026702 2016 11 23 Outline of Mexico Anti-Corruption Laws.Pdf

www.fcpareport.com Volume 5, Number 23 November 23, 2016 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 Creation of the NAS Constitution were amended to create the so-called “Mexican National Anti-Corruption System” (Sistema Constitutional Amendments Nacional Anticorrupción, or NAS). In addition, secondary legislation, consisting of several different laws and As part of the May 2015 constitutional amendments designed to set forth the principles, rules and procedures that created the NAS, a new Federal Administrative for the coordination of different Mexican administrative Law Court (Tribunal Federal de Justicia Administrativa) and criminal authorities that will be tackling corruption, was formed. The Court is composed of 16 justices to be was enacted or amended on July 18, 2016. appointed by the president with confirmation from the senate. The court has the authority to investigate and The purpose of these new laws is to create a solid legal sanction corruption-related offenses, including framework against corruption. Much of the legislation the power to sanction not only government officers is focused on assembling the administrative structure but also companies and individuals. The reform also of the Federal Administrative Law Court, the Federal created a Specialized Anti-Corruption Prosecutor Audit Department and the Specialized Anti-Corruption (Fiscalía Especializada en Combate a la Corrupción) Prosecutor, and endowing them with the ability to with the ability to conduct criminal corruption supervise and sanction corruption-related offenses. investigations and to impose criminal charges.

However, three elements of the new legislation – the In addition, the supervisory powers of the Federal National Anti-Corruption System Law, the General Law Audit Department (Auditoría Fiscal de la Federación) on Administrative Accountability and amendments were enhanced to be able to commence an audit on to the Federal Criminal Code – will cover conduct by government expenditures made at any time instead private parties. It is imperative for companies conducting of being restricted to the review of prior fiscal years. business in Mexico to understand the NAS, its secondary The audit department also now has the power to legislation and their resulting legal obligations. This review books and records of states and municipalities article briefly outlines this body of laws and identifies when they are receiving federal funding or issuing debt those provisions that are relevant to private companies instruments backed by the federal government. and individuals doing business in Mexico. Finally, a Coordination Committee (Comité See “Room for Improvement: Miller & Chevalier Survey Coordinador) and a Committee for Citizen Participation Reveals Troubling Perceptions of Corruption and (Comité de Participación Ciudadana) were created to Compliance in Latin America” (Sep. 14, 2016). 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

©2016 The FCPA Report. All rights reserved. 1 www.fcpareport.com Volume 5, Number 23 November 23, 2016 corruption and scrutinize government spending is activities, while also allowing for supervision defined by the Mexican Constitution as NAS. and control of government expenditures. The law took effect on July 19, 2016. Secondary Legislation To facilitate this coordination among different The NAS secondary legislation package includes government bodies, a National Digital Platform four new laws and amendments to five other laws. (Plataforma Digital Nacional) will be created for The new laws are the following: purposes of centralizing the information of the NAS. That centralized database will include a list • National Anti-Corruption System Law (Ley General of sanctioned government officers, private del Sistema Nacional Anticorrupción); companies and individuals. • General Law on Administrative Accountability (Ley General de Responsabilidades Administrativas); Once this platform is up and running, it will be • Organic Law of the Federal Administrative Law imperative for compliance officers to screen any Court (Ley Orgánica del Tribunal Federal potential third-party intermediaries or suppliers, de Justicia Administrativa); and distributors or employees using this database • Law on Auditing and Accountability of the to identify those that have been Federation (Ley de Fiscalización y Rendición sanctioned in the past. de Cuentas de la Federación). See The FCPA Report’s Conducting Effective The laws that were amended are the following: Anti-Corruption Due Diligence on Third Parties Interview Series: Gwen Romack, Director of Global • Federal Criminal Code (Código Penal Federal); Anti-Corruption at Hewlett-Packard (Oct. 9, 2013); • Organic Law of the Federal Public Administration Principals at Nardello & Co. (Sep. 26, 2013); and Alice (Ley Orgánica de la Administración Pública Federal); Fisher, Partner at Latham & Watkins (Sep. 11, 2013). • Tax Coordination Law (Ley de Coordinación Fiscal); • General Law for Governmental Accounting (Ley General Law on Administrative Accountability General de Contabilidad Gubernamental); and • Organic Law of the Attorney General’s Office (Ley The General Law on Administrative Accountability Orgánica de la Procuraduría General de la República). will take effect on July 19, 2017, and will repeal two laws: The Federal Anti-Corruption Law on The NAS secondary legislation includes several Government Procurement (Ley Federal Anticorrupción relevant provisions that companies and individuals en Contrataciones Públicas) and the Federal Law of doing business in Mexico should be aware of, particularly Administrative Responsibilities of Government Officers the National Anti-Corruption System Law, General Law (Ley Federal de Responsabilidades Administrativas on Administrative Accountability and Federal Criminal de los Servidores Públicos). In addition, a number Code. Those provisions are discussed in detail below. of provisions of the Federal Law of Responsibilities of Government Officers (Ley Federal de Responsabilidades National Anti-Corruption System Law de los Servidores Públicos) will be partially repealed. Until then, the above-mentioned laws The purpose of the National Anti-Corruption System continue to be in force. Law is to set forth principles for coordination amongst federal, state and municipal authorities. The goal of this The Administrative Accountability Law sets forth coordination is to prevent, detect and combat corrupt the administrative obligations of government officers and the penalties applicable to them for actions or

©2016 The FCPA Report. All rights reserved. 2 www.fcpareport.com Volume 5, Number 23 November 23, 2016 omissions considered to be misconduct and of profits) or, if no benefit was obtained, in an gross misconduct. The law also defines the sanction amount of up to approximately US$600,000 mechanisms and the procedures to be observed in the case of individuals and US$6 million for the prevention, investigation and sanctioning in the case of companies; of administrative offences. • disqualification to contract with the government for up to eight years in the case of individuals In terms of prevention, the law requires and 10 years in the case of companies; government officers to observe a code of conduct • payment of damages (daños y perjuicios) caused that will be drafted by the Ministry of Government to the federal, state or municipal authorities; and Administration (Secretaría de la Función Pública) • in the case of companies, the suspension of activities and corresponding ministries at the State level. for up to three years or the dissolution of the entity Additionally, the Coordination Committee will make when obtaining an economic benefit and when recommendations with regard to anti-corruption and knowledge of the management, board of directors audit policies and procedures which will also or shareholders exists, or in the case of a help prevent corruption. systematic behavior by the company.

Administrative Liability for Private However, collaboration with an investigation and the Individuals and Companies admission of responsibility are mitigating factors when determining a sanction. On the other hand, knowledge

More importantly, the law also introduces several of wrongful conduct by the board or by other corporate administrative violations for private individuals bodies or by the shareholders of an entity will be an and companies, including bribery and aggravation factor. other related offenses. Additionally, having in place an “effective” compliance The Mexican government will have long-arm program is an affirmative defense to these administrative jurisdiction over administrative violations by offenses. For a program to be “effective,” it must include private individuals and companies under this new at least the following elements: law. The law applies to “international commercial transactions,” defined as those activities involving a • corporate governance manuals and procedures; foreign government, so long as the transaction at issue • a code of conduct; includes the participation, directly or indirectly, of • monitoring and auditing systems; a company or individual of Mexican nationality. • reporting systems and disciplinary proceedings; • anti-corruption training policies and procedures; The statute of limitation governing these offenses • human resources procedures including non-bias is seven years from the date the conduct occurred or hiring rules and on-boarding of former ceased to occur. An investigation of an administrative government officers; and violation can be initiated by the government • transparency and publicity procedures. or a private complainant. Specific Administrative Violations Aimed at Private Parties Sanctions for Private Administrative Violations

The new administrative violations targeted at private Sanctions for these administrative violations include: individuals and companies include:

• monetary fines in an amount equal to up to two times the benefit obtained (e.g., disgorgement

Bribery individual is prohibited or disqualified from doing so by virtue of the law or by a ruling of a competent authority. The first offence for which private individuals and companies can be held accountable under the The participation in such proceedings through Administrative Accountability Law is bribery. agents or third parties of a company or individual who is prohibited or disqualified from doing so and when the Under the new legislation, “bribery” is defined as benefit is obtained by the latter is also prohibited. the promise, offer or grant of “anything of value” by a company or individual to one or more government Influence peddling officers, either directly or through third parties, in return for which said government officers carry out, or abstain Under the Administrative Accountability Law, unlawful from carrying out, an action related to their legal duties influence peddling occurs when a company or individual as government officer or those of another government uses its, his or her influence or economic or political officer, or to abuse their actual or perceived influence, power, whether real or perceived, with the purpose with the purpose to obtain or maintain a benefit or of inducing a government officer to take a decision or advantage, whether for itself/himself/herself or for course of action so that the company or individual or a third party, regardless of whether the benefit a third party obtains a benefit or advantage or causes is accepted or received or a result is obtained. damage to another person or the government.

“Anything of value” is defined as any benefit Use of False Information received by a government officer not included in his or her compensation as a government officer, which may Submission of false information or forged consist of cash, securities or negotiable instruments, documentation to government authorities during real or personal property, including its sale at a price an administrative proceeding is also an administrative significantly lower than market value, donations, offense under the new legal regime. However, to be services, employment and any other improper benefit considered a violation, the submission must have for themselves or their spouse, blood relatives, civil been made for the purpose of obtaining an relatives or third parties with whom they have a authorization, benefit or advantage, or to professional, labor or business relation, or for partners cause damage to a third party. or companies of which the government officer or the above mentioned individuals are members. Obstruction of an Investigation

A “government officer” is defined as any individual Getting in the way of an investigation is also an offense who carries out a job, position or commission in any under the new anti-corruption regime. This offense arises federal and local government entity pursuant when a company or individual provides false information to article 108 of the Mexican constitution. or deliberately and unjustifiably delays submitting information, or fails to respond to a second or further Unlawful Participation in Administrative Proceedings request or decision made by an authority in charge of conducting an investigation. Another offense for which private citizens or companies can be held accountable is unlawful participation in Collusion on Public Procurement Procedures administrative proceedings. This offense occurs when a company or individual performs, or fails to perform, The new Administrative Accountability Law also cracks an action in a federal, state or municipal administrative down on collusion in the public bidding process. procedure, despite the fact that the relevant company or

Under the new Law, collusion exists if companies or government who uses false or forged information or who individuals perform directly or indirectly coordinated hides information in connection with income or earnings actions for the purpose of obtaining an unfair benefit when obligated to disclose such information to the or advantage in federal, local or municipal public government authorities to obtain additional benefits for procurement procedures. Other forms of collusion such company or individual or for any third party, will be between competitors would also be an offense if sanctioned with imprisonment of up to nine years and they result in a financial loss for the government fined in an amount of up to 100 days of income. or if the purpose of the collusion is to obtain an unfair benefit. Influence Peddling

Misuse of Government Resources Any company or individual, when claiming to have influence over government officers who have the The offense of misuse of government resources occurs authority to decide on a particular matter and who if a company or individual inappropriately uses or diverts interferes with the decision made by such government government resources for his, her or its own advantage. officer to obtain an illegal resolution in exchange for a This includes material, human and financial resources. benefit for such company or individual or for any third Failure to render an account confirming the destination party, will be sanctioned with imprisonment of up of government resources will be considered a violation. to six years and fined in an amount of up to 100 days of income. Improper Hiring of Former Government Officials

Embezzlement A private individual or company can be held liable if he, she or it hires an individual who has been a government Any company or individual when performing officer during the previous year. However, such hiring will acts to promote the political or social image of an only be an offense if the newly hired, former government individual in exchange for receiving governmental official possesses privileged information that was funds or obtaining benefits such as government acquired during his or her tenure and that contracts, licenses or permits, deductions, subsidies directly allows the hiring party to benefit. or similar, will be sanctioned with imprisonment

of up to 14 years and fined in an amount of Federal Criminal Code up to 150 days of income.

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 Hugo López-Coll is a shareholder at Greenberg Traurig, LLP, effective on the date the Specialized Anti-Corruption in Mexico City. López-Coll has developed a broad practice Prosecutor is appointed. representing domestic and international clients in Mexico on regulatory and compliance matters. He is also a member These new crimes include use of false or forged of a team that assists clients with issues arising under the FCPA, information, influence peddling and embezzlement. 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, Use of False or Forged Information implementation and roll-out of FCPA policies and procedures, as well as with internal corporate investigations. He is Any company or individual holding a permit admitted in New York and in Mexico. or concession granted by the Mexican federal