An Outline of How the New National Anti-Corruption System in Mexico Will Affect Private Companies By Hugo López-Coll Greenberg Traurig, LLP In May of 2015, 14 articles of the Mexican Constitution were amended to create the so-called Mexican National Anti-Corruption System (Sistema Nacional Anticorrupción, or NAS). In addition, secondary legislation, consisting of several different laws and designed to set forth the principles, rules and procedures for the coordination of different Mexican administrative and criminal authorities that will be tackling corruption, was enacted or amended on July 18, 2016. The purpose of these new laws is to create a solid legal framework against corruption. Much of the legislation is focused on assembling the administrative structure of the Federal Administrative Law Court, the Federal Audit Department and the Specialized Anti-Corruption Prosecutor, and endowing them with the ability to supervise and sanction corruption-related offenses. However, three elements of the new legislation the National Anti-Corruption System Law, the General Law on Administrative Accountability and amendments to the Federal Criminal Code will cover conduct by private parties. It is imperative for companies conducting business in Mexico to understand the NAS, its secondary legislation and their resulting legal obligations. This article briefly outlines this body of laws and identifies those provisions that are relevant to private companies and individuals doing business in Mexico. See Room for Improvement: Miller & Chevalier Survey Reveals Troubling Perceptions of Corruption and Compliance in Latin America (Sep. 14, 2016). Constitutional Amendments Creation of the NAS As part of the May 2015 constitutional amendments that created the NAS, a new Federal Administrative Law Court (Tribunal Federal de Justicia Administrativa) was formed. The Court is composed of 16 justices to be appointed by the president with confirmation from the senate. The court has the authority to investigate and sanction corruption-related offenses, including the power to sanction not only government officers but also companies and individuals. The reform also created a Specialized Anti-Corruption Prosecutor (Fiscalía Especializada en Combate a la Corrupción) with the ability to conduct criminal corruption investigations and to impose criminal charges. In addition, the supervisory powers of the Federal Audit Department (Auditoría Fiscal de la Federación) were enhanced to be able to commence an audit on government expenditures made at any time instead of being restricted to the review of prior fiscal years. The audit department also now has the power to review books and records of states and municipalities when they are receiving federal funding or issuing debt instruments backed by the federal government. Finally, a Coordination Committee (Comité Coordinador) and a Committee for Citizen Participation (Comité de Participación Ciudadana) were created to design and promote anti-corruption and audit policies and procedures and to organize efforts among the Federal government, the states and civil society. The collaboration between these two committees, the authorities mentioned above as well as other authorities at the federal and local level with powers to sanction 1
corruption and scrutinize government spending is defined by the Mexican Constitution as NAS. Secondary Legislation The NAS secondary legislation package includes four new laws and amendments to five other laws. The new laws are the following: National Anti-Corruption System Law (Ley General del Sistema Nacional Anticorrupción); General Law on Administrative Accountability (Ley General de Responsabilidades Administrativas); Organic Law of the Federal Administrative Law Court (Ley Orgánica del Tribunal Federal de Justicia Administrativa); and Law on Auditing and Accountability of the Federation (Ley de Fiscalización y Rendición de Cuentas de la Federación). The laws that were amended are the following: Federal Criminal Code (Código Penal Federal); Organic Law of the Federal Public Administration (Ley Orgánica de la Administración Pública Federal); Tax Coordination Law (Ley de Coordinación Fiscal); General Law for Governmental Accounting (Ley General de Contabilidad Gubernamental); and Organic Law of the Attorney General s Office (Ley Orgánica de la Procuraduría General de la República). The NAS secondary legislation includes several relevant provisions that companies and individuals doing business in Mexico should be aware of, particularly the National Anti-Corruption System Law, General Law on Administrative Accountability and Federal Criminal Code. Those provisions are discussed in detail below. National Anti-Corruption System Law The purpose of the National Anti-Corruption System Law is to set forth principles for coordination amongst federal, state and municipal authorities. The goal of this coordination is to prevent, detect and combat corrupt activities, while also allowing for supervision and control of government expenditures. The law took effect on July 19, 2016. To facilitate this coordination among different government bodies, a National Digital Platform (Plataforma Digital Nacional) will be created for purposes of centralizing the information of the NAS. That centralized database will include a list of sanctioned government officers, private companies and individuals. Once this platform is up and running, it will be imperative for compliance officers to screen any potential third-party intermediaries or suppliers, distributors or employees using this database to identify those that have been sanctioned in the past. See The FCPA Report s Conducting Effective Anti-Corruption Due Diligence on Third Parties Interview Series: Gwen Romack, Director of Global Anti-Corruption at Hewlett-Packard (Oct. 9, 2013); Principals at Nardello & Co. (Sep. 26, 2013); and Alice Fisher, Partner at Latham & Watkins (Sep. 11, 2013). General Law on Administrative Accountability The General Law on Administrative Accountability will take effect on July 19, 2017, and will repeal two laws: The Federal Anti-Corruption Law on Government Procurement (Ley Federal Anticorrupción en Contrataciones Públicas) and the Federal Law of Administrative Responsibilities of Government Officers (Ley Federal de Responsabilidades Administrativas de los Servidores Públicos). In addition, a number of provisions of the Federal Law of Responsibilities of Government Officers (Ley Federal de Responsabilidades de los Servidores Públicos) will be partially repealed. Until then, the above-mentioned laws continue to be in force. The Administrative Accountability Law sets forth the administrative obligations of government officers and the penalties applicable to them for actions or 2
omissions considered to be misconduct and gross misconduct. The law also defines the sanction mechanisms and the procedures to be observed for the prevention, investigation and sanctioning of administrative offences. In terms of prevention, the law requires government officers to observe a code of conduct that will be drafted by the Ministry of Government Administration (Secretaría de la Función Pública) and corresponding ministries at the State level. Additionally, the Coordination Committee will make recommendations with regard to anti-corruption and audit policies and procedures which will also help prevent corruption. Administrative Liability for Private Individuals and Companies More importantly, the law also introduces several administrative violations for private individuals and companies, including bribery and other related offenses. The Mexican government will have long-arm jurisdiction over administrative violations by private individuals and companies under this new law. The law applies to international commercial transactions, defined as those activities involving a foreign government, so long as the transaction at issue includes the participation, directly or indirectly, of a company or individual of Mexican nationality. The statute of limitation governing these offenses is seven years from the date the conduct occurred or ceased to occur. An investigation of an administrative violation can be initiated by the government or a private complainant. Sanctions for Private Administrative Violations Sanctions for these administrative violations include: monetary fines in an amount equal to up to two times the benefit obtained (e.g., disgorgement of profits) or, if no benefit was obtained, in an amount of up to approximately US$600,000 in the case of individuals and US$6 million in the case of companies; disqualification to contract with the government for up to eight years in the case of individuals and 10 years in the case of companies; payment of damages (daños y perjuicios) caused to the federal, state or municipal authorities; and in the case of companies, the suspension of activities for up to three years or the dissolution of the entity when obtaining an economic benefit and when knowledge of the management, board of directors or shareholders exists, or in the case of a systematic behavior by the company. However, collaboration with an investigation and the admission of responsibility are mitigating factors when determining a sanction. On the other hand, knowledge of wrongful conduct by the board or by other corporate bodies or by the shareholders of an entity will be an aggravation factor. Additionally, having in place an effective compliance program is an affirmative defense to these administrative offenses. For a program to be effective, it must include at least the following elements: corporate governance manuals and procedures; a code of conduct; monitoring and auditing systems; reporting systems and disciplinary proceedings; anti-corruption training policies and procedures; human resources procedures including non-bias hiring rules and on-boarding of former government officers; and transparency and publicity procedures. Specific Administrative Violations Aimed at Private Parties The new administrative violations targeted at private individuals and companies include: 3
Bribery The first offence for which private individuals and companies can be held accountable under the Administrative Accountability Law is bribery. Under the new legislation, bribery is defined as the promise, offer or grant of anything of value by a company or individual to one or more government officers, either directly or through third parties, in return for which said government officers carry out, or abstain from carrying out, an action related to their legal duties as government officer or those of another government officer, or to abuse their actual or perceived influence, with the purpose to obtain or maintain a benefit or advantage, whether for itself/himself/herself or for a third party, regardless of whether the benefit is accepted or received or a result is obtained. Anything of value is defined as any benefit received by a government officer not included in his or her compensation as a government officer, which may consist of cash, securities or negotiable instruments, real or personal property, including its sale at a price significantly lower than market value, donations, services, employment and any other improper benefit for themselves or their spouse, blood relatives, civil relatives or third parties with whom they have a professional, labor or business relation, or for partners or companies of which the government officer or the above mentioned individuals are members. A government officer is defined as any individual who carries out a job, position or commission in any federal and local government entity pursuant to article 108 of the Mexican constitution. Unlawful Participation in Administrative Proceedings Another offense for which private citizens or companies can be held accountable is unlawful participation in administrative proceedings. This offense occurs when a company or individual performs, or fails to perform, an action in a federal, state or municipal administrative procedure, despite the fact that the relevant company or individual is prohibited or disqualified from doing so by virtue of the law or by a ruling of a competent authority. The participation in such proceedings through agents or third parties of a company or individual who is prohibited or disqualified from doing so and when the benefit is obtained by the latter is also prohibited. Influence peddling Under the Administrative Accountability Law, unlawful influence peddling occurs when a company or individual uses its, his or her influence or economic or political power, whether real or perceived, with the purpose of inducing a government officer to take a decision or course of action so that the company or individual or a third party obtains a benefit or advantage or causes damage to another person or the government. Use of False Information Submission of false information or forged documentation to government authorities during an administrative proceeding is also an administrative offense under the new legal regime. However, to be considered a violation, the submission must have been made for the purpose of obtaining an authorization, benefit or advantage, or to cause damage to a third party. Obstruction of an Investigation Getting in the way of an investigation is also an offense under the new anti-corruption regime. This offense arises when a company or individual provides false information or deliberately and unjustifiably delays submitting information, or fails to respond to a second or further request or decision made by an authority in charge of conducting an investigation. Collusion on Public Procurement Procedures The new Administrative Accountability Law also cracks down on collusion in the public bidding process. 4
Under the new Law, collusion exists if companies or individuals perform directly or indirectly coordinated actions for the purpose of obtaining an unfair benefit or advantage in federal, local or municipal public procurement procedures. Other forms of collusion between competitors would also be an offense if they result in a financial loss for the government or if the purpose of the collusion is to obtain an unfair benefit. Misuse of Government Resources The offense of misuse of government resources occurs if a company or individual inappropriately uses or diverts government resources for his, her or its own advantage. This includes material, human and financial resources. Failure to render an account confirming the destination of government resources will be considered a violation. Improper Hiring of Former Government Officials A private individual or company can be held liable if he, she or it hires an individual who has been a government officer during the previous year. However, such hiring will only be an offense if the newly hired, former government official possesses privileged information that was acquired during his or her tenure and that directly allows the hiring party to benefit. Federal Criminal Code Another important change to the anti-corruption landscape in Mexico are several key changes to the Federal Criminal Code. The main purpose of the amendments is to criminalize certain conduct that is not currently illegal. The amendments will become effective on the date the Specialized Anti-Corruption Prosecutor is appointed. These new crimes include use of false or forged information, influence peddling and embezzlement. Use of False or Forged Information Any company or individual holding a permit or concession granted by the Mexican federal government who uses false or forged information or who hides information in connection with income or earnings when obligated to disclose such information to the government authorities to obtain additional benefits for such company or individual or for any third party, will be sanctioned with imprisonment of up to nine years and fined in an amount of up to 100 days of income. Influence Peddling Any company or individual, when claiming to have influence over government officers who have the authority to decide on a particular matter and who interferes with the decision made by such government officer to obtain an illegal resolution in exchange for a benefit for such company or individual or for any third party, will be sanctioned with imprisonment of up to six years and fined in an amount of up to 100 days of income. Embezzlement Any company or individual when performing acts to promote the political or social image of an individual in exchange for receiving governmental funds or obtaining benefits such as government contracts, licenses or permits, deductions, subsidies or similar, will be sanctioned with imprisonment of up to 14 years and fined in an amount of up to 150 days of income. Hugo López-Coll is a shareholder at Greenberg Traurig, LLP, in Mexico City. López-Coll has developed a broad practice representing domestic and international clients in Mexico on regulatory and compliance matters. He is also a member of a team that assists clients with issues arising under the FCPA, the OECD Convention, the UN Convention Against Corruption and Mexican anti-corruption laws. He has represented foreign public companies in Latin America in the structuring, implementation and roll-out of FCPA policies and procedures, as well as with internal corporate investigations. He is admitted in New York and in Mexico. 5