in November 2015. Cofece issued the final document on 16 December 2015.
12 Cofece Strategic Plan 2014–2017, page 13.
14 Cofece Strategic Plan 2018–2021, page 19.
15 Inter-American Development Bank and Centro Regional de Competencia para América Latina, 'Acuerdos Regionales de Competencia en América Latina y el Caribe' (2013).
16 Cofece Strategic Plan 2014–2017.
17 For example, the United States Mexico Canada Agreement (USMCA) was signed on the 30 November 2018 but has yet to be ratified.The economic competition section of the new treaty will take on a much more prescriptive approach than that of its predecessor (NAFTA). For instance, Chapter 21 of the new treaty not only recognises the importance of cooperation and coordination, it also provides detailed requirements for the parties. Practitioners believe the increased requirements are beneficial for the region. Increased cooperation will enable the countries to accelerate and streamline the pace of investigations, thus benefiting businesses; and consumers will benefit from increased cooperation, resulting in more efficient international policing of cartel behaviour.
Many of the proscribed requirements set out in the USMCA are already common practice so it is unlikely that these new provisions will have a significant practical impact on competition enforcement. Nonetheless, many practitioners remain hopeful that the new treaty may pave the way for greater cooperation between Mexican, US and Canadian competition authorities. The USMCA still needs to be approved and ratified in 2019, and will therefore not become effective until 2020.
Other important agreements celebrated with United States are (1) the mutual legal assistance treaty, a Treaty on Mutual Legal Assistance in Criminal Matters, 1987, (2) Agreement regarding the application of competition laws, 2000 and (3) the Organisation for Economic Cooperation and Development's 'Revised recommendation of the Council Concerning Co-operation between Member countries on Anticompetitive Practices affecting International Trade', 1995 (C(95)130/Final).
18 For example, the 'Agreement between the Government of Canada and the Government of the United Mexican States regarding the application of their competition laws', 2001.
19 World Economic Forum, 'The Global Competitiveness Report', 2014–2015.
20 Examples include Argentina, Brazil, Colombia and Uruguay.
21 Mexico has executed more than 36 bilateral and multilateral extradition treaties and has local criminal and extradition laws.
22 For example, the US and Mexico Extradition Treaty of 1978 includes and provides, subject to several complex provisions, the possibility of extraditing persons in respect to specific offences, including 'offenses against the laws relating to prohibition of monopoly or unfair restrictions' (Item 26). However, the Mexican Federal Criminal Code sanctions specific conducts, which eventually will generate a discussion regarding the lack of consistency between such statutes.
23 For example, double criminality, non bis in idem (double jeopardy), reciprocity, jurisdictionality, commutation and speciality.
24 In fact, the intentionality factor might only be considered when calculating the fine assessment in accordance with Article 130 of the FECL.
25 Amparo en Revisión 169/2007. The Coca-Cola Export Corporation. Supreme Court of Justice.
26 See Práctica Monopólica Absoluta, Condiciones de Responsabilidad de los Partícipes, Alcance de la Expresión 'En Representación O Por Cuenta Y Orden', Prevista En El Artículo 35, Fracción IX, De La Ley Federal De Competencia Económica Vigente Hasta El 6 De Julio De 2014. Plenary of the Specialist Circuit in telecommunications, broadcasting and competitions matters. Registry: 2012679.
27 See Amparo en Revisión 839/2014, Amparo en Revisión 289/2015, Amparo en Revisión 804/2015 and Amparo en Revisión 971/2015. Mexican Supreme Court of Justice, Second Chamber.
28 See Chapter IV of the FECL, and especially Article 103.
29 The leniency protection can be extended to those individuals, subsidiaries and affiliates included in the leniency application.
30 To obtain leniency benefits, applicants must identify specific individuals that shall be beneficiaries of the leniency application (if leniency is requested by a company). The regulation has been updated to explicitly allow those who receive the immunity benefit to not be disqualified by Section X of Article 127 from acting as a board member, administrator, director, manager, officer, agent or representative.
32 This can be requested via email or telephone at any time prior to the closing ruling of the investigative phase of a procedure.
33 Leniency applications per year: 2012, 26; 2013, 4; 2014, 6; 2015, 18; 2016, 26; 2017, 15. See Global Competition Review's Annual Rating Enforcements, at https://globalcompetitionreview.com/benchmarking/rating-enforcement-2018/1175068/mexicos-federal- economic-competition-commission.
34 See Global Competition Review's 2018 Rating Enforcement for Mexico's Federal Economic Competition Commission at https://globalcompetitionreview.com/benchmarking/rating-enforcement-2018/1175068/mexicos-federal-economic-competition-commission.
35 See the International Competition Network's Checklist for efficient and effective leniency programmes at www.internationalcompetitionnetwork.org/uploads/library/doc1126.pdf.
37 See footnote 34.
38 Criminal immunity was not included in Mexico's new anticorruption leniency provisions, whereas all leniency applicants under Mexican antitrust law are granted total immunity for criminal charges levied by Cofece. Therefore, the failure to provide criminal immunity under Mexico's new anticorruption provisions could kill the country's successful antitrust leniency programme. See 'Mexican anticorruption leniency programme could threaten antitrust efforts', at https://globalcompetitionreview.com/article/1170081/mexican-anticorruption-leniency-programme-could-threaten-antitrust-efforts.
39 Cofece backs this claim, citing a recent study by McKinsey & Company, which found that only 10 per cent of executives interviewed by McKinsey were aware of the leniency programme. See 'Roundtable on challenges and co-ordination of leniency programmes' – Note by Mexico, page 58, available at https://www.cofece.mx/wp-content/uploads/2018/01/Estudio-labor-COFECE-17.pdf.
40 Currently, the maximum amount of this fine is 16 million pesos.
41 See 'La COFECE en números 2017', reporting the following totals for monetary sanctions for violators of the FECL per year: 2017, 3,656 million pesos; 2016, 309.4 million pesos; 2015, 76.5 million pesos; 2014, 253 million pesos; 2013, 130.9 million pesos.
42 Currently equivalent to about US$48 million.
43 From 'Sanciona COFECE a Afores por pactar convenios para reducir los traspasos de cuentas individuales', 10 April 2018, from Cofece, at https://www.cofece.mx/sanciona-cofece-a-afores-por-pactar-convenios-para-reducir-los-traspasos-de-cuentas-individuales/.
44 See Article 254 bis of the Federal Criminal Code.
45 Criminal sanctions against specific cartel offences were introduced in Mexico in May 2011 as a result of a prior reform to the former Competition Act.
46 See the 2014 amendment to the Federal Criminal Code (Article 254 bis) dated 23 May 2014.
47 Procuraduria General de la República.
48 Under the Technical Criteria to Dismiss Criminal Prosecution, Cofece will also take into consideration any recidivism of the offender, the offender's commitment to contribute with actions that encourage competition and the negative social impact of the cartel.
49 See Section 421 of the National Criminal Procedure Code published on 5 March 2014 in the Federal Official Gazette.
50 The proposed amendment bill of October 2017 by a member of the House of Representatives seeks to punish certain obstruction of justice activities as federal crimes with terms of imprisonment of between five and 10 years: (1) declaring falsely before the authority (Cofece or IFT) and (2) delivering false information to Cofece or the IFT. These penalties are unprecedented under Mexican criminal law.
51 According to the FECL, dawn raids can last up to two months and can be extended for a similar period of time when the case justifies it. However, common practice shows that a dawn raid does not usually last more than a day.
52 The judgment describes the scope of the protection granted over attorney–client privilege by the court in the following way:
Antitrust audit reports performed by external counsel to their clients relating to the investigated conducts and extracted during the relevant dawn raid by the competition authority are protected by such privilege, as long as the communication complies the following conditions: 1) the exchange of information must arise between external counsel and the client (a lawyer who is not bound by an employment relationship with the client); 2) the exchange of information must be related to the client's right to a proper defence. Additionally, if the enforcer comes across information that is protected by the above-mentioned privilege, it should adopt the necessary measures to preserve the secrecy of the relevant documents and exclude them from its investigation.
53 See Article 254 bis 1 of the Federal Criminal Code.
54 Data collected and calculated internally by Cofece's staff report the following numbers of dawn raids per year: 2017, 4; 2016, 5; 2015, 7.
55 See 'Propiedad Industrial. Es necesaria una previa declaración por parte del instituto el instituto mexicano de la propiedad industrial, sobre la existencia de infracciones en la materia para la procedencia de la acción de indemnización por daños y perjuicios. Jurisprudencia (Civil). Primera Sala. Registro: 181491'. Available at https://sjf.scjn.gob.mx/SJFSist/Paginas/DetalleGeneralV2.aspx?Clase=DetalleTesisBL&ID=181491&
56 Notwithstanding, a June 2017 judgment by the First Chamber of the Supreme Court of Justice seems to have relaxed such a strict rule in the decision Amparo Directo 49/2014 (class action commenced by Profeco against Telefónica Movistar).
57 See OECD (2018) 'Aplicación Privada Individual y Colectiva del Derecho de Competencia: Reflexiones para México', at www.oecd.org/daf/competition/ES-WEB-private-enforcement-competition-law-
58 Docket IO-001-2013, Federal Economic Competition Commission.
59 Cofece, Press Release, see https://cofece.mx/cofece/index.php/prensa/historico-de-noticias/sanciona-
60 A similar scenario is being faced in the Pension Fund case, in which certain amnesty applicants had leniency benefits withdrawn as individuals and companies for the perceived lack of full and total cooperation at all times and specifically for raising defences during the proceedings. This case is also under current court review by the specialised district courts in competition and telecommunications matters but that decision would interpret and clarify the extent of cooperation during the proceedings.
61 See Docket 4/2017.70 First Specialised Administrative District Courts in Economic Competition.