June 22, 2017
Mexico’s new General Law of Administrative Responsibility ("GLAR") takes effect on July 19, 2017. The GLAR establishes administrative penalties for improper payments to government officials, bid rigging in public procurement processes, the use of undue influence, and other corrupt acts.[1] The law reinforces a series of Mexican legal reforms from 2016 that expanded the scope of the country’s existing anti-corruption laws and created a new anti-corruption enforcement regime encompassing all three levels of government (federal, state, and municipal). Among the GLAR’s most significant changes are provisions that target corrupt activities by corporate entities and create incentives for companies to implement compliance programs to avoid or minimize corporate liability.
The GLAR applies to all Mexican public officials who commit what the law calls "non-serious" and "serious" administrative offenses.[2] Non-serious administrative offenses include the failure to uphold certain responsibilities of public officials, as defined by the GLAR (e.g., cooperating with judicial and administrative proceedings, reporting misconduct, etc.).[3] Serious administrative offenses include accepting (or demanding) bribes, embezzling public funds, and committing other corrupt acts, as defined by the GLAR.[4]
The GLAR also applies to private persons (companies and individuals) who commit acts considered to be "linked to serious administrative offenses."[5] A wide array of conduct—including bribery, influence-peddling, improper hiring of former public officials, and collusion in procurement processes conducted by federal, state, and municipal governments—may be considered to be "linked" to serious administrative offenses.[6] Private companies can be held liable for such conduct when natural persons act on the company’s behalf and attempt to obtain benefits for the company through the wrongdoing.[7] Only the provisions governing collusion have exterritorial reach, prohibiting misconduct in connection with foreign public procurement processes.[8]
Notably, the GLAR will repeal and replace Mexico’s 2012 Public Contracting Anti-Corruption Law, a decree that established penalties for improper payments in connection with federal procurement processes.[9] The GLAR, by comparison, will govern a wider array of conduct. In addition to addressing offenses outside the context of public procurement processes (including improper hiring of former public officials, use of false information, etc.),[10] the GLAR also prohibits payments to a wider range of government officials (including payments to state and municipal officials) and bars collusive behavior by participants in federal, state, and municipal procurement processes.[11]
Mexico’s continued efforts to strengthen anti-corruption enforcement have been building for some time, and they are part of a larger trend of increased anti-corruption enforcement in various countries in Latin America. From Brazil’s Clean Companies Act and massive Operation Car Wash investigation to anti-corruption reforms in Colombia, Argentina, and Chile, nations across Latin America are not relying on U.S. authorities for stepped-up domestic anti-bribery enforcement. Regardless of the direction U.S. Foreign Corrupt Practices Act ("FCPA") enforcement takes in 2017, public-driven movements in Latin America have inspired increased anti-corruption reforms, investigations, and prosecutions in the region. Companies operating in Mexico should review the GLAR’s scope and compliance program incentives with local counsel to assess anti-corruption enforcement risk and identify adjustments to compliance programs that may mitigate liability for potential misconduct.
Fighting corruption was a key element of Mexican President Enrique Peña Nieto’s 2012 campaign platform.[12] Peña Nieto vowed to create new laws and institutions to combat corruption, and in July 2016, he signed a package of anti-corruption bills into law. A number of core reforms—including the creation of a National Anti-Corruption System—immediately went into effect, while the GLAR was scheduled for implementation in July 2017. The National Anti-Corruption System coordinates enforcement efforts across federal, state, and municipal levels to "prevent, investigate, and sanction administrative offenses and acts of corruption."[13] To that end, it creates a number of bodies to carry out the country’s anti-corruption efforts, including a Coordinating Committee to design and implement new policies.[14]
As previously noted, the GLAR establishes different categories of conduct carrying administrative penalties applicable to Mexican officials. The GLAR describes "serious" and "non-serious" administrative offenses that can only be committed by Mexican public officials and generally relate to their responsibilities as public servants.[15] The GLAR also sanctions private persons (corporations and individuals) for acts considered "linked to serious administrative offenses," including the following:
The GLAR contains language similar to the FCPA with respect to bribery and influence-peddling, but the law also addresses other issues, such as collusion in public procurement processes and hiring public officials with confidential information.[24] The prohibitions are rather broad, and there is no facilitating payments exception.
As noted above, the GLAR provides administrative penalties for violations committed by both physical persons and legal entities. Physical persons who violate the GLAR can be subjected to the following penalties:
Legal entities, on the other hand, can be fined up to twice the benefit obtained, or up to approximately 5,970,000 USD; precluded from participating in public procurements for up to ten years; and held liable for damages.[28] The GLAR also creates two additional penalties for legal entities: suspension of activities within the country for up to three years; and dissolution.[29] Article 81 limits the ability to enforce these two stiffer penalties to situations where (1) there was an economic benefit and the administration, compliance department, or partners were involved, or (2) the company committed the prohibited conduct in a systemic fashion.[30] The GLAR’s penalties for physical and legal persons are administrative, rather than criminal.
Under Article 25, Mexican authorities can take into account a company’s robust compliance "Integrity Program" in determining and potentially mitigating corporate liability under the GLAR.[31] The law requires the Integrity Program to have at least the following elements:
The U.S. Securities and Exchange Commission ("SEC") and U.S. Department of Justice ("DOJ") highlight many of these same factors—including, for example, policies, training, reporting and disciplinary functions, and ongoing audit and monitoring—in their guidance for typical hallmarks of an effective compliance program.[33] Yet there are some key differences between the GLAR and the FCPA regarding how a compliance program influences the authorities’ prosecutorial decision-making. For example, the GLAR’s Integrity Program criteria give weight to a Human Resources policy that carefully reviews and identifies potential employees that could be a risk to the company. There is no equivalent factor in the FCPA guidance issued by the U.S. authorities and it is not yet clear how Mexican authorities will define and interpret the Human Resources aspect of the GLAR’s Integrity Program provisions. For example, it is not clear whether this component of the GLAR might apply to the quality and extent of employee background checks undertaken during employee hiring, or whether the GLAR might incentivize companies to conduct periodic Human Resources reviews of current employees who may have incurred disciplinary sanctions for high-risk conduct. Additional guidance regarding the Human Resources clause and other undefined aspects of the GLAR may become available—through enforcement actions, government statements, or judicial interpretations—once the law becomes effective this year.
The GLAR contains a self-reporting incentive that provides for up to a fifty to seventy percent reduction of penalties for those who report past or ongoing misconduct to an investigative authority.[34] As previously noted, the GLAR’s nonmonetary sanctions include preclusion from participating in public procurements and projects for up to eight years (for physical persons) or ten years (for companies).[35] According to the statute, if a person subject to a preclusion sanction self-reports GLAR violations, the preclusion sanction can be reduced or completely lifted by the Mexican authorities.[36] Requirements for obtaining a reduction of penalties through self-reporting include, but are not limited to, the following:
Notably, other participants in the alleged misconduct who might be the second (or later) to disclose information could receive up to a fifty percent penalty reduction, provided that they also comply with the above requirements.[38] If a party confesses information to the investigative authorities after an administrative action has already begun, that party could potentially receive a thirty percent reduction of penalties.[39]
While the GLAR and its Integrity Program defense are particularly relevant to companies operating in Mexico in 2017, the law is only one component of a broader effort to reform how corruption is penalized. Other notable reforms undertaken by the Mexican government in the last two years include the establishment of the following:
It remains to be seen whether the GLAR and Mexico’s other anti-corruption reforms will result in significantly increased enforcement actions. A 2016 Global Impunity Index study for Mexico published by the Center for Studies on Impunity and Justice at the University of the Americas Puebla concluded that "less than 1% of crimes in Mexico are punished."[44] The GLAR’s effectiveness could depend, in part, on broader enforcement improvements in the country. The future of anti-corruption enforcement in Mexico via the FCPA may remain unclear until the new U.S. administration gives further direction to the market via official statements about enforcement priorities.
While time will tell whether the GLAR will become a vehicle for more aggressive and independent enforcement rather than just another statute on the books, Mexico’s reforms are a part of a larger trend observed in Latin America of national efforts to create or strengthen domestic anti-corruption regimes. In February 2016, for example, Colombia enacted the Transnational Corruption Act, which creates administrative liability for corporate entities that pay bribes to foreign government officials.[45] Accordingly, companies should take both the FCPA and legal developments in local jurisdictions into account when designing and improving their anti-corruption compliance programs. Mexico’s GLAR and corresponding reforms to its enforcement regime indicate that corporate entities, while increasing focus on anti-corruption efforts, also have a significant incentive to strengthen compliance programs to reduce the potential for corrupt activities. Recent legislative developments suggest that the benefits come not only through prevention, but also through potential mitigation of penalties based on good-faith efforts if such acts occur.
[1] Ley General de Responsabilidades Administrativas, Artículos 2, 52, 66, 70 (July 18, 2016) [hereinafter "GLAR"].
[5] Id. at Artículos 3, 4, 65.
[9] See Ley Federal Anticorrupción en Contrataciones Públicas (June 11, 2012); GLAR, Transitorios ¶ 3.
[10] GLAR, Artículos 66-69, 71-72.
[11] Id. at Artículos 4, 66, 70.
[12] See, e.g., Mauricio Torres, Las 7 Reformas que Propone Peña Nieto Para México, Expansión (Aug. 27, 2012), http://expansion.mx/nacional/2012/08/27/una-reforma-fiscal-integral; Randal C. Archibold and Karla Zabludovsky, New President of Mexico Vows to Focus on Economy, NY Times (Dec. 1, 2012), http://www.nytimes.com/2012/12/02/world/americas/enrique-pena-nieto-takes-office-as-mexicos-president.html.
[13] Ley General del Sistema Nacional Anticorrupción, Artículo 1 (July 18, 2016).
[16] Bribery includes promising, offering, or giving any benefit, whether it be through money, valuables, property, services well below market value, donations, or any other benefit, to a public servant or their spouse in return for the public servant performing or refraining from performing any act related to their duties, or using their influence in their position, for the purpose of obtaining or maintaining a benefit or advantage, irrespective of the benefit actually being achieved. Id. at Artículo 52, 66.
[24] Compare GLAR, Artículos 66-72, with 15 U.S.C. § 78dd-1(a).
[25] Under Article 81 of the GLAR, if no benefit is obtained through the corrupt act, the financial penalty is calculated by multiplying a statutorily defined value by the daily tenor of a Mexican government economic reference rate called the Unidad de Medida y Actualización ("UMA"). While the UMA is a variable rate that changes over time, the statutory multiple is static and defined by the GLAR. For physical persons—if no benefit was obtained—the penalty can be up to 150,000 times the UMA (approximately 597,000 USD as of May 2017). GLAR, Artículo 81.
[33] The SEC and DOJ’s FCPA Resource Guide lists the following hallmarks of an effective compliance program: (1) commitment from senior management and a clearly articulated policy against corruption; (2) a clear and concise code of conduct and compliance policies; (3) oversight, autonomy, and resources for the compliance program; (4) risk assessment; (5) training and continuing advice; (6) incentives and disciplinary measures; (7) third-party due diligence; (8) confidential reporting and internal investigations; (9) continuous improvement of the policy; and (10) pre-acquisition due diligence and post-acquisition integration. U.S. Dep’t of Justice and Sec. & Exch. Comm’n, A Resource Guide to the U.S. Foreign Corrupt Practices Act 39, available at https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf.
[40] See Ley General del Sistema Nacional Anticorrupción (July 18, 2016).
[41] See Ley Orgánica del Tribunal Federal de Justicia Administrativa (July 18, 2016).
[42] See Reformas a la Ley Orgánica de la Procuraduría General de la República (July 18, 2016).
[43] See Código Penal Federal, Artículos 212-222 (last amended Apr. 7, 2017).
[44] Global Impunity Index Mexico 2016, Fundación Universidad de las Américas Puebla 14 (Feb. 2016), http://www.udlap.mx/igimex/assets/files/igimex2016_ENG.pdf.
[45] See Ley No. 1778 (Feb. 2, 2016) (Colombia).
The following Gibson Dunn lawyers assisted in preparing this client update: Partners F. Joseph Warin and Michael Farhang, and associates Tafari Lumumba, Mike Galas, Abiel Garcia, Patricia Herold, and Pedro Soto.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. We have more than 110 attorneys with FCPA experience, including a number of former prosecutors and SEC officials, spread throughout the firm’s domestic and international offices. Please contact the Gibson Dunn attorney with whom you usually work in the firm’s FCPA group, or the authors:
F. Joseph Warin – Washington, D.C. (+1 202-887-3609, [email protected])
Michael M. Farhang – Los Angeles (+1 213-229-7005, [email protected])
Please also feel free to contacts the following Latin America practice group leaders:
Kevin W. Kelley – New York (+1 212-351-4022, [email protected])
Jose W. Fernandez – New York (+1 212-351-2376, [email protected])
Tomer Pinkusiewicz – New York (+1 212-351-2630, [email protected])
Lisa A. Alfaro – São Paulo (+55 (11) 3521-7160, [email protected])
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