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Over the last five years, Mexico has undertaken important structural reforms to several segments of the Mexican economy, most notably, the energy sector that was previously closed off to foreign investment. However, these structural reforms also present new challenges to Mexico’s efforts to combat and prevent corruption. The most recent step in that direction was the creation in 2016 of the Mexican Anti-Corruption System, which draws upon international efforts to combat corruption, including the adoption of the Foreign Corrupt Practices Act (FCPA) in the U.S. in 1977.
The FCPA was adopted to prevent improper payments or inducements to foreign governmental officials in order to corruptly influence their actions and obtain an undue advantage. The FCPA seeks to discourage foreign corrupt practices through two principal mechanisms: (i) its anti-bribery provisions, and (ii) its accounting and record-keeping provisions. U.S. companies and their officers, directors, employees, and agents (as well as all U.S. citizens) are subject to the anti-bribery provisions of the FCPA. In addition, foreign companies whose shares are publicly-traded in the United States (including through the use of American Depositary Receipts) or otherwise qualify as an “issuer” under the statute are also subject to the accounting and bookkeeping provisions requiring companies to keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company.
In an effort to help U.S. companies stay competitive, in 1988 the FCPA was amended to allow small payments to foreign governmental officials in order to secure routine governmental action. These are commonly referred to as facilitation or “grease” payments that are not prohibited because they are small payments that help companies secure a governmental authorization or permit which they are otherwise lawfully entitled to obtain. Nevertheless, under Mexican law, such grease payments or mordidas are illegal.
During the last 20 years, Mexico has also taken significant steps to combat corruption involving governmental officials. Beginning in 1997, Mexico became a signatory to the Interamerican Convention against Corruption adopted by the Organization of American States, followed in 1999 with the adoption by Mexico of the OECD Convention and in 2005 with the ratification of the United Nations Anti-Corruption Convention. In 2016, Mexico embarked on a wholesale attempt to overhaul past anti-corruption efforts by adopting the Mexican National Anti-Corruption System in an effort to coordinate anti-corruption measures at the federal, state and municipal levels of government. In addition, a National Digital Platform is being created in order to facilitate public access to information regarding potential conflicts of interest or corruption by governmental officials. This platform, some of which will be publicly-available, will also include information about assets owned by governmental officials, disclosure of conflicts of interest and copies of federal income tax returns.
On July 19, 2017, the General Law of Administrative Accountability went into effect in Mexico. The law applies to government officials, individuals and private companies. The Mexican Federal Criminal Code and the National Code of Criminal Procedure have also been amended in order for private companies to be criminally liable for the actions of their agents and representatives.
Under the Administrative Accountability Act, serious administrative violations for individuals and companies that may lead to penalties include bribery, illegal participation in administrative proceedings, influence peddling, falsification of documents and information, obstruction of investigations, collusion, embezzlement of public funds, improper hiring of former government officials, and bribery by candidates for public office, members of electoral campaigns and leaders of public sector unions. Conversely, serious administrative violations by government officials include receiving bribes, embezzlement or deviation of public funds, unlawful use of information, collusion, abuse of authority, conflicts of interest and illegal contracts. The Administrative Accountability Law provides procedures to investigate wrongdoing, with successful prosecutions requiring a finding of proof by prosecutors beyond a reasonable doubt. Corporate violators may be subject to fines, barred from contracts or even dissolved.
The National Anti-Corruption System adopts a zero tolerance approach similar to that called for under the U.K. Anti-Bribery Act adopted in 2010. Thus, under the Administrative Accountability Law there is no exception for facilitation payments made to officials in order to obtain a routine governmental action.
Similar to the U.K. Anti-Bribery Law, the Administrative Accountability Law provides that companies should adopt an integrity program in order to mitigate their liability under the Administrative Accountability Law (the Mexican Integrity Program). Integrity programs for Mexican companies should include (i) a compliance manual that addresses organization and procedures; (ii) a published code of ethics; (iii) internal controls, compliance and audit functions; (iv) procedures for internal and external whistleblowers; (v) adequate compliance training; (vi) human resources policies that prevent the hiring of persons that can damage the integrity of the company; and (vii) adoption of measures to insure corporate transparency. The preceding requirements of a Mexican Integrity Program are very similar to the seven hallmarks of an effective compliance program as outlined in the Resource Guide to the FCPA published in 2012 by the DOJ and SEC (the Resource Guide).
Mexico’s creation of the National Anti-Corruption System and the adoption of an enforcement statute with enforcement “teeth” such as the Administrative Accountability Law are very significant steps by Mexico to curb corruption. Regardless of the initial effectiveness and time that it takes to implement the National Anti-Corruption System, no one can doubt the resolve of the Mexican government to root out corruption at the federal, state and municipal levels of government. These are very positive developments for foreign investors that are hoping to capitalize on the recent structural reforms, including the highly-anticipated opening up of the Mexican energy industry.