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Reynaldo Vizcarra-Mendez is a partner at Baker McKenzie and the founding partner of its compliance practice. His extensive background in investment and infrastructure projects in the tourism and real estate sectors, along with extensive experience working on port, airport, telecommunications and insurance company privatisations gives him a unique perspective on the transactions that most concern clients in the anti-corruption space.

Jonathan Adams is a partner at Baker McKenzie and leader of the compliance practice in Mexico, and he is admitted to practise both in Mexico and in two US states. His background includes extensive experience in corporate, pharmaceutical and compliance law, as well as having worked for seven years in the United States and for 14 in Mexico and Central America. Jonathan advises clients from various industries on significant government sales in Latin America, and in sensitive and high-profile compliance and anti-corruption investigations.

Lorena Castillo-Lopez is a senior associate at Baker McKenzie. Lorena regularly assists clients on compliance and anti-corruption internal investigations involving potential bribery in public procurement processes, allegations of wrongdoing and matters concerning whistle-blowers. Lorena also advises multinational and domestic companies in the creation, development, implementation and localisation of global compliance programmes for their business operations in Mexico, and she carries out regular compliance training sessions.

GTDT: What are the key developments related to anti-corruption regulation and investigations in the past year in your jurisdiction, and what lessons can compliance professionals learn from them?

Reynaldo Vizcarra-Mendez, Jonathan Adams and Lorena Castillo-Lopez: Following the enactment of the landmark constitutional anti-corruption amendment of May 2015, the National Anti-Corruption System (NACS) was created in 2016 and entered into force in July 2017. The NACS represents by far the most comprehensive and solid development to date in Mexico’s efforts to combat corruption. However, since July of last year, the government has struggled to implement the anti-corruption bodies and has still not appointed an anti-corruption prosecutor. Mexico’s President-elect, Andrés Manuel López Obrador, will take up this effort when he takes office on 1 December. During his campaign, López Obrador clearly set out the fight against corruption and impunity in Mexico as his top priority.

Although the federal laws to implement the anti-corruption amendment of May 2015 entered into full force and effect in July 2017, the amendment has not yet been fully implemented at the federal and local levels. First, as of early September 2018, the Senate has not yet appointed an anti-corruption prosecutor, one of the primary members of the NACS Coordinating Committee, or confirmed the 18 federal anti-corruption judges of the Federal Court of Administrative Justice that will specialise in investigating and prosecuting corruption cases. In a case brought by the NACS Citizen Participation Committee, a federal judge ruled in August 2018 that the Senate must either reject or confirm outgoing President Enrique Peña Nieto’s nominees for the judge positions. The judge also ruled that the executive branch must publish its nominations in the Federal Official Gazette. This decision is an important development for the NACS in the fight against corruption because these anti-corruption judges would have jurisdiction over cases brought against public officials and private parties that involve serious offences under the General Law of Administrative Responsibilities (GLAR).

Second, at the local level, most of the Mexican states have not yet harmonised their local laws with the federal anti-corruption legislation by implementing their mandatory local anti-corruption systems (LACS), which were also supposed to be in place by July 2017. In August 2017, the Citizen Participation Committee filed an additional action against unconstitutional action by the states, as an attempt to expedite the implementation of the LACS. Currently, this proceeding is being reviewed by the Supreme Court. This is also an important effort by the Citizen Participation Committee, and seeks to address the fact that 17 out of the 31 states have not established the anti-corruption operating bodies that implement each of their LACS.

Third, several of the implementation and enforcement bodies mandated by the NACS have not yet been set up. In February 2018, the Selection Commission appointed five non-governmental organisation (NGO) leaders to make up the Citizen Participation Committee, which has oversight of the NACS, and also serves as a liaison between civil society and the other NACS institutions. These NGO leaders were selected from the most distinguished NGOs focused on the fight against corruption. The Coordinating Committee, which heads the NACS, is responsible for designing and implementing anti-corruption policies, for coordinating the anti-corruption activity of all institutions responsible for the preventing, detecting and prosecuting corruption at the federal, state and municipal levels of government. This Committee has begun operations and comprises the heads of the Superior Auditor of the Federation; Anti-Corruption Prosecutor; Ministry of Public Administration; Federal Court of Administrative Justice; National Institute for Transparency, Access to Information and Personal Data Protection (INAI); Federal Judiciary Council; and Citizen Participation Committee, and is chaired by the head of the Citizen Participation Committee (currently Mariclaire Acosta Urquidi). The Coordinating Committee is currently active and supported by the operations of its auxiliary bodies, namely the Executive Secretariat and the Executive Commission, though, as mentioned, the position of anti-corruption prosecutor remains vacant.

Despite these shortcomings, there have also been positive developments in Mexico’s efforts to combat corruption. The United States and Mexico agreed to add an anti-corruption chapter to the North American Free Trade Agreement (NAFTA), titled ‘Transparency and Anti-Corruption’. This is a very important development in the regional integration efforts to combat corruption and attract foreign investors seeking to do business in Mexico, which was strongly supported by the Mexican business community.

In May 2018, Petróleos Mexicanos (Pemex), the Mexican stated-owned oil company, published in the Federal Official Gazette its new General Procurement Rules. A remarkable departure from the previous General Procurement Rules for Pemex and its subsidiaries of 2014, as amended, is the inclusion of a chapter on integrity in contracts. This chapter requires participants, suppliers, contractors and subcontractors interested in contracting with Pemex, to acknowledge and adhere to its compliance programme, and to have in place their own compliance programme designed to detect and prevent any form of corruption. Where no compliance programme is in place, third parties are required to adhere to Pemex’s compliance programme and express their commitment to implement their own programme. The new procurement rules also require Pemex to carry out due diligence on third parties before executing any contracts.

Immediately following his election in July 2018, President-elect Andrés Manuel López Obrador announced 50 general guidelines aimed at fighting corruption and implementing a republican austerity plan in the federal government. Highlights of actions from these guidelines are as follows:

  • Amend article 108 of the Constitution so that the sitting President may be prosecuted for corruption crimes while holding office, as well as eliminate most forms of immunity for public officials.
  • Designate some of the most common types of white-collar crimes as serious criminal offences to eliminate the possibility of bail for these crimes.
  • Implement a General Prosecutor’s Office independent and separate from the executive branch, so that no one, including the President, will be above the law.
  • To root out corruption, create an autonomous Special Prosecutor’s Office for Combating Corruption (the Anti-Corruption Prosecutor), which will independently investigate and prosecute corruption cases, reducing political influence over investigations into corruption cases and putting an end to the existing pacts of impunity and corruption in Mexico.
  • Reduce wages and eliminate bonuses and benefits for high-ranking government officials, including the President, and decree that no public official will be able to earn more than the President.
  • Close public trusts and prevent any other activities that may used as opportunities for embezzling and misappropriating public funds for personal use.
  • Abolish pensions for former Presidents.
  • Create a central mechanism to manage public contracts, government purchases and public works, by embedding NGO and United Nations observers as monitors, and in this way providing greater transparency in public procurement processes.
  • Review all current public contracts to detect any indications of corruption or unfavourable effects on public finances.
  • Prohibit public officials from the Ministry of Finance and Public Credit, Ministry of Communications and Transportation, and Ministry of Energy, among others, from accepting invitations to social or sports events from, and travelling with, government contractors, suppliers or investors. In addition, prohibit public officials from accepting gifts valued over the equivalent of US$260 dollars.
  • Turn the official Presidential residence into a part of the Bosque de Chapultepec (the largest city park in Mexico City) as an arts and cultural centre. President-elect López Obrador has separately indicated that he will move the Presidential headquarters to the city of Puebla, about two hours east of Mexico City.

Finally, in August 2018, both the Citizen Participation Committee and the Coordinating Committee released an anti-corruption public consultation to Mexican citizens, organisations, and individuals, to vote on proposals designed to fight corruption, which will be sent to the President-elect at the beginning of 2019.

With a few exceptions, the basic functions of the NACS have been set into motion. Now, the executive branch, civil society and businesses must show resolve to make progress.

“Corruption remains the principal reason given by foreign investors for not investing in Mexico.”

GTDT: What are the key areas of anti-corruption compliance risk on which companies operating in your jurisdiction should focus?

RV-M, JA & LC-L: Recent perception-based surveys suggest that Mexicans view their country as highly corrupt. According to Transparency International’s Corruption Perceptions Index 2017, Mexico continues to score poorly for corruption and has kept dropping in the rankings since 2014. It ranks 135 from a list of 180 countries, with an overall score of 29 on a scale from 0 to 100 (where 0 means highly corrupt and 100 is highly clean), one point less than 2016. Unsurprisingly, Mexico ranks in the bottom quartile of the Latin America and Caribbean region, tying with countries such as the Dominican Republic, Honduras and Paraguay.

According to the World Economic Forum’s Global Competitiveness Report 2017–2018, corruption and insecurity are the most significant challenges for doing business in Mexico, with corruption as the single most significant risk. Furthermore, according to a comprehensive perception study conducted by the Mexican Institute for Competitiveness (IMCO), corruption remains the principal reason given by foreign investors for not investing in the country, because it imposes large costs on companies. Nearly two-thirds of surveyed entrepreneurs believe that corruption has become part of the business culture in Mexico and bribes are frequently paid for companies to conduct business. Over half of surveyed entrepreneurs perceive that corruption affects companies’ day-to-day operations, and just under two-thirds said that they have lost business opportunities owing to a competitor having bribed public officials. Additionally, recent surveys with employees from over 240 Mexican companies suggest that while 87 per cent of these companies have a compliance and ethics programme in place, less than half of all survey respondents believe that their companies have conducted a comprehensive and proportionately tailored risk assessment to uncover corruption or bribery issues, even though it is an important tool in identifying the greatest compliance risks.

It is critical that companies considering initiating operations or already operating in Mexico focus on undertaking comprehensive risk assessments to develop and strengthen their compliance programme and internal audit procedures. Strong efficiency gains can be reaped by developing the capability of recognising risk scenarios and promoting a legal culture throughout the organisation and its employees, as well as designing and implementing anti-bribery and anti-corruption policies aimed at mitigating risks and challenges companies may face.

GTDT: Do you expect the enforcement policies or priorities of anti-corruption authorities in your jurisdiction to change in the near future? If so, how do you think that might affect compliance efforts by companies or impact their business?

RV-M, JA & LC-L: The effectiveness of the NACS has not yet been proven. However, we expect that the incoming federal government to take highly visible action through both administrative enforcement authorities and criminal prosecutors to bring anti-corruption enforcement actions against public officials, legal entities and individuals who violate the GLAR.

In August 2018, the President-elect’s political party, the National Regeneration Movement (Morena), along with NGOs and academics, prepared a draft bill to transform the Attorney General’s Office (which serves under the President) into the Office of the General Prosecutor. This bill would make the General Prosecutor independent and autonomous and the President would only have the power to remove him or her from office with the consent of the Senate. According to this bill, the General Prosecutor may only be removed by the President for serious human rights violations, attacks on democratic institutions or failure to comply with the goals and objectives outlined in the Criminal Prosecution Plan (to be submitted a year after taking office). Along with the Criminal Prosecution Plan, the General Prosecutor must submit a strategic transition plan for the role of Attorney General to General Prosecutor. This plan must include a criminal case inventory that identifies the cases related to serious human rights violations.

Because of its objective standards, if this bill is passed, we foresee that the President will actively oversee the anti-corruption enforcement authorities, and expect the investigations being conducted to be more effective. Because Morena has an absolute majority in both houses of the Congress, it is very likely that this bill will become law and the General Prosecutor will be closely monitored by the President. Considering this potential amendment along with the transition of the current Attorney General to the new, independent and autonomous General Prosecutor, Mexico has a remarkable opportunity to end the political meddling, impunity and inefficiency that are currently covered up by its institutions. It may then endeavour to fulfil its prosecution plans and objectives, and enhance its enforcement capabilities and transparency mechanisms.

With respect to companies, the GLAR sets forth the aspects of a compliance programme that law enforcement authorities must consider as adequate for effective internal control. Consequently, these prevention controls are a significant factor for companies to mitigate their exposure to corporate administrative liability as established in the GLAR. Adequate design, development, implementation and enforcement of compliance programmes, along with ongoing monitoring and comprehensive and proportionate risk assessments, are critical to mitigating potential corporate criminal and administrative liability for acts carried out by third parties on their behalf.

“Mexico has a remarkable opportunity to end the political meddling, impunity and inefficiency that are currently covered up by its institutions.”

GTDT: Have you seen evidence of continuing or increasing cooperation by the enforcement authorities in your jurisdiction with authorities in other countries? If so, how has that affected the implementation or outcomes of their investigations?

RV-M, JA & LC-L: Recent years have seen a continued increase in internationally coordinated enforcement actions in Mexico. Perhaps the best known is the case of Brazil-based construction giant Odebrecht. Following the announcement of the plea agreement in Brazil, the prosecutors in Colombia, Venezuela, Ecuador, Peru, Dominican Republic and Mexico, among others, opened investigations into Odebrecht under their respective laws, which have reportedly allowed law enforcement authorities to uncover a sophisticated and far-reaching bribery network. These prosecutions have resulted in prosecutions of former presidents, politicians and public officials around the world. With respect to Mexico, the ongoing investigation being conducted by the Attorney General was initially delayed by the presidential elections held in July 2018 and is currently being delayed because of the filing of constitutional appeals by the individuals being investigated. According to recent statements by the Attorney General, however, the ongoing investigation will be brought to court before the outgoing administration of President Peña Nieto ends, that is, by 30 November 2018 at the latest.

On the administrative side, the Ministry of Public Administration issued administrative sanctions in April 2018 against two Mexican Odebrecht subsidiaries and two of their legal representatives, debarring them from participating in public procurement processes until 2020. Both legal entities and representatives were also fined US$57 million and US$66,433 respectively. As of September 2018, Mexico’s tax authority, the Tax Administration Service (SAT), has announced it will start collecting these fines. These figures are part of the combined total global record-breaking amount of fines and penalties imposed on Odebrecht.

We also anticipate that Mexico’s increasing anti-corruption efforts may lead to increased international cross-border cooperation and collaboration between Mexico and foreign enforcement authorities in tackling corruption.

liance programme or an integrity policy may be presented as an affirmative defence in criminal cases.”

GTDT: Have you seen any recent changes in how the enforcement authorities handle the potential culpability of individuals versus the treatment of corporate entities? How has this affected your advice to compliance professionals managing corruption risks?

RV-M, JA & LC-L: Perhaps the most significant amendment to Mexico’s criminal legislation in the country’s history is the advent of corporate criminal liability for legal entities when acts related to serious administrative offences are committed by individuals, whether employees or third-party representatives, acting on behalf of the legal entity. In addition to criminal liability, administrative sanctions for legal entities include double disgorgement or, even if there was no proven tangible benefit, sanctions can include fines of up to the equivalent of US$6 million. Additionally, legal entities can be sanctioned by up to 10 years’ debarment from participating in public procurement processes. Furthermore, when sufficient evidence suggests that the individual was using the legal entity as an alter ego, sanctions may also include the suspension of the entity’s activities or even dissolution of the legal entity. As mentioned, the existence of a compliance programme or an integrity policy may be presented as an affirmative defence in criminal cases and mitigate liability in administrative cases for legal entities. To obtain this benefit, the compliance programme must have the following characteristics:

•   
A clear and complete organisation and procedures manual that clearly defines the functions and responsibilities of each department of the company, and clearly specifies the chains of command and leadership for each corporate structure.

  • A code of conduct that is duly published and made known to every person in the organisation, and that has systems and mechanisms for effective implementation.
  • Adequate and effective control, monitoring and audit systems that ensure compliance on a continuous and periodic basis throughout the organisation.
  • Adequate whistle-blowing systems both for internal reports and for reporting to authorities, as well as disciplinary processes with clear and specific consequences for those who act contrary to internal standards or to Mexican legislation.
  • Adequate systems and processes for training on ethics standards.
  • Human resources policies to avoid hiring people who could be a risk to the integrity of the company. These policies cannot enable discrimination on the basis of ethnicity, nationality, gender, age, disability, social status, health status, religion, political opinion, sexual orientation, marital status or any other that compromises human dignity or curtails human rights and liberties.
  • Mechanisms to ensure transparency and publication of interests (avoiding conflicts of interest) at all times.

Accordingly, compliance professionals managing corruption risks should be sure to include comprehensive risk assessment in the creation of compliance programmes tailored to the size and needs of the business, and the industry. More importantly, compliance professionals should also consider advising companies doing business in Mexico or seeking to do business in Mexico, to adequately localise their global anti-bribery and anti-corruption policies and compliance programmes, ensuring that they are in strict adherence to the local laws, regulations and policies in Mexico, and that certain provisions do not constitute a contravention of any existing local legislation, coupled with periodic compliance training sessions for their implementation.

GTDT: Has there been any new guidance from enforcement authorities in your jurisdiction regarding how they assess the effectiveness of corporate anti-corruption compliance programmes?

RV-M, JA & LC-L: In June 2017, following the enactment of the GLAR, the Ministry of Public Administration published the Model Program for Corporation Integrity (the Model Program) to provide interpretation of certain provisions of the GLAR. This Model Program provides the following guidance on compliance programmes and integrity policies.

  • Include measures to promote internal standards and accountability in the company, in accordance with national and international commitments.
  • Ensure ‘tone at the top’ commitment from the board of directors and general manager.
  • Require third parties and distributors to adhere to the company’s compliance policies.
  • Ensure that the Code of Conduct is adequately published and communicated to the personnel of the company. Reference to the standards of the Employers Confederation of the Mexican Republic is recommended.
  • Apply the Code of Conduct in practice and promote reporting suspicious activities. The Code should be implemented by departments if a company has multiple divisions.
  • The anti-corruption policy must take into account the degrees of risk for the country, industry, transaction, commercial opportunity and commercial association. For these purposes, the Committee of Sponsoring Organizations of the Treadway Commission Internal Control – Integrated Framework should be applied.
  • Financial organisations should refer to the following guidelines:
  • the Sole Memorandum for Banks;
  • the Sole Memorandum for Stock Exchange; and
  • the Sarbanes–Oxley Act.
  • Special attention should be given to the following areas in the company: sales, contracts, human resources and government contacts. Guidance on the UK Bribery Act should also be observed.
  • Systems for self-reporting and training must be adequate and efficient.
  • Human resources must employ policies to avoid the employment of individuals who could become a risk to the integrity of the company.

GTDT: How have developments in laws governing data privacy in your jurisdiction affected companies’ abilities to investigate and deter potential corrupt activities or cooperate with government inquiries?

RV-M, JA & LC-L: The constitutional amendment of 2013 on transparency and data protection strengthened the INAI, Mexico’s data protection watchdog. The implementing law tasked the INAI with enforcing a stricter data protection regime on Mexican companies and it has become very active in pursuing enforcement actions. According to the INAI’s most recent report published in December 2017, from October 2016 to September 2017, the INAI imposed sanctions equivalent to US$4.3 million against entities in the private sector for violations of the Federal Law for the Protection of Personal Data in Possession of Private Parties (the Data Protection Law). Nearly two-thirds of this amount was imposed against major financial and insurance companies, followed by the mass media and, in third place, retail.

As a result, Mexican companies should focus on evaluating compliance with the obligations set forth in the Data Protection Law, such as publishing their respective privacy notices and implementation of mechanisms to ensure consent for processing any personal data. Breach of customer and employee data protection rights is considered the most common violation of the Data Protection Law, followed by non-compliance with the basic principles contained in the Law and obstruction of authority verification procedures.

The Inside Track

What are the critical abilities or experience for an adviser in the anti-corruption area in your jurisdiction?

For Mexico, as well as the rest of the region, anti-corruption advisers should consider both the US Foreign Corrupt Practices Act (and other foreign laws, if applicable) as well as local law. Needless to say, advice should be provided by professionals licensed to practice in the jurisdiction in which each law is enacted. This means that cross-border teams should be the rule, and not the exception. As internal investigations are becoming increasingly important, they should not be carried out by novices or professionals who specialise in multiple practice areas. Instead, the anti-corruption team should have a core of dedicated compliance lawyers.

What issues in your jurisdiction make advising on anti-corruption compliance unique?

There is no country in the world that has deeper personal, family and business ties with the United States than Mexico. This makes cross-border corruption a clear and present risk for companies doing cross-border business in Mexico and raises the likelihood of detection for the same reasons: more familiarity makes non-transparent payments more detectable and bicultural Mexicans feel more comfortable going to US authorities if their concerns are not being addressed by the companies where they work or with which they are doing business. Both Mexican and US anti-corruption laws also require constant monitoring of their implementation to ensure timely risk detection.

What have been the most interesting or challenging anti-corruption matters you have handled recently?

We have counselled companies in addressing systemic unfairness in Mexican government public procurement spaces, both when the unfairness has been in their favour and when it has been to exclude them from sales that under fair conditions they would otherwise achieve. When the unfairness is owing to unscrupulous behaviour by their employees or representatives, we help them identify the improper behaviour and address the problems to prevent recurrence. When the unfairness deprives them of business, we help them form a plan of action to redress the situation. We have also helped clients adapt their compliance systems to the new requirements of the GLAR.

Reynaldo Vizcarra-Mendez, Jonathan Adams and Lorena Castillo-Lopez
Baker McKenzie
Mexico City
www.bakermckenzie.com


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