New Mexican Anti-Corruption Legislation: Tactful or Toothless?

July 27, 2017
Categories: Anti-corruption, Bribery, Compliance, FCPA

Corruption in Mexico is persistent – both a product and a cause of the unprecedented levels of violence and criminal activity currently plaguing the country. Graft allegations reached the highest levels of the Mexican government when President Enrique Peña Nieto became involved in his own scandal regarding his wife’s purchase of a luxury home from a government construction contractor. Among some politicians in the country, there has been a call to address these pervasive issues, which resulted in the most recent update in a string of anti-corruption legislation. The new law, known as the General Law of Administrative Responsibility (GLAR), took effect on Wednesday, July 19.

According to a report from the law firm Gibson Dunn, this new law will establish administrative penalties for corrupt acts committed by public officials at the federal, state, and local levels; as well as penalties for “physical persons” and “legal entities.” GLAR legislation has three main components that private companies in Mexico should be aware of:

  1. Delineation of prohibited conduct and establishment of administrative penalties: According to the Gibson Dunn report, GLAR prohibits acts by private corporations and individuals considered to be “linked to serious administrative offences.” These acts include (but are not limited to) bribery of a public official, misappropriation of public resources, and the hiring of public officials under certain circumstances. Penalties for such actions can be monetary sanctions, preclusion from public procurement, liability for damages, and – for “legal entities” – suspension of operations and dissolution. However, the report emphasizes that sanctions are administrative in nature, and not criminal.
  2. Provisions for the establishment of compliance programs: GLAR also provides for Mexican authorities to take into account a company’s “Integrity Program” when considering potential liability for prohibited conduct. The required elements of an “Integrity Program” are compliance training, periodic review of compliance standards, and procedures to identify high-risk employees. In the latter point, GLAR goes beyond guidance in the US Foreign Corrupt Practices Act (FCPA).
  3. Self-reporting and penalty reduction: Companies and individuals who discover compliance failures and report them to authorities may receive reductions in the penalties described above. The degree of reductions, if any, would be subject to the entity meeting certain requirements regarding the punctuality and confidentiality of reporting, as well as the entity’s ongoing cooperation as officials investigate the allegations.

Mexico’s new anti-corruption law comes into effect as other countries around the world have begun to establish similar systems regarding administrative regulation of private entities for acts of corruption. France and Spain recently enacted laws that compel companies to establish anti-corruption programs, based on liability incentives or sanctions for non-compliance.

However, the corruption environment in Mexico differs greatly from these two countries in its breadth and tenacity. On Transparency International’s 2016 Corruption Perceptions Index, Mexico ranked 123rd, compared to Spain’s 41st and France’s 23rd. And despite the string of recent legislative action to help curb corruption, many officials remain largely apathetic about the issue.

A recent article in the Guardian examines the failure of Mexico’s main anti-corruption mechanism, the SNA, signed into law by President Peña Nieto one year ago. The SNA was intended to introduce autonomous special prosecutors to pursue corrupt officials, coordinate anti-corruption efforts between different levels of government, and establish a citizen oversight committee to serve as a corruption watchdog. According to the article, however, little has been done insofar as implementation of the new mechanism, which many politicians see as a threat. Meanwhile, journalists and anti-corruption activists have become targets of government surveillance through spyware and abrupt tax audits, and the consequences of widespread corruption continue to be felt by ordinary citizens.

In this environment, the success of GLAR will depend on the degree of its implementation. If politicians enacting this legislation remain immune to consequences of corruption and businesses are not held accountable, then this new law, as Sven Stumbauer was quoted as saying in a Wall Street Journal report, “will just become a tiger without teeth.”

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