Mexico’s New Anti-Corruption Laws
By Ricardo Arias, Esq.
It has been over a year since Mexico took firm steps to root out the fundamental corruption that has for years plagued its governmental institutions by enacting the General Law of Administrative Responsibilities (GLAR) and making several reforms to existing laws. The GLAR and reforms made to the Mexican Federal Criminal Code not only punish government officials for acts of corruption, but also punish both private legal entities and private individuals involved in corruption. This is a game changer.
The ramifications of decades of corruption have taken their toll on Mexico. In the latest Transparency International Corruption Perceptions Index, Mexico ranked 135 of 180 countries, just above Iraq, Venezuela, and the Democratic Republic of Congo. Consequently, companies currently doing or looking to do business in Mexico are best served by having a strong compliance department or outside consultants that can provide a solid compliance framework in order to avoid or mitigate liability under Mexico’s new anti-corruption laws.
The new anticorruption laws and reforms went into force on July 19, 2017. The new laws combined with major amendments to existing laws created the National Anticorruption System (Sistema Nacional Anticorrupción, or “SNA”).
The new laws are:
- The General Law of the National Anticorruption System (GLAR)
- The General Law of Administrative Responsibility
- The Organic Law of the Federal Tribunal of Administrative Justice (established the organization of courts and rules for removal of judges)
- The Law of Auditing and Accounting of the Federation
The laws amended to create the SNA are:
- The Law of the Attorney General (creating a prosecutorial anticorruption arm)
- The Organic Law of the Federal Public Administration
- The Federal Criminal Code
The Prosecution of Private Entities and Individuals is a Game Changer
The actual criminal prosecution of private legal entities or individuals for acts of bribery in Mexico is a game changer in a country where greasing the wheels to obtain permits and licenses has historically been just the cost of doing business. A 2016 survey from PwC, reported by Forbes, found that 27% of companies doing business in Mexico believed they would be engaged in acts of corruption or bribery within the next two years.
The use of third parties to funnel illicit funds to government officials or their families is now under the scope of the Mexican Penal Code. Consultants, otherwise known as gestores, now face penalties or jail time for facilitating these illegal transactions. As recent Foreign Corrupt Practices Act (FCPA) cases in Mexico have demonstrated, obtaining permits or licenses in Mexico through the services of gestores is a significant issue. These reforms seek to put all private companies doing business in Mexico on equal footing, instead of the companies who do not utilize gestores having to do business in Mexico with one hand tied behind their back.
Proper Compliance Mechanisms are Essential in Avoiding Pitfalls
These new anticorruption laws make it essential for businesses to have a strong compliance department and consultants. Not being properly prepared for these changes may, in the end, carry a heavy cost to the company. For companies, whatever their size, looking to do or already conducting business in Mexico these new laws make it essential for a compliance game plan to be in place.
The new anti-corruption laws in Mexico make it easier for (and encourage) whistleblowers to come forward. The new laws also make it compulsory for companies to have a functional compliance framework and provide notice of this compliance framework to its employees and contractors.
Article 25 of the GLAR states an “Integrity Policy” must contain at least the following elements:
- An organization and procedures manual clearly stating the functions and responsibilities of every area, and that specifies the different chains of structural command and leadership
- A code of conduct published to all the members of the organizations containing systems and mechanisms of real-world application
- An adequate system of internal control, vigilance, and audit that examines in a constant and periodic manner the standards of integrity in the entire organization
- Appropriate systems put in place for complaints, to the organization and competent authorities, as well as a disciplinary process with concrete consequences as to whoever acts contrary to the internal norms or Mexican laws
- Appropriate systems and processes regarding training as to the integrity policy
- Human resource policies that prevent the incorporation of persons who put at risk the integrity of the corporation. This policy would in no way authorize the discrimination of any person based on ethnic or national origin, age, disabilities, social conditions, health, religion, opinions, sexual preference, civil status, or anything that offends human dignity
- Mechanisms that ensure the transparency and publicity of its interests
These elements provide a good starting point in enacting a strong compliance program. Communication between the company and its general or outside counsel regarding the implementation of the compliance program is essential. So is being able to provide evidence of notice to employees and contractors, and documentation regarding the framework of the compliance program in place in case of an investigation.
Article 81 of the GLAR punishes private individuals who violate the anti-corruption laws by imposing an economic fine of twice the benefits gained, or if no benefits were gained, then from 100 up to 150,000 times the daily minimum wage. The minimum wage in Mexico in 2017 was $ 75.49 Mexican pesos, so the fine could be up to $11,323,500 Mexican pesos. A disqualification or suspension of participating in public work contracts for a period of not less than three months or no more than eight years would also apply, as would indemnification to federal and state tax authorities.
The monetary penalties to private corporations or businesses are twice the benefits gained, or if no benefits were gained then from 1,000 up to 1,500,000 times the daily minimum wage. That would equal up to $113,235,000 Mexican pesos. The same disqualification and indemnity issues for individuals apply to corporations and businesses.
Apart from these financial penalties to corporations, the law also provides for the most severe of penalties, the dissolution of the company (corporate death penalty). These sanctions are not to be taken lightly and serve to put companies on notice of these new regulations.
Benefits for Self-reporting and Cooperation
Given these harsh sanctions, the anti-corruption law does provide for certain mitigating circumstances or opportunities for an individual or a corporation willing to report misdeeds or cooperate with the government’s investigation. An acknowledgement of culpability by the individual or corporate entity to the investigative agency can also be grounds for a reduction of sanctions of anywhere from 50 to 70 percent of the fine.
Given some of the similarities between Mexico’s new anti-corruption laws and the United States’ FCPA law, companies doing business or thinking of doing business in Mexico should work with a team of professionals with a strong knowledge of existing FCPA principals and an understanding of how to navigate today’s complex world of compliance. Creating a strong compliance framework is the best way for companies to move forward and operate successfully in Mexico.
Ricardo Arias is an associate with the San Diego-based law firm of Seltzer Caplan McMahon Vitek. Arias’ practice encompasses white collar criminal defense and cross-border litigation. He worked on the legal team representing a former director of a multi-national retailer involved in an FCPA investigation and currently represents employees in an FCPA investigation into conduct by a US company in Latin America. He is bilingual in English and Spanish.