Mexico’s financial and political landscape is a stark dichotomy. The nation has risen to become an economic powerhouse and a leader in the industrial and commercial sectors, but cartel warfare and political corruption has tainted what is otherwise a success story.
Bribery and other types of corruption can reduce the levels of growth in a country to the tune of billions of dollars, ranging from five percent to one percent per year, the World Bank estimates. Corruption, particularly by those in law enforcement working at the behest of callous drug cartels, can also bring shame to a nation and strife among its citizens.
Despite Mexico being one of Latin America’s most strident and vocal countries to champion their willingness to stamp out the scourge of corruption, that has happened in large measure only on paper.
The country has a host of policies, agencies and protocols for the prevention of fraud and bribery, but these measures have broadly failed to wash out the grimy stink of graft, as evidenced by the endemic rates of corruption-tinged crimes.
Attorney Luis Ortiz from the OCA law firm based in Mexico City, Mexico has extensive experience with investigations and litigation in the anti-corruption space and described the current panorama of his country.
“Bribery, extortion and peddling of influence are the most common forms of corruption that we find in Mexico, and money laundering remains an unsolved problem that conspires with bribery to create a perfect storm – a country with a questionable state of law, weak governance and a sea of opportunity for corruption,” he said.
“The last six years have engendered many scandals involving companies and politicians, failures in the procurement process, and frauds involving financial institutions,” Ortiz said.
Taint of corruption also extends to those sworn to protect
Transparency International indicates that Mexico has a score of 35 out of 100, where zero is highly corrupt and 100 is very clean.
In addition, according to estimates from the Center of Economic studies in the Private Sector, corruption costs Mexico approximately 1.5 billion pesos per year. Mexican companies set apart 10 percent of their profits for bribes and “commissions” in order to operate, according to the same study.
One of Mexico’s most glaring gaps in terms of corruption is also one of its most recent and savage.
In late September, police officers, later found to be carrying out orders from cartel leaders, kidnapped dozens of student teachers, eventually turning them over to drug gangs to what is believed to be torture and slaughter. Investigators have found charred bodies and unearthed several mass graves.
Some of the missing students have been identified, but authorities and bereft family members have to wait on DNA evidence to verify scores of others.
Apart from bringing domestic and international condemnation and hindering the growth of a developing country by draining the national budget, corruption also dramatically cuts back foreign investment.
A highly public bribery scandal at the Mexican unit of one of the the world’s largest retailers, Walmart, revealed serious misdeeds by top-level executives in 2005 and suspect payments totaling more than $24 million.
The saga violated both Mexican and US laws and has left serious scars on the company’s reputation and budget – the probe cost Walmart $439 million from 2012 to 2014, one of the most expensive investigations in US history.
Stronger Domestic laws, foreign partnerships needed
Corruption is a costly problem in Mexico, which has pushed governmental authorities and the private sector to combat it through several legal and regulatory efforts.
While there are multiple laws that prohibit bribery and graft in Mexico, implementation and training are key components necessary to the eradication of corruption, those points are clearly lacking in both quality and quantity across the country.
Both Mexican and foreign companies established in Mexico should, by now, know the risks involved in the region, and be well-versed on the regimes and regulations they are subject to in order to design and implement an effective compliance strategy, according to analysts.
Mexico has signed three international anti-corruption conventions issued by the Organization of American States (OAS), the Organisation for Economic Co-operation and Development (OECD) and the United Nations.
Furthermore, US companies in Mexico are subject to the US Foreign Corrupt Practices Act, which sanctions acts of corruptions by American citizens and entities all over the world.
The Pact for Mexico was signed in 2012 by the president, Enrique Pena Nieto, and the chairs of the main political parties in the nation. The pact, which focused on bringing citizens and the government together to strengthen the state and to combat corruption, emphasized transparency.
In that same vein, the country enacted a law in June 2012 against corruption for federal public contracts. The law assures that the procedures of public contracts are developed under legal and transparent frameworks and compels business owners to compete under equal conditions.
Mexican corruption regulations not on par with US Model
Some have compared the law to the US FCPA, but Ortiz says that concept is incorrect.
“Although there are professionals who tend to compare the two laws, the reality is that they are only similar in the way they are drafted and you would have to study them at a much deeper level to make that affirmation taking into account the facts,” Ortiz said, noting that one notable divergence from the FCPA is there has been weak enforcement of the Mexican law, particularly when graft is carried out by lower-ranking public officials.
The law has caused debate about what some consider a virtual exclusion of other types of public contracts, such as municipal and state contracts, which have seen few if any mentions in terms of enforcement actions or active investigations. As well, the law imposes administrative sanctions, unlike the FCPA, which carries heftier civil and criminal weight.
The Mexican law, however, does sanction citizens and foreigners for infractions tied to public contracts with federal strings, and to Mexican citizens for failures linked to international commercial transactions.
The law imposes fines for individuals from 1,000 to 50,000 times the minimum salary in the federal district of Mexico. For entities, they can be from 10,000 to 20,000 times the minimum salary in the federal district. The individual or entity is also barred from making public contracts for a certain time, depending on the severity of the violation.
However, Ortiz says that the law is far from being a comprehensive piece of legislation against corruption.
“Mexico has several administrative, fiscal and criminal laws that could, together, potentially have the effect of the US FCPA of 1977,” he said.
More options needed to curtail graft, such as negotiated DPAs
In his analysis of the various legal edicts at play in Mexico linked with corruption, the justice system would “have to unleash…legal chaos,” on the accused entity through some investigative sleight of hand and creative judicial juggling.
He believes the government would have to gather key provisions from several areas, including those related to keeping adequate books and records, certain criminal codes, particularly those related to asset forfeiture and, even if investigators could cobble together those disparate elements, apart from a conviction, they don’t even have the middle-ground option of a widely-used tool in the US, the deferred prosecution agreement (DPA).
Unfortunately, the federal law by itself is nebulous in establishing if the person or entity has to know about the infraction committed to be sanctioned.
The application and interpretation of that vagary is left in the hands of the authorities where the public contract is being realized. The Secretary of Public Works, or Secretaria de la Funcion Publica, is the only authority in charge of investigating any possible illicit actions.
“The legislation was implemented too late, and part of the reason why is that the authority in charge has been very inconsistent in its governance,” Ortiz said.
Independently from the law around contracts, the federal penal code sanctions bribery and influence peddling.
Measures like the National Accountability Transparency and Anti-Corruption Program 2008-2012 feature campaigns to promote a culture of lawfulness and anti-corruption as well as the distribution of training manuals to provide public servants and private citizens with guidance on ethical conduct in their relations with the state.
On the ground, many businesses feel corruption is unavoidable
However, a study by the Fraud and Legal Support Team of Ernst and Young reveals that 38 percent of senior level managers in Mexico consider bribery a necessary step to win contracts.
Bruno Blackmore, the leader of the EY group, said in a press conference that the perception of corruption in Mexico has increased from 60 percent to 65 percent in two years, meaning that more than half of those who took the survey consider their country corrupt.
“If we say that fraud is still prevalent and we say that corruption has increased in Mexico, then what are we doing?” Blackmore said.
Training personnel and keeping a close eye on third-parties is essential to weeding out corruption, especially in Mexico, a country that has increasingly complicated legal structures to follow and an influx of businesses with accompanying risks to mitigate.
Ortiz says implementation of a good compliance policy lies in effective training.
“Generally, multinational companies have taken account of the situation and the law, and have incorporated training into their compliance program in key areas like sales, marketing and legal,” he says, which breeds optimism that the country’s growth spurt in commerce is parallel to the global effort to align business segments under one effective and robust compliance program.
“The most effective training is that which is in-person, at least two times a week and that goes hand in hand with a serious policy and sanctions system, with integrity as its flag.”