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