México, June 2012. A Brief Guide to the New Mexican Anti-Corruption Law

Executive Summary The “Ley Federal Anticorrupción en Contrataciones Públicas”1 (the “Anti-Corruption Law”) was published at the Federal Official Gazette on June 11, 2012 and became effective on June 12, 2012. It is relevant for those within and outside of Mexico to understand the implications of the Anti-corruption Law, as it may affect not only domestic businesses but those from abroad as well. The Anti-Corruption Law is an effort by the Mexican government not only to address an existing problem, but also to implement several international treaties that Mexico has ratified in connection with anti-corruption. It seeks to be a deterrent and, therefore, it establishes harsh sanctions on individuals and legal entities for their misconduct incurred in federal public procurements. Likewise, the Antic-Corruption Law punishes Mexican nationals for their misconduct while conducting business transactions abroad. The Public Comptroller Office or Secretaría de la Función Pública shall be the competent authority to implement the Anti-Corruption Law. This Ministry will launch the investigation and eventually impose sanctions to the offenders. These sanctions will include debarment to participate in public biddings in the future and harsh fines. Interesting enough, once the Public Comptroller Office sanctions a company or individual there is no statutory right to stay such sanction from ordinary means of challenge. Likewise, criminal and civil liability may apply under other relevant statutes. The Anti-Corruption Law provides for a detailed description of administrative offenses that encompass major corrupt practices that have been identified in the field of public procurement. It also includes those recognized by international law on the subject and which Mexico has a commitment to comply with. Before imposing a sanction, the Public Comptroller Office will undertake an investigation procedure to detect the relevant misconduct and once detected will issue a statement of objections and will give the opportunity to the alleged offender to raise arguments and offer evidence. Similar to other Federal statutes (i.e. Mexican Federal Competition Law), the Mexican Anti-corruption Law follows the “carrot-and-stick” theory. Thus, it will reduce an important percentage of the relevant fine to those presumed offenders that confess the offense and cooperate with the authority. The new legislation - especially Section 9, o reminds similar statutes enacted in the US (US Foreign Corruption Practices Act) or the UK Bribery Act due to the fact that it pursues corrupt practices performed by their nationals abroad. Sanctions can range from fines equivalent to 1000 to 50,000 minimum wage in force in the Federal District (USD$4,500 to USD$220,000 in the case of individuals) and 10,000 to 2,000,000 minimum wage in force in the Federal District (USD$45,000 to USD$8,850,000 Dollars in the case of legal entities) that could be even increased in an additional 35%. In addition to the possibility of temporary debarment (3 months to 8 and 10 years, respectively).

                                                                                                               1 A translation of its title is: “Federal Law on Anticorruption in Public Contracts”

 

Table of Contents

1. BRIEF INTRODUCTION 2

2. WHO DOES THE ANTI-CORRUPTION LAW APPLY TO? 2

3. THE CORE OBJECTIVE OF THE ANTI-CORRUPTION LAW 3

4. IN-AND-OUTS OF THE LAW 4

4.1. THE ANTIC-CORRUPTION LAW APPLIES TO: 4 4.2. ELEMENTS: 4 4.3. PROHIBITED ACTS (ARTICLES 8-9): 5 4.4. INVESTIGATION PROCEDURE 6 4.4.1 FORMS OF THE COMPLAINTS (ARTICLE 10): 6 4.4.2 WRITTEN COMPLAINTS (ARTICLE 12): 7 4.5. SANCTIONS 8 1. Brief Introduction Countries, Mexico included, devote about 70 percent of their national income on some form of government contracts. Individual citizens are not the only ones affected by these numbers, they unequivocally also implicate the private sector. Mexico loses anywhere from 7-9 percent of its gross domestic product (GDP) to corruption, and according to a 2008 report by Transparency International, Mexican companies have a high propensity to use personal and family ties to obtain public procurement. In recent years, about 8 percent of Mexican household incomes went to corruption, and for minimum salaried households, this number rose to about 18 percent. Corruption, rather than abating, has become worse in recent years. Given this economic and political backdrop, the Anti-Corruption Law will be another important step in addressing an issue that must be dealt with urgently. 2. Who does the Anti-Corruption Law apply to? As will be described below, Articles 8 and 9 of the Anti-Corruption Law provide a limitative and exhaustive list of conducts that violate the Federal Public Procurement Laws, such as the Acquisitions, Leases and Services to the Public Sector Law, the Public Works and related services Las and the Administrative Provisions for the PEMEX procurement regime. These sections provide important fines to participants. As shown below, the Anti-Corruption Law provides for a broader and “catch-all” concept of participant. The Anti-Corruption Law will apply to those persons that are:

(i) Mexican or foreign individuals or legal entities that participate in federal procurement contracts, as bidders, interested parties, invitees, suppliers, adjudicated, contractors, permit holders, concessionaires or similar participants;

(ii) Mexican or foreign individuals and legal entities acting as shareholders, partners, principals and grantors and receivers of powers of attorney, associates, representatives, proxies, commissioners, agents, managers, advisors, consultants, subcontractors, employees, or whatever other individual that intervenes in the

 

public contracting by themselves, or on behalf of, or in the interest of the above mentioned persons.

(iii) Mexican individuals or legal entities that directly or indirectly participate in the development of international commercial transactions2 as set forth under the Anti-Corruption Law;

(iv) Public officials that directly or indirectly participate in federal public procurement that are be subject to special liability provisions set forth under the Mexican Constitution.

The Anti-Corruption Law is written in a way that seeks to sanction the real participants of an illegal behavior and reach the “center of control” of an illegal decision. Thus, the persons identified above under sections (i) and (ii) can be subject of liability under article 8 of the Anticorruption Law. A very interesting feature –as shown below-, is that due to the advent of article 9 of the Anti-Corruption Law, Mexican individuals and legal entities will be liable for illegal conduct carried out abroad in commercial transactions. In this sense, it mirrors the extraterritorial application of the 1977 US Foreign Corrupt Practices Act, as amended. There is also a group of individuals, public servants, for whom the law creates a new affirmative duty. Any public servants who, directly or indirectly, participate in public contracting involving federal resources that have knowledge of a conduct that is prohibited by the Anti-Corruption Law have an affirmative duty to report any offenses, or possible offenses. Failure to report such behavior would result in the relevant public servant’s liability. Finally, for anyone who is punished with a fine, those sanctions will not be suspended until a determination of responsibility has been made as the law deals with a matter of public interest. This factor clashes with the fact that a due process of law right and adequate defense requires the possibility to request a stay of a resolution that has not become res iudicata. 3. The core objective of the Anti-Corruption Law Corruption has historically obstructed economic development and detracted the legitimacy and credibility of Mexican institutions. The Anti-Corruption Law objective is to prevent, supervise, and control corruption in Mexico and abroad. The hope is that less corruption will stabilize and strengthen Mexico´s democratic system, ensure that all federal resources are used in the most efficient and judicious way possible, and serve as a tool to reduce inequality in a country where wealth is very unevenly distributed. Additionally, there are various international treaties and conventions that Mexico had ratified in the last couple decades, and thus, with an eye to satisfying the duties as set out by these conventions, the new Anti-Corruption Law will be an important step in helping Mexico meet these requirements.3

                                                                                                               2 The Law considers international commercial transactions any acts or proceedings related to the procurement, performance and execution of contracts for acquisition, leases, services, public works or related services, in addition to any acts and proceedings related to the granting of permits, concessions or extensions thereof, performed by any public organization or entity of a foreign State, which involves the participation of a foreign public officer and Mexican individuals or entities, be directly or indirectly. 3 In Mexico international treaties are taken to be higher up than federal law in the hierarchy of laws, but below the Constitution; thus it is critical that the systems be in place to allow Mexico to satisfy their international requirements. La Constitución Política de los Estados Unidos Mexicanos, Section 133.

 

The main purpose behind sanctions is not to punish, but rather to deter any acts of corruption and dissuade targeted behavior in an efficient manner.4 Therefore, sanctions are to be dissuasive, proportional, and efficient. This explains why if an alleged offender´s benefit is regarded as being greater than the imposed sanction, the Anti-Corruption Law leaves room for raising the maximum sanction amount to be proportional to the act in question. It also explains why certain elements must be met before an official investigation is even launched, as the government is trying to make sure that resources that are devoted to such investigations are spent efficiently, and not wasted on those for whom the evidence does not clearly point to probable guilt. Furthermore, the Anti-Corruption Law hopes to hold both sides of the transaction accountable, as both sides partook in the corruption and should be held responsible for the role they played. 4. In-and-outs of the law The Anti-Corruption Law establishes the liabilities and sanctions that will be imposed, who might be liable, as well as the procedures that will serve as the mechanism that will make it possible to prosecute for such offenses. Additionally, the Anti-Corruption Law establishes the competent authorities that are to deal with these cases, and outlines their specific duties in doing so.

4.1. The Anti-Corruption Law applies to procurement involving: 1) Concessions, permits, authorizations, procedures/formalities, and any other acts

related to the procurement of public contracts of a federal nature 2) International transactions

The Anti-Corruption Law basically applies to any transaction involving federal resources in any way, or where international commercial transactions are at play abroad and Mexican individuals or legal entities so participate.

4.2. Elements: In regards to public contracts implicating the expenditure of federal resources:5

(i) Intent: the alleged offender must act with the intent to get or maintain some sort of benefit or advantage.

(ii) Identifiable benefit or advantage: since the intent to maintain or establish a benefit or advantage is required, this means that the either the accuser or investigating authority must be able to identify the benefit or advantage in play. If none can be identified, the alleged offender could not have the required intent. On the other hand, if a benefit or advantage can be identified, this would allow for intent to be implied and not express.

(iii) Evidence of some level of participation, whether direct or indirect. (iv) Knowledge of the nature of the illegal activities.

                                                                                                               4 Another concern that was raised in connection with the law was that if you admit to having participated to such actions, you can have the sanctions greatly reduced, possibly undermining the objective of the law. Furthermore, concerns were raised as to the actual effect the law will have in fighting corruption. Some said that it was just another law, and that there had been laws and measures before, and none of these had been effective, so why would this be any different? In discussing the Anti-corruption Law, some in the Senate had spoken of a constitutional reform to create a type of procurator specializing in corruption. This entity would in theory be completely autonomous, and they argued, might be a better solution to the problem of corruption in Mexico. 5 The Anti-Corruption Law does not apply to procurement funded by State or Municipal resources.

 

(v) A Complaint must meet formal requirements- If submitted, a complaint must meet the requirements set out in Article 12 (such as a general description of the facts, the general information of the alleged offender and evidence provided for purposes of the investigation)

Concept of “public dealings/contracts” defined- the Senate´s purpose is not to limit the concept of what a public dealing is, thus the definition is to be understood to be broad, allowing any such practice of corruption which deals with federal resources.

4.3. Prohibited Conduct (articles 8-9 of the Anti-corruption Law): (Article 8) In regards to public contracts implicating federal resources, with reference to those mentioned in Article 2 (I-II) who directly or indirectly, I. Promise, offer, or give money or gifts to a public servant or a third party, in exchange for the

public servant doing, or abstain from doing, something that is related to his/her duties or the duties of another public servant, regardless of if the public servant accepts or rejects. Furthermore, if such promise or offer in any way intervenes with the design or elaboration of a call for public tender or any other contracting procedure of a federal nature

II. In collaboration with any of the persons mentioned in Article 2 (Mexican or foreign individuals or legal entities that participate in federal procurement contracts, as bidders, interested parties, invitees, suppliers, adjudicated, contractors, permit holders, concessionaires or similar participants; shareholders, partners, principals and grantors and receivers of powers of attorney, associates, representatives, proxies, commissioners, agents, managers, advisors, consultants, subcontractors, employees, and individuals or legal entities that directly or indirectly participate in the development of international commercial transactions) acts in a way that implies, or has the purpose or effect, of getting a benefit or advantage that is improper with regards to public contracting of a federal nature

III. Acts or omissions that have the purpose or effect of participating in public procurement of a federal nature, thereby precluding the bidder from participating in public bidding.

IV. Acts or omissions that have the purpose or effect of evading the requirements or rules with regards to public procurement of a federal nature, or which feign the satisfaction of these requirements.

V. Intervening under one-self´s name, but in the interest of some other person(s) that are not allowed to participate in public contracting having a federal nature, with the objective that this person, or persons, obtain, in full or partially, the benefits derived from such contract.

VI. Requires, without having the right to do so, a public servant to give, subscribe, grant, destroy, or deliver a document or good, with the objective of getting a benefit or advantage for himself/herself or a third party.

VII. Promotes or uses their influence, economic or political power, real or fictitious, on a public servant with the purpose of getting a him or herself or a third party, some benefit or advantage, regardless of if the public servant accepts or of the result.

VIII. Presents documents or information that is false or altered with the objective of gaining some benefit or advantage.

When an intermediary carries out the offense with the purpose of getting a benefit for those mentioned in Article 26, both will be sanctioned according to the law.

                                                                                                               6 Shareholders, partners, principals and grantors and receivers of powers of attorney, associates, representatives, proxies, commissioners, agents, managers, advisors, consultants, subcontractors, employees.

 

(Article 9) Individuals or legal entities that directly or indirectly participate in the development of international commercial transactions will incur responsibility when, when they themselves or through a third party,

-­‐ promise, offer, or deliver money or whatever other gift which is improper, to a foreign public servant or third party, in exchange for that public servant do, or abstain from doing, something that is related to their own duties or those of another foreign public servant, with the objective of obtaining or maintaining a benefit or advantage, independent of acceptance or if the desired result is obtained.

If in addition to Mexico, other state(s) may also have jurisdiction over the said offenses. In such instance, the competent authorities in such countries shall, upon request, conduct the necessary consultations to coordinate the actions and measures needed to prosecute and sanction such offenses. 4.4. Investigation procedure The Anti-Corruption Law proposes a procedure that seeks to enable competent officials to have the necessary tools to effectively prosecute and sanction irregular behaviors as indicated by the statute. The Public Comptroller Mininstry is the competent authority in terms of applying and interpreting the law. An investigation will begin either ex-officio or in response to a complaint. Officials of the Ministry will investigate, prosecute and apply the law to the dispute. Thus, it can apply administrative sanctions for mischiefs in accordance with the Anti-corruption Law. These resolutions can be subsequently challenged in accordance with the Federal Law of Administrative Procedure; subsequently through the challenge set forth under the Federal Law of Administrative and Tax Court and finally through Amparo proceedings that would be heard by the relevant Collegiate Circuit Court for administrative matters. These officials in charge of the investigation shall even have access to confidential information in carrying out their duties, but shall keep confidential the identities of those who report the alleged offenses. The objective of the investigation procedure is to be agile, and at the same time safeguard the fundamental human rights of defense of the alleged offender(s).

4.4.1 Complaints may be submitted in the following ways (Article 10):

-­‐ CompraNet (a public procurement website), via the established complaint section; -­‐ Public contracting institutions may submit complaints. Complaints must be submitted to

the Ministry, or when applicable, to the authorities mentioned in Article 4, sections II. and XI., along with any documentation or information that substantiates and evidences that the necessary elements are present, if such evidence is available to them;

-­‐ If submitted by individuals, a complaint alleging said offenses must be submitted, under oath. Applicable criminal laws will apply in the case that complaints are not made truthfully.

-­‐ Anonymous complaints submitted via means established for such complaints;

 

-­‐ International complaints that are submitted by foreign countries or entities must state which offenses were allegedly committed, and include evidence showing the elements for the offense are present.

4.4.2 Complaints, which are to be submitted in writing, must include the following (Article 12):

-­‐ Facts and other information indicating the alleged commission of the offense; -­‐ Information by which to identify the presumed offender; and -­‐ An elaboration showing that the necessary elements are met.

At the investigation´s conclusion, the competent authorities will then determine whether a statement of objections will be issued. If the necessary elements are not met via the required evidence, the case will be closed and archived. If new evidence comes to light the case may be reopened. Statute of limitations: ten years from the undue behaviors or from the moment they ceased if it were a case of continuous undue behavior. If the investigating agency found that the evidence showed that all the required elements were met, the sanctioning mechanism may begin operating. Upon the sanctioning mechanism being set in motion, the alleged offender must be notified according to the guidelines set out in Article 19. Once this process begins, the competent authority must issue a notice of the start of the sanctioning procedure7. Such a notice must include, at a minimum:

-­‐ Name of the presumed offender(s) -­‐ Information as to why the sanctioning mechanism was started as well as where to find

the file information -­‐ Clear, objective, and precise indication of the infractions that are being imputed, as well

as who acted as intermediary, -­‐ It must include the basis for the complaint, pointing out which parts of the law were

allegedly violated, -­‐ Include the benefits of accepting responsibility for the offense as set out in the law, -­‐ Name and signature of the competent authority as well as the date and place it was

issued Presumed offender must be notified in the following ways (Article 19):

-­‐ With regards to those included in Article 2, notifications must be made in person, -­‐ Automatically, when submitted to the authorities

The effects of the notification are to become effective the day after the offender is notified. The offender will have fifteen business days to respond (Article 20). Evidence and closing arguments are allowed. The Public Comptroller Office will render its administrative resolution afterwards. The Federal Law of Administrative Proceedings supplements the Federal Anti-Corruption Law.

                                                                                                               7 This procedure resembles the antitrust sanctioning procedure set forth under the Federal Competition Law.

 

4.5. Sanctions

Individuals Corporate Entities

Fines Fines that range from one thousand to fifty thousand times the general minimum daily wage for Mexico City. With regards to permits, concessions, authorizations or formalities related to public procurement of a federal nature or international commercial transaction, the maximum fine may be increased up to fifty percent, when the necessary elements are present to show that the benefit they received via the misconduct was greater than the maximum fee provided for in the previous paragraph. If the fine provided for in the first paragraph is less than thirty percent of the amount of the contract, in the case of public procurement of a federal nature in the matter of legal arrangements, the fine will be between thirty and thirty-five percent of the amount of the contract if it was awarded to the offender.

Fine that range from ten thousand up to two million times the general minimum daily wage for Mexico City. With regards to permits, concessions, authorizations or formalities related to public procurement of a federal nature or international commercial transaction, the maximum fine may be increased up to fifty percent, when the necessary elements are present to show that the benefit they received via the misconduct was greater than the maximum fee provided for in the previous paragraph. If the fine provided for in the first paragraph is less than thirty percent of the amount of the contract, in the case of public procurement of a federal nature in the matter of legal arrangements, the fine will be between thirty and thirty-five percent of the amount of the contract if it was awarded to the offender.

Debarment Offender will be temporally debarred from participating in public procurement of a federal nature for a period not less than 3 months, and not over 8 years.

Offender will be temporally debarred from participating in public procurement of a federal nature for a period not less than 3 months, and not over 10 years.

The fines to be determined in terms of the Anticorruption Law shall have the status of tax credits and be fixed in liquid amounts, subject to the administrative procedure established by implementing legislation. To determine the precise amount several factors have to be considered: (i) gravity of the offense; (ii) economic circumstances of the offender; (iii) background of the offender; (iv) means of execution; (v) whether there is recidivism or second offender; (vi) amount of gain or damage so caused. The term of debarment shall commence on the day following that on which the competent authority publishes the respective resolution in the Federal Official Gazette, unless the debarment results from the offender´s participation in federal procurement which should be disseminated in CompraNet (federal public procurement website) in terms of the provisions, in which case the period shall run from the date it is established by the system.

 

5. Sanction Reductions - Leniency8 If one confesses to having participated, he/she may benefit from a reduction in sanctions under certain circumstances. Such confessions of guilt may result in a reduction of anywhere from fifty to seventy percent of the amount being sanctioned. The following requirements must be met:

-­‐ None of the other presumed offenders have been notified of the start of the administrative sanctioning procedure;

-­‐ That the person who wishes to have this benefit be amongst those involved in the violation, the first to satisfy the necessary elements that in the authorities´ opinion allow the existence of the violation;

-­‐ That the person who wishes to have this benefit cooperate in full and continuously with the competent authority that is in charge of the investigation, and accordingly, with that which substantiates the administrative sanctioning procedure;

-­‐ That the person who wishes to have this benefit immediately stop whichever actions violated the law

6. Conclusion Given the extent of the reach of the law, it is extremely important that all those who could be implicated to be informed of the duties created, as well as know the potential sanctions. For Mexico, the Anti-Corruption Law is a step in the right direction with regards to a problem that has become a major obstacle to Mexico reaching its full potential. Likewise, this will pose the burden to have stronger compliance programs and labor training to make aware of those participants in public procurement that their actions could make the companies liable. Therefore, proper training is a must. Contacts:9

Paola F. Lopez Jiménez. plj@bstl.com.mx Agustín Gutiérrez R. agr@bstl.com.mx Omar Guerrero Rodríguez ogr@bstl.com.mx Telephone +52 (55) 5091-0000. www.bstl.com.mx E-mail: legalnews@bstl.com.mx The information provided cannot substitute a specific legal advice. This publication serves only for informational purposes. BSTL takes no legal responsibility for a decision taken on basis of this publication.                                                                                                                8 This again resembles the leniency program so established under the Federal Law of Economic Competition. Notwithstanding, there is any exemption as to the fact that such confession could trigger criminal liability to the confessor. 9 BSTL thanks the research support to Luz González Fernández –a summer associate at BSTL-, who is a law student from Berkeley University.