Analyzing Mexico’s new National Anti-Corruption System
INSIGHT ARTICLE |
In May 2015, the Mexican National Anti-Corruption System (NAS) was created to fight corruption in Mexican business and politics. President Enrique Peña Nieto ratified and publicized these new laws in July 2016, with the system’s last law enacted in July 2017. This evolution of Mexico’s anti-corruption policies is the most far-reaching and intense plan the government has implemented, and both American and Mexican companies must understand the legislation’s details and effects to operations.
The NAS consists of four new laws and five amendments to existing regulations. The new laws include:
- National Anti-Corruption System Law
- General Law on Administrative Responsibilities
- Organic Law of the Administrative Justice Federal Court
- Audit and Accounting for Federal Government Agencies Law
In addition, amendments were made to the Federal Penal Code, the Organic Law of the Federal Administration, the Tax Coordination Law and the Organic Law of the Attorney General’s Office.
While U.S. companies are certainly familiar with the Foreign Corrupt Practices Act (FCPA), Mexican NAS laws present multiple similarities, but also many differences. Some of the most important contrasts include the handling of facilitation payments, books and records, and sanctions. U.S. companies with a footprint in Mexico, as well as Mexican companies need to be aware of the differences in order to properly participate in international business without risk of corruption.
Understanding the new NAS laws
As mentioned earlier, the NAS established four new laws that companies headquartered in, or doing business in Mexico must abide by. These establish a foundation for the anti-corruption efforts of the Mexican government, with a goal of implementing a stronger business and regulatory environment.
- The General Law of the National Anti-Corruption System: This law establishes the new NAS with much needed improvements. This new system is responsible for bringing together federal, state and local government authorities to “prevent, detect and sanction administrative offenses and acts of corruption” while controlling public resources.
- The General Law on Administrative Responsibilities: This law replaces the Federal Anti-Corruption Law on Public Procurement and the Federal Law of Administrative Accountability of Public Officials. The law defines the administrative duties and responsibilities for both public servants and private parties, and establishes penalties for the commission of administrative offenses.
- The Organic Law of the Administrative Justice Federal Court: This law replaces the Organic Law of the Tax and the Administrative Justice Federal Court. The law mandates that the Administrative Justice Federal Court will form part of the National Anticorruption System and will have authority over both public servants and private parties for serious administrative violations under the General Law of Administrative Responsibility.
- The Audit and Accountability for Federal Government Agencies Law: This law establishes the organization of the Superior Auditor of the Federation. Among other powers, the Superior Auditor of the Federation “investigates and substantiates the commission of administrative offenses detected in its audit function.”
What does NAS mean for U.S. companies?
Many U.S. companies operating in Mexico may assume that their processes designed to comply with FCPA are sufficient to comply with the new NAS laws. However, that is not necessarily the case. To some extent, the two laws overlap, but some significant differences also exist. Companies must take a fresh look at NAS and make sure employees, compliance teams, procedures and internal regulations are prepared to cover both laws.
Both laws contemplate corporate liability, but individuals working for companies can also be found liable under both laws. Both the FCPA and NAS encourage self-disclosure and cooperation, as that behavior can result in lower fines and penalties. However, the laws differ in several key ways, including:
- Facilitation payments: The FCPA allows some exceptions for companies to make facilitation payments to expedite services. However, Mexican law does not permit any facilitation payments, and is therefore more strict than the FCPA in this aspect. U.S. companies operating in Mexico must understand that facilitation payments cannot be utilized under any circumstances.
- Books and records: In addition, the FCPA requires companies to keep books and records that accurately reflect the operations and transactions of the business. For instance, if a company pays for travel and expenses for a client, it is expected to accurately reflect that spending. This is an area where corruption often takes place, with lavish spending intended to influence someone designated as a business expense or miscellaneous spending to hide its true purpose. While accurate books and records are very important for FCPA purposes, there is no reference to them in the new Mexican anti-corruption law. In this instance, U.S. companies are still expected to keep books and records, as they will still be subject to FCPA guidelines.
- Potential penalties: In the FCPA, penalties concentrate on monetary fines, with up to US$2 million per transaction based on anti-bribery provisions, and up to US$25 million in accounting provisions. In some cases, companies are required to repay profits gained through bribery and lose the privilege to work with certain foreign governments. In contrast, the NAS includes some fines, but it mainly focuses on termination of employment for officials, disqualifying individuals and corporations from participating in public procurement processes, and repaying damages and lost profits to the treasury.
- Administrative offenses: The NAS also extends to other behaviors beyond bribery, to administrative offenses that are not a focus of the FCPA. These offenses can include public officials, individuals and corporations colluding with vendors to obtain licenses or documentation to gain a contract. While they may not be the ultimate beneficiary or receive any money, those representatives violate the new law.
What does NAS mean for Mexican companies?
Mexican companies and U.S. businesses with operations in Mexico must understand that the new NAS laws are more restrictive overall than past anti-corruption laws. Previous guidelines were more lenient, resulting in widespread corruption and mistrust in the business environment. Companies must be aware of several developments in the new legislation, including:
- Enforcement: The NAS law has recently gone into effect, and enforcement actions are still being fleshed out. However, unlike the FCPA, which existed for many years but became a focal point of the U.S. government in recent years, NAS enforcement is expected to begin much quicker. The current Mexican administration appears motivated to enforce these new laws and enhance the standards of conducting business in Mexico.
- Citizen involvement: The new Mexican anti-corruption law will include participation by citizens, representing a significant change over previous standards. In the past, laws to punish government officials were in the hands of other government officials, creating an inherent weakness. By directly involving citizens, the government hopes to encourage a positive change in the dynamics of enforcement.
How your company can limit corruption risk
The underlying message behind the new Mexican anti-corruption laws is to restore the credibility to public institutions and the government overall. By incorporating citizens and instituting more strict laws, Mexico aims to create a more effective regulatory environment and a transparent business climate.
Companies can limit risk of corruption infiltrating its infrastructure by being proactive with anti-corruption movements. Having an efficient integrity or compliance plan, promoting a company-wide commitment through a code of ethics, properly screening employees and third parties, and completing internal investigations are just a few ways companies can protect themselves.
With Mexico enforcing the most far-reaching anti-corruption system the country has ever implemented, U.S. companies that do business in Mexico must be prepared to manage both NAS and FCPA demands, and Mexican companies need to implement effective processes to actively pursue the nationwide goal of effectively fighting corruption.