Mexico's New Anti-corruption Laws

• Publication year: 2019
• Author: Ricardo Arias*

MEXICO'S NEW ANTI-CORRUPTION LAWS

Ricardo Arias*

I. INTRODUCTION

It has been almost two years since Mexico took firm steps to root out the fundamental corruption that has plagued its governmental institutions by enacting the General Law of Administrative Responsibilities (GLAR) and making several reforms to existing laws. The GLAR and changes 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. The inclusion of private entities 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 138 of 180 countries "on how corrupt their public sectors are seen to be."¹ Mexico ranked below Iran and just above Iraq and Venezuela.² 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 to avoid or mitigate liability under Mexico's new anti-corruption laws.

The new anticorruption laws and reforms went into force on July 19, 2017.³ These laws, combined with major amendments to existing laws, created the National Anticorruption System (Sistema Nacional Anticorrupcion or SNA).⁴ The new laws are:

• The General Law of the National Anticorruption System
• The General Law of Administrative Responsibility
• The Organic Law of the Federal Tribunal of Administrative Justice (organizing the courts and establishing 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.

Although all of these new laws and amendments to existing laws make up the framework of Mexico's anti-corruption laws are worth examining, this article focuses on the GLAR. Specifically, it discusses the GLAR's impact on due diligence, compliance, and liability on private individuals and corporations. The article also provides an update on the larger impacts of Mexico's anti-corruption efforts. In particular, this article draws attention to the now very real threat of prosecution of private individuals and corporate entities for acts of bribery.

II. THE PROSECUTION OF PRIVATE ENTITIES AND INDIVIDUALS IS A GAME-CHANGER

The exposure to administrative liability and potential for criminal prosecution of private legal entities and individuals for acts of bribery in Mexico—as provided for in the GLAR and amendments to the Mexican Federal Criminal Code—is a true turning point 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 PricewaterhouseCoopers, reported by Forbes, found that 27 percent of companies doing business in Mexico believed they would be engaged in acts of corruption or bribery within the next two years.⁵

The use of third parties to funnel illicit funds to government officials or their families now falls under the scope of the Mexican Federal Penal Code. Consultants, otherwise known as gestores, now face penalties or jail time for facilitating these transactions. As notable investigations into alleged Foreign Corrupt Practices Act (FCPA) cases in Mexico have demonstrated, obtaining permits or licenses in Mexico through the services of gestores has been a significant issue. The best known case on this issue prior to the new legislation was the Walmart investigation in which the government alleged the use of these third-party intermediaries to expedite construction permits via illicit payments throughout Mexico.⁶ This led to changes in Walmart's Global Anti-Corruption Policy and the way it worked with its third-party intermediaries.⁷

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The goal of the anti-corruption reforms in Mexico, apart from building trust in the private sector, is placing private companies doing business in Mexico on equal footing with each other. Attempting to do legitimate business in Mexico, without the use of third-party intermediaries greasing the wheels, is for many of these private companies akin to doing business with one hand tied behind their back but it is now required. In addition to levelling the playing field for private actors, another stated purpose of enacting these legislative reforms and creating these new enforcement mechanisms is to provide transparency and accountability to strengthen the trust of the Mexican public in its governmental institutions.⁸

III. PROPER COMPLIANCE MECHANISMS ARE ESSENTIAL

In 2018, two-way trade between Mexico and the United States accounted for over $678 billion dollars.⁹ Numerous jobs in California and the United States depend on these companies' operations in Mexico.¹⁰ Not being properly prepared for the changes the new anti-corruption laws in Mexico will bring, for example their making it easier for (and encouraging) whistleblowers to come forward, may carry heavy costs to companies in the long run. These 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.

A good place to start in building...