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 causes 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 88 years.
In fact, Mexico had 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 an extensive list and certainly 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 Economic Competition Law, 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 Economic Competition Law 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 specifically deemed criminal behaviour until express amendments to the Federal Criminal Code in 2011 and 2014.
- Private damages actions were rare and the only two at the time were decided adversely to plaintiffs.
- The competition authority was connected with the Ministry of Economy and the Executive Branch, undermining its independence.
- As the competition authority had the sole power to investigate and direct proceedings, and decide and hear internal appeals, this was criticised for clustering too much power in the competition authority and undermining due process and constitutional impartiality principles.
- The competition authority was understaffed for tackling the significant sectors of, and actors in, the Mexican economy, such as the telecoms and broadcasting sector, which accounted for much of the authority's resources and time, leaving little time for Mexico's other industries.
The 2013 constitutional amendment brought about the following vital changes to the competition framework:
- the creation of two constitutional autonomous bodies for competition matters no longer dependent of any branch of government: 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 are based only in Mexico City) devoted to hearing challenges against definitive and other decisions made by the competition authorities (which, as of 2018, also include three additional federal unitary tribunals);
- 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 where they will be enforced once all means of challenge have been exhausted;
- 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 by way of a more robust Federal Economic Competition Law (FECL),2 which is applicable within the entire Mexican territory, as Mexico has no state competition statutes. The FECL – built from its predecessor – regulates and sanctions cartels, horizontal agreements and collusive behaviour, referred to in the FECL as 'absolute monopolistic practices', and treated as per se rule violations.
Within the context of the FECL, cartel behaviour comprises any horizontal agreement, understanding or covenant among competitors that have as a purpose or effect, any of the following types of conduct:
- output restriction;
- market or customer allocation;
- bid rigging; or
- information exchanges 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, as such provision could be considered unconstitutional for violating legal certainty principles enshrined in the Federal Constitution as affirmed by the Federal Supreme Court in the 2003 Warner-Lambert case.3 Likewise, federal judges have no authority to create offences and, rather, those have to be the result of legislative creation and inserted specifically within the law.
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. Moreover, in November 2013, Cofece and the IFT issued their own regulations of the FECL (the Regulations), which have been further complemented in recent amendments. These Regulations, in essence, 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 commencement of a case. And 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 rebuttable 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 guidelines and technical criteria that, although not legally binding in some cases, include formal guidance for the interpretation and application of the FECL when prosecuting and sanctioning cartels. The more relevant ones, applicable to cartel prosecution, are:
- Guidelines to Initiate an Investigation against Offenders of Monopolistic Practices;
- Technical Criteria to Request Dismissal of a Criminal Prosecution against a Cartel Offender;5
- Guidelines whereby the prosecuting authority sets forth the methodology to carry out its investigations against cartel offences;6
- Guidelines to Regulate Information Exchanges among Economic Agents that could trigger competition concerns,7 under which Cofece will use worldwide best practices on this topic;8 and
- Technical Criteria related to Provisional Measures during investigation procedures.9
Moreover, around January 2018, Cofece pre-published, for a public consultation period, its first-of-a-kind guidelines on collaboration among competitors. In essence, the guidelines aimed to establish what elements Cofece would take into account when analysing the legality of any type of collaboration or cooperation between competitors (i.e., horizontal agreements). However, although the public consultation period has ended, Cofece has still not published a final version of these highly anticipated guidelines.
Nonetheless, the foregoing is indicative that Cofece has made the fight against cartels its main priority. Cofece's 2014–2017 Strategic Plan10 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.11 Consequently, Cofece has adopted a strong message to convey its zero-tolerance policy against cartel offences (except for immunity applications). The current Strategic Plan 2018–2021 (dated 30 November 2017)12 confirms the same prior objectives, namely, timely investigation of anticompetitive practices and consolidation of the leniency programme.13
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.14
Many jurisdictions worldwide are seeking the consistent application of their competition policies as a result of the versatile international economy. Mexico is no exception. 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.15 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 States16 and Canada,17 under which these countries agree to full collaboration with their local competition authorities. Moreover, Cofece annually holds trilateral meetings with its peers in the US (both the US Department of Justice Antitrust Division and the Federal Trade Commission) and Canada (the Canadian Competition Bureau).
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 the consent of the investigated party (which is highly unlikely to occur), unless it is a leniency applicant.
A similar circumstance arises in the context of, for example, extradition cases.18 Although Mexico could eventually accede to extradition requests, as its local legislation and international treaties formally contemplate such authority,19 there are several hurdles, such as:
- complying with the statutory formalities under the extradition principles and rules;20
- 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. Inter-agency 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 short-listed behaviours:
- restraining output;
- allocating markets or customers;
- bid rigging; or
- exchanging information with the foregoing 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 within a state or as a consequence of interstate commerce, 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.
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.21 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, except for very specific activities in the distribution of books and sugar cane production; 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 deciding an appeal in 2007 of a vertical restraint investigation against the Coca-Cola Export Corporation,22 the Supreme Court decided 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: control and coordination.
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 burden 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 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 forward 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, specialised courts have recently issued a number of landmark decisions. For instance, a specialised federal court issued precedents 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.23 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.24
IV LENIENCY PROGRAMMES
The FECL provides a leniency programme for cartel offences.25 The leniency programme provided in the FECL is similar to leniency or amnesty programmes in other jurisdictions. The Mexican programme grants practical immunity to those cartel offenders who appear before the authority to self-report a cartel violation, even for ringleaders.
The leniency programme grants immunity to cartel offenders who request it by exempting them from criminal prosecution and disqualifications,26 and reducing the fine to its lowest possible amount (84.49 Mexican pesos). Yet, there is no exemption for damages in private or class actions, and 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.27
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|
|First||Maximum fine reduction*||Immunity||Immunity|
|Second||30% to 50% fine reduction||Immunity||Immunity|
|Third||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 Unit of Measure (UMA) (the official unit for determining fines), which, in 2019, was set at 84.49 Mexican pesos.|
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,28 a leniency applicant will obtain a marker after applying for the leniency programme.29 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, but this has since tailed off.30 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 and only 10 in 2018, with no information on the number of applications during 2019.31 The decline is attributed to several concerns regarding the legal uncertainty of the immunity programme that has arisen with some recent Cofece decisions.
The International Competition Network's best practice suggests that the success of any leniency programme depends on the legal 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 an applicant meets the leniency requirements, the agency shall have little to no discretion to deny the request.32 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.33
Yet, Mexico's deviation from this best practice has been problematic. Specifically, it is argued that the lack of legal certainty is a leading factor for the declining number of leniency applications. And the attraction to leniency has decreased partly as a result of two cases in which Cofece withdrew the benefits of leniency to applicants for a failure to cooperate sufficiently,34 thus reducing certainty and predictability for would-be applicants.
However, specialised federal courts have recently decided that revocation of leniency benefits should be limited, and that leniency applicants should not lose leniency benefits even if they choose to exercise their constitutional defence rights against Cofece's claims.35 A specialised federal court recently ruled that the fact that a leniency applicant, when submitting a response to a statement of objections, exercises its defence rights through raising defences against the accusation should not be considered as conduct against the obligation to cooperate under the FECL, considering that cooperation rights are not infringed by clarifying investigated facts and contesting the accuracy of some of these, as there is no legal restriction to do so.
Furthermore, concerns regarding new anti-corruption laws have caused applicants to fear using the antitrust leniency regime because they could simultaneously implicate themselves criminally under the country's new anti-corruption laws.36 These factors, along with the very high fines that Cofece has recently imposed in cases commenced under the leniency programme and the assessment of damages that Cofece has made for fining purposes, 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.37
Mexico has also adopted another noteworthy deviation to 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 such as the United States, they may still be eligible in Mexico.
Cofece's leniency programme is about to be reshaped once again. In October 2019, Cofece pre-published, for a public consultation period, its new proposed Regulatory Provisions or Regulations for its Leniency and Fines Reduction Programme in terms of Article 103 of the FECL.38 Although this has not yet been published, Cofece's initial six-page long proposal aims to introduce two core new features to the programme, by:
- explaining what should be understood under the obligation to 'fully and continuously cooperate' with Cofece under the context of a leniency application, as the scope of such obligation has been subject to debate in recent cases before federal courts; and
- introducing a new specific process that addresses what should happen when Cofece revokes leniency benefits to an applicant, including the right to have a prior hearing before the actual revocation occurs, or to receive a notice from Cofece that leniency benefits might be revoked depending on which stage the investigative procedure is at.
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 that 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 UMA*|
|* Currently, the maximum fine is 16.1 million Mexican 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 to either double the fine (i.e., up to the equivalent of 20 per cent of the income of the offender) or 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.39 Cofece boasts that, in 2018, of the total 940 million Mexican pesos of fines it imposed, 245 million Mexican pesos (26 per cent) originated from cartel sanctions.40 Yet, Cofece's highest sanction imposed to date is still the 1,100 million Mexican pesos fine imposed in 2017, in a case related to collusive agreements conducted by financial institutions in retirement or pension fund management services.41 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.42
Although the criminalisation of cartel offences is not entirely new to the Mexican competition system,43 the applicable sanctions have been toughened up, with imprisonment sanctions being modified to a minimum of five years and a maximum of 10 years.44 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 Office in a cartel investigation (bid-rigging cartel) related to the pharmaceutical industry, and a second investigation, relating to the same industry and behaviour, was filed in October 2019.
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.45
There is no Mexican legal tool that allows settlement for cartel behaviour. However, corporate criminal liability46 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. Although some time has passed since the bill was introduced with no foreseeability of its outcome, if it is finally approved after passing the legislative process, it would mean that cartel behaviour would not only be addressed to, and sanctioned on, 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, and 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 disproportionate47 when considered in connection with certain legal vacuums (i.e., proper regulation about the protection of attorney–client privilege and confidential information, which continues to be a highly debated topic in courts).
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, or whether the prosecuting authority can intervene in all types of information, are other legislative issues absent from our statutes.48 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.49 This has been one of the most keenly awaited judgments in Mexico, and gave rise to a subsequent binding precedent by the Plenary of the Circuit and, therefore, it represents a very significant leap forward for competition law in Mexico and more generally for the exercise of the legal profession.
In fact, this landmark decision, along with other precedents in the subject, led Cofece to publish its own Regulatory Provisions for the Management of Information that Derived from the Legal Assessment Provided to Economic Agents.50 In broad terms, the new Regulatory Provisions aim to regulate how to treat attorney–client privileged communications, introducing some features that will surely be subject to further debate, both within a dawn raid and over the course of any investigation. The more relevant new features are:
- Cofece recognises that information that contains privileged communications between an attorney and its client will have no weight or value if it is proven that such communication had the purpose of giving legal advice;
- interested parties (i.e., owners of the communication) should request Cofece to classify such information as protected, providing a detailed description of its content, as well as the reasons why Cofece should consider that such information was given for the purpose of providing legal advice;
- if protected as such, any public servant that had access to such communications will not be able to continue to work on the course of such investigation;
- the procedure to determine whether communications should be protected under legal privilege will be conducted by a permanent committee, to be established by Cofece and composed of Cofece's officers; and
- once a request for protection is decided successfully, privileged information should be excluded from the investigation docket, and returned to its original owner.
Dawn raids can be executed with such excessive force given that recent amendments to the Federal Criminal has introduced a misdemeanour for obstructing, altering or destroying information and impeding the proper execution of a dawn raid,51 which is penalised with imprisonment for between one and three years. These amendments have empowered Cofece to easily conduct dawn raids; for instance, between 2015 and 2017 alone, Cofece reports the execution of 16 dawn raids.52
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 outside 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 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 res iudicata. 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.53 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).54 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 have released a study detailing the problems currently being faced in private enforcement and follow-on actions, with proposed future policy changes.55
VIII CURRENT DEVELOPMENTS
A great deal of legal development – including revamped legislation and newly created authorities – has occurred in Mexico over the past six years, sending out a clear message to deter cartels in the markets. Cofece is very active in the enforcement of its 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, finance markets, gas and energy and auto-parts have been under constant scrutiny.
The zero-tolerance enforcement policy will have to be tempered by future legislation on cartel settlements to avoid the burden of full administrative proceedings. Specialised courts have had a very active role in setting boundaries and limits on what the competition authorities can do when asserting cartel behaviour.
Examples of the most current developments bring us to look at what is happening in the arena of civil actions against sanctioned cartel offenders, the use of criminal prosecution as cartel behaviour deterrence, new investigations and Cofece's further attempts for stronger institutionalisation.
i Damages actions
In relation to damages actions, a notable case relates to a bid-rigging cartel involving certain laboratories that were sanctioned in 2010 for colluding against the Mexican Institute of Social Security (IMSS). This case, which was 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 660 million Mexican pesos.
This case has been considered to be landmark case both from its procedural standpoint, as well as its substantive one. From a procedural standpoint, it serves as one of the first cases to formally establish that damages suits resulting from cartel behaviour should fall under the jurisdiction of a federal district court specialised in antitrust matters, and that such cases need to be filed as a civil action under the Federal Civil Code and the Federal Civil Procedure Code. And from a substantive standpoint, for two reasons: first, if the IMSS prevails, it would be the first case in which an injured customer (rather than a competitor) can recover from a competition offence; and second, it has demonstrated the complexity of litigating these types of actions, as, although the case was admitted almost two years ago by the specialised district court, the trial continues to be in its initial stages, and there is no reasonable time frame as to when it will be decided due to ancillary challenges and proceedings available to both plaintiffs and defendants.
ii Criminal prosecution
Another recent development worth highlighting in the context of cartels refers to one of Cofece's most powerful deterrence tools against this type of behaviour: criminal prosecution. Resulting from the amendments to the Federal Criminal Code and the introduction of the FECL in 2014, at the beginning of 2017 Cofece's Investigative Authority filed its first-ever criminal prosecution request against alleged offenders in the pharmaceutical industry for a bid-rigging cartel case. A second prosecution request, which was filed in October 2019, was also filed within the context of a cartel investigation in the pharmaceutical industry, specifically relating to the 'acquisition of good and services within the health sector' between 2011 and 2015.56 This case has created much interest in how the Attorney General's office will handle this type of case for the first time.
iii New investigations into new markets
New investigations have emerged against alleged cartel behaviour in the following markets: oil, public procurement for road infrastructure construction and services, and the intermediation market for debt securities. The latter has become of particular importance as, although only Cofece is conducting its probe, the alleged conducts have been also subject of suits in the US.57 Likewise, as many other competition authorities have done around the world, in 2018 Cofece published its own report focused on digital markets. Among the several findings in the report, Cofece acknowledged and concluded that, if digital markets have a tendency to high levels of concentration, deploying further resources and attention to detect collusive behaviour should be considered a rational strategy.58
iv Further institutionalisation
In terms of Cofece's constant pursuit of further institutionalisation, some of the most relevant developments include:
- the issuance of the definitive version of Cofece's guidelines for collaboration among competitors, which has created great expectations;
- the fact that 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;
- Cofece's newest collaboration agreement with the Ministry of Public Function focused on imposing competitive standards in all public procurement procedures, as well as detecting cartel behaviour as efficiently and quick as possible;59 and
- under amendments to the General Law of Administrative Responsibilities in 2019, leniency benefits for first applicants have been reduced to a maximum fine reduction of 70 per cent (Article 89) in comparison with an almost 100 per cent reduction under the FECL.
1 Omar Guerrero Rodríguez is a partner and Martín Michaus Fernández is an associate at Hogan Lovells.
2 The FECL was issued on 23 May 2014 and became effective on 7 July 2014.
3 See Amparo en Revisión 2617/1996, Mexican Federal Supreme Court of Justice.
4 Article 73 of the FECL.
5 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.
6 These Guidelines were the subject of a public consultation period that ended in October 2015. Cofece issued the final document on 21 December 2015.
7 These Guidelines were the subject of a public consultation period that ended in October 2015. Cofece issued the final document on 17 December 2015.
8 Cofece basically referred to experience from the United States and the European Union.
9 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.
11 Cofece Strategic Plan 2014–2017, page 13.
13 Cofece Strategic Plan 2018–2021, page 19.
14 Inter-American Development Bank and Centro Regional de Competencia para América Latina, 'Acuerdos Regionales de Competencia en América Latina y el Caribe' (2013).
15 Cofece Strategic Plan 2014–2017.
16 For example, the United States Mexico Canada Agreement (USMCA) was signed on the 30 November 2018 but has yet to be ratified in the US. The economic competition section of the new treaty will take on a much more prescriptive approach than that of its predecessor. For instance, Chapter 21 of the new treaty not only recognises the importance of cooperation and coordination, but 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 specific 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 the US, and will, therefore, not become effective before 2020. Other important agreements celebrated with the United States are (1) the mutual legal assistance treaty, a Treaty on Mutual Legal Assistance in Criminal Matters, 1987, (2) the 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).
17 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.
18 Mexico has executed more than 36 bilateral and multilateral extradition treaties and has local criminal and extradition laws.
19 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 'offences 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.
20 For example, double criminality, non bis in idem (double jeopardy), reciprocity, jurisdictionality, commutation and speciality.
21 In fact, the intentionality factor might only be considered when calculating the fine assessment in accordance with Article 130 of the FECL.
22 Amparo en Revisión 169/2007. The Coca-Cola Export Corporation. Mexican Federal Supreme Court of Justice.
23 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.
24 See Amparo en Revisión 839/2014, Amparo en Revisión 289/2015, Amparo en Revisión 804/2015 and Amparo en Revisión 971/2015. Mexican Federal Supreme Court of Justice, Second Chamber.
25 See Chapter IV of the FECL, and especially Article 103.
26 The leniency protection can be extended to those individuals, subsidiaries and affiliates included in the leniency application.
27 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.
29 This can be requested via email or telephone at any time prior to the closing ruling of the investigative phase of a procedure.
30 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.
31 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. Also see 'Cofece en Numeros 2018', available at https://www.cofece.mx/wp-content/uploads/2019/03/CFCN2018_v270319.pdf#pdf.
32 See the International Competition Network's Checklist for efficient and effective leniency programmes at https://www.internationalcompetitionnetwork.org/portfolio/leniency-program-checklist/.
33 US Department of Justice, Antitrust Division, Corporate Leniency Policy (issued 10 August 1993) at https://www.justice.gov/atr/public/guidelines/0091.htm.
34 The cases relate to an investigation involving Mitsubishi Heavy Industry and Denso Corporation (Amparo en revisión 60/2017, Décima Época Tesis I 10 A E268 A (10a)), which were sanctioned for price-fixing and unlawful information exchanges, as well as an investigation on the pensions fund market.
35 See 'Procedimiento de Investigación y Sanción de Prácticas Monopólicas Absolutas. Debe Respetarse el Beneficio de Reducción de Sanciones al Agente Económico que Ejerza su Derecho de Defensa (Legislación Vigente Hasta El 6 De Julio De 2014)'. Tribunales Colegiados de Circuito. Tesis aislada 2021121.
36 Criminal immunity was not included in Mexico's new anti-corruption 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 anti-corruption 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.
37 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 'Estudio y análisis de la percepción sobre temas de competencia económica y la labor de la COFECE' – Note by Mexico, page 58, available at https://www.cofece.mx/wp-content/uploads/2018/01/Estudio-labor-COFECE-17.pdf.
38 The technical regulations were published on 15 October 2019 for a 20-day public consultation period, so that any interested person could submit their views to the initial project. More information is available at https://www.cofece.mx/conocenos/secretaria-tecnica-2/consultas-publicas/.
39 Currently, the maximum amount of this fine is 17.8 million Mexican pesos.
40 See 'Informe de multas, 2018', reporting the following totals for monetary sanctions for violators of the FECL for 2018, at https://www.cofece.mx/wp-content/uploads/2019/07/26072019-Informe-Multas.pdf.
41 From 'Sanciona COFECE a Afores por pactar convenios para reducir los traspasos de cuentas individuales', 10 April 2018, Cofece, at https://www.cofece.mx/sanciona-cofece-a-afores-por-pactar-convenios-para-reducir-los-traspasos-de-cuentas-individuales/.
42 See Article 254 bis of the Federal Criminal Code.
43 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.
44 See the 2014 amendment to the Federal Criminal Code (Article 254 bis) dated 23 May 2014.
45 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.
46 See Section 421 of the National Criminal Procedure Code published on 5 March 2014 in the Federal Official Gazette.
47 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.
48 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.
49 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.
50 These Regulatory Dispositions were subject to a public consultation period, and were formally published on 30 September 2019.
51 See Article 254 bis 1 of the Federal Criminal Code.
52 Data collected and calculated internally by Cofece's staff report the following numbers of dawn raids per year: 2017, 4; 2016, 5; 2015, 7.
53 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'.
54 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).
55 See OECD (2018) 'Aplicación Privada Individual y Colectiva del Derecho de Competencia: Reflexiones para México', at https://www.oecd.org/daf/competition/ES-WEB-private-enforcement-competition-law-mexico-2018.pdf.
56 See Cofece, 'COFECE-042-2019', October 2019, available at https://www.cofece.mx/querella-por-posible-colusion-en-ventas-a-sector-salud/.
57 See Reuters, 'Banks win dismissal of U.S. lawsuit alleging rigged Mexico bond sales', available at https://www.reuters.com/article/us-mexico-bonds-lawsuit-dismissal/banks-win-dismissal-of-u-s-lawsuit-alleging-rigged-mexico-bond-sales-idUSKBN1WF2AZ.
58 See Cofece's report 'Repensar la competencia en la Economia Digital', February 2018, available at https://www.cofece.mx/wp-content/uploads/2018/03/RepensarlaCompetenciaenlaEconomiaDigital_01022018.pdf.
59 See Cofece's press release on the matter, available at https://www.cofece.mx/wp-content/uploads/2014/05/COFECE-009-2014.pdf.