2012 - Surveying Mexico's Anti-Corruption Landscape - MAPI Policy Analysis

7/28/2019 2012 - Surveying Mexico's Anti-Corruption Landscape - MAPI Policy Analysis

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1Copyright 2012 MAPI. All rights reserved.

Surveying Mexicos Anti-Corruption LandscapePolicy Analysis | August 2012

By: Frederick T. Stocker, Vice President, General Counsel and Secretary

[email protected]

Background

This report is a follow-up to a series of reports MAPIreleased over the course of the past year dealing withanti-corruption activities in the so-called BRIC coun-tries (Brazil, Russia, India, and China).1

As was the case with the BRIC countries, Mexico hasbeen singled out for examination because of the impor-tance of that market to MAPI member companies.Moreover, just as with the BRICs, Mexico has been plagued by significant corruption prob-lems that have posed obstacles for investing and doing business there. In both Mexico andthe BRICs, there have been recent efforts to address their respective corruption problems.The effectiveness of these recent measures, of course, remains to be seen.

In keeping with a pronounced global trend that has emerged over the past several years,Mexico has taken a harder position against corruption. This has in large part been over-shadowed in the global anti-corruption spotlight, however, by two developments deemedmore newsworthy: the increased volume of enforcement activity in the United States under

the countrys Foreign Corrupt Practices Act (FCPA)2

and the entry intoforce on July 1, 2011 of the United Kingdom Bribery Act (UKBA).3

With regard to the FCPA, the U.S. Department of Justice (DOJ) andSecurities and Exchange Commission (SEC) have continued theirstepped-up enforcement activity into 2012. In 2011, the DOJ and SEC

brought 16 enforcement actions against corporations and 18 againstindividual defendants, reaping more than $508 million in corporatefines, penalties, and disgorgements. These figures represent only a

modest decline from the record year 2010, which saw 20 corporate enforcement actions,16 aimed at individuals, and a staggering $1.8 billion in fines, penalties, and disgorge-ments. At the end of 2011, nearly 80 companies were known to be the subject of ongoingand unresolved foreign bribery investigations under the FCPA.

Maintaining their enforcement intensity in the first half of 2012, DOJ and SEC havebrought FCPA actions against both corporations and individuals. During this period, U.S.enforcement authorities for the first time publicly credited a companys robust complianceprogram in a decision not to bring charges against the corporation.

It should be noted that the U.S. government has punished a number of companies for vio-lating the FCPA based at least in part on their business practices within Mexico (e.g., the

1 Anti-Corruption Developments in the BRIC Countries: A MAPI Series, PA-107, MAPI, April 2012.2 The FCPA, 15 U.S.C. 78dd-1, et seq., is available atwww.just ice.gov/criminal/fraud/fcpa/statutes/regulations.html.3 The UK Bribery Act is available atwww.legislation.gov.uk/ukpga/2010/23. For a detailed review of the UnitedKingdom law, see Global Companies Prepare for the July 1, 2011 Effective Date of the UK Bribery Act, LAR-505,MAPI, June 2011 and UK Bribery Act Implementation Delayed: Respite or Reprieve?, LAR-503, MAPI, March 2011.

A poor politician isa poor politician.

Popular Mexican Saying

The U.S. government has

punished a number o

companies or violating

the FCPA based at least

in part on their business

practices within Mexico

Anti-Corruption

Developments in the BRIC

Countries: A MAPI Series

Related Research
mailto:fstocker%40mapi.net?subject=Surveying%20Mexico%E2%80%99s%20Anti-Corruption%20Landscape%2C%20PA-110http://www.mapi.net/research/publications/anti-corruption-developments-bric-countries-mapi-serieshttp://www.justice.gov/criminal/fraud/fcpa/statutes/regulations.htmlhttp://www.legislation.gov.uk/ukpga/2010/23http://www.mapi.net/research/publications/anti-corruption-developments-bric-countries-mapi-serieshttp://www.mapi.net/research/publications/anti-corruption-developments-bric-countries-mapi-serieshttp://www.mapi.net/research/publications/anti-corruption-developments-bric-countries-mapi-serieshttp://www.mapi.net/research/publications/anti-corruption-developments-bric-countries-mapi-serieshttp://www.mapi.net/research/publications/anti-corruption-developments-bric-countries-mapi-serieshttp://www.mapi.net/research/publications/anti-corruption-developments-bric-countries-mapi-serieshttp://www.legislation.gov.uk/ukpga/2010/23http://www.justice.gov/criminal/fraud/fcpa/statutes/regulations.htmlhttp://www.mapi.net/research/publications/anti-corruption-developments-bric-countries-mapi-seriesmailto:fstocker%40mapi.net?subject=Surveying%20Mexico%E2%80%99s%20Anti-Corruption%20Landscape%2C%20PA-110


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Copyright 2012 MAPI. All rights reserved.

DOJ and SEC reached a $5.2 million settlement amount in 2011 in an FCPA enforcementaction involving Tyson Foods, Inc.).

Concerning other newsworthy anti-corruption events in the United Kingdom, earlier thisyear, the Ministry of Justice took a page out of their U.S. enforcement counterparts play-book by proposing the incorporation of U.S.-style plea agreements into UK law. Also this

year, the UK Financial Services Authority asserted its oversight of anti-briberycompliance with regard to investment banks. The expansive jurisdictional reachof the FCPA and UKBA (which has already been the basis for one successful pros-ecution) encompasses many companies global operations and sharpens the focuson issues of corruption in key global markets such as Mexico. Increasingly, keydeveloping countries are coming to the realization that effective anti-corruptionmeasures are an important factor in integrating into the global business com-munity, becoming more attractive to foreign direct investment, and achieving orsustaining goals of economic growth and expansion. To a growing extent, U.S.

companies doing business in the global arena have to be concerned about exposure to amultiplicity of anti-corruption laws, including broad extraterritorial measures such as the

FCPA and UKBA and local laws in the countries where they operate.This report examines the general corruption landscape in Mexico, including the interrela-tionship of the war on drugs and run-of-the mill political corruption. It also explains thegrowing attractiveness of the Mexican market to foreign investors; examines the implica-tions, in both Mexico and the United States, of the ongoing bribery investigation of Wal-Mart Stores, Inc. and its Mexican subsidiary; and discusses the potential ramifications ofthe recent Mexican presidential election on corruption in the country. The legal frameworkfor addressing the corruption problem in Mexico is reviewed in some detail, with a par-ticular focus on the recently enacted Federal Anti-Corruption in Public Contracts Law.Finally, this report will offer some practical anti-corruption compliance tips for operatingin Mexico as well as elsewhere in the global marketplace.

Introduction

The image most closely associated with Mexico in recent years is the widely reportedviolence related to the governments self-styled war on the drug cartels. It is generallyassumed that the violence is a natural response to this crackdown on the cartels and theincreasing efforts by the Mexican government to confront homegrown corruption. Localpoliticians and the police, particularly in Mexicos northern states, are frequently accusedof corruption and of collaborating with the powerful cartels. While corruption associated

with the cartels is the most visible and reported, the problem runs deeper. Increasingly,reports and surveys show that corruption has taken on institutional dimensions in Mexicoin some economic sectors. This situation has resulted in an increased focus by U.S.,

Mexican, and likely other national authorities on the behavior and dealings of Mexicangovernment officials.

This spotlight on corruption in Mexico comes at a time when the country hopes to reap therewards of investors growing interest in high performing emerging markets as the globaleconomy combats the lingering ill effects of worldwide recession. Mexico realizes that inorder to fully benefit from this interest in investment, it has to demonstrate that its effortsto tackle corruption are serious.

While corruption

associated with

the cartels is the

most visible and

reported, the

problem runs

deeper


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Reward and Risk

THE ALLURE OF MEXICO

According to U.S. Census Bureau statistics, at the end of 2011, Mexico was the third larg-est trading partner with the United States, just behind Canada and China.4 Total tradebetween the two countries exceeds $460 billion a year, and their economies are integrallyintertwined. In comparison, total U.S. trade with China in 2011 was only some 8 percentgreater than trade with Mexico; in fact, the United States exports almost twice as muchto Mexico each year as it does to China. Mexico is a leading producer of a variety of goodsconsumed in the United States such as automobiles, flat-screen TVs, and winter produce.More than $1 billion in goods cross the border each day.

For many U.S. companies, notably smaller and medium-sized enterprises, Mexico repre-sents an inviting target for their first international investment. Generallyspeaking, Mexico is recognized as having a strong rule of law, convenienttransportation links to the United States, important treaty relationships

with its northern neighbor (e.g., the North American Free Trade Agreementallows most goods to cross between the United States and Mexico duty-free), and a favorable business climate.

As of late, commentators have been touting Mexico as an attractive placeto invest and do business in, drawing favorable comparisons to the muchmore vaunted Latin American market of Brazil. To a degree, Mexico can be

said to be stepping out of Brazils economic shadow.

Just a decade ago, the Mexican economy was larger than Brazils. During the interveningperiod, however, Brazils economy began to skyrocket to a point where it doubled Mexicos.This was due in large part to Chinas ascendance as Brazils largest trading partner, aconsequence of that Asian giants seemingly insatiable appetite for commodities from theresource-rich South American nation.

During this same time, China became a manufacturing competitor with Mexico after join-ing the World Trade Organization (WTO)a competitor with a marked cost advantage.This latter development, coupled with a recession in Mexicos largest marketthe UnitedStatescaused the countrys economic fortunes to wane vis--vis those of Brazil.

Now, however, the tide seems to be turning. Brazil can no longer take for granted a con-tinuing boom in world commodity prices. Gross domestic product (GDP) growth therehas dropped dramatically, from 7.5 percent in 2010 to 2.7 percent in 2011. The countryhas become less competitive, with a minimum wage three times that of countries such as

Vietnam and Indonesia. The World Banks International Finance Corporation ranks Brazilas the 126th country (out of 183) in terms of ease of doing business. 5

In comparison, Mexico is 53rd and its economy is predicted to grow by 4 percent this year.

Mexican manufactured products are inching up as replacements for Chinese goods in theUnited States as the Asian behemoths labor costs grow. The Mexican automotive indus-try generated more revenue in the country last year ($23 billion) than did tourism or oil,a sign of this manufacturing resurgence. While Brazils economy still maintains a sizableadvantage over Mexicos, and will continue to do so for the foreseeable future, the gap isnarrowing.

4 Available atwww.census.gov/foreign-trade/balance.5 Doing Business 2012, International Finance Corporation, The World Bank (as of June 2011),http://doingbusiness.org.

Mexican manuactured

products are inching

up as replacementsor Chinese goods in

the United States as

the Asian behemoths

labor costs grow
http://www.census.gov/foreign-trade/balancehttp://doingbusiness.org/http://doingbusiness.org/http://www.census.gov/foreign-trade/balance


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PROBLEMS AND PITFALLS

The basic issue.Having just painted a relatively rosy picture of Mexico as a place toinvest and do business, corruption in the country has to be mentioned as a counterbalance.Corruption and bribery permeate all levels of Mexican political and government entities.

It is assumed that many government officials, judges, and police officers are on the take.Many such public functionaries are said to continue to perpetrate official abuses and evencriminal actions with seeming impunity. At its most basic level, corruption involves pay-ing bribes to secure everyday services or avoid administrative fines. So-called mordidas(translated as the bite, and in effect a bribe) are part of day-to-day Mexican life. Moresophisticated and less apparent forms of corruption have developed over time, includingovercharging for goods and services and providing for payments to government function-aries and political parties.

Historical antecedents.Corruption in Mexico is generally considered to trace backto the times of the conquistadors in the 16th century, who arrived there and establishedSpanish rule. Governing officials were appointed by the Spanish crown and were expectedto extract support for themselves from local sources. These appointments were bought

from the king.After Mexican independence, governing authorities continued this system to make up fortheir income shortfalls resulting from insufficient tax revenues. Corruption developed bothas a way to raise funds for needed public services and buttress the income of bureaucrats.In a sense, the state ran a giant pyramid scheme with the most influential people at the top

benefiting as well as those below from the bribes, tips, patronage, and misappropriationsof public resources/funds. A trickle-down economics of sorts developed its own set ofnorms and public expectations.

Today, corruption, bribery, and tipping permeate all levels of Mexican society to a varietyof degrees. Again, it is part of daily life. Mexicos pervasive poverty, unequal distribution of

wealth, history, and culture make corruption difficult to eradicate.

Plata o plomo.Of course, the drug war has only exacerbated the corruption problem.Mexico continues to be the source or entry point of the vast majority of illegal narcoticsconsumed in the United States; it is the leading transit country for cocaine and heroin

and the primary source of marijuana and methamphetamine travelingto the north. It is generally agreed that drug trafficking and the tremen-dous amount of illicit money it generates feed corruption. It is commonknowledge that a large percentage of local police are on the take from thecartels, either voluntarily or through coercion. The latter scenariocor-ruption resulting from coercionis referred to as the dreaded alternativeplata o plomo, to have a choice between silver or lead, meaning to take

the bribe or take the bullet. This is a form of corruption encouraged by fear as opposed toeconomic necessity or social acceptance.

Mexicos drug cartels have gravitated to two major groupings, the Sinaloa cartel and LosZetas. The latter grouping is an organization said to have been founded by former Mexicanspecial operations soldiers, some of whom were trained in the United States in counter-narcotics tactics. The Los Zetas tend to first apply military solutions to problemsplomo.

While they engage in bribery of officials, they are said to have adopted as an organizationalvalue the principle that it is less expensive and perhaps more effective to threaten than it isto bribe. The Sinaloas, on the other hand, take more of a business orientation, employingplata first. While this latter group can resort to violence, it is merely one tool at hand forachieving desired ends.

The drug war has had profound political implications in Mexico and could have a sig-nificant impact in terms of the countrys efforts to combat corruption. Former Mexican

Corruption developed

both as a way to raise

unds or needed public

services and buttress the

income o bureaucrats


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President Vicente Fox of the National Action Party (PAN) launched the war on drugs andhis successor from the same party, Felipe Caldern, greatly expanded it by bringing thecountrys military into the conflict. The Mexican people eventually seemed to tire of theeffort and the attendant violence (which has taken between 50,000 and 60,000 lives),

and that weariness is thought to have been a major factor in the return to power of theInstitutional Revolutionary Party (PRI) in the presidential election of Enrique Pea Nietoearlier this summer. The PRI, which held the presidency for some 70 years prior to 2000,returned to power after a 12-year hiatus.

The severity of the problem.How serious is Mexicos corruption problem? Accordingto Transparencia Mexicana, the problem is escalating. The 2010National Index ofCorruption and Good Governance released in May 20116 showed that Mexicans paid

bribes in more than 10 percent of cases where they were accessing arange of public procedures or services. In 2010, the estimated cost ofthis form of corruption was in excess of 32 billion pesos ($2.5 billion),an amount that represents an additional tax of more than 14 percentof the average Mexican familys household income.

The bite is even more severe for business. When corporations operate inMexico they have to come to grips with the highly federalized state authori-ties, each of which has its own set of rules and regulations on conducting

business; this increases the prospects for bribery demands. Indeed, briberyultimatums from Mexican officials are said to proliferate in such areas asapplications for construction permits and utilities and operating licenses;

filings necessary to acquire and register real estate; and negotiating customs administrationprocesses. Bribery is also said to thrive in conjunction with the public procurement process.

According to the World Economic Forums Global Competitiveness Report 2010-2011,7crime and theft is perceived as the most problematic factor for doing business in Mexico,followed closely by corruption.

In comparing Mexicos corruption with that of other countries, it ranked 100th (out of 183)in Transparency Internationals Corruption Perceptions Index 2011,8 which ranks coun-tries and territories according to their perceived levels of public sector corruption. Thisranking represented the worst result among the 34 member countries of the Organisationfor Economic Co-operation and Development (OECD), known as the rich nations club.Compared to the BRIC countries, Mexico came in behind Brazil (73), China (75), and India(95) but ahead of Russia, which was ranked a dismal 143rd.

The Global Integrity Report: 2011 (GIR), which measures countries anti-corruptioninstitutions and mechanisms, found that of the 31 countries analyzed, only Mexico and twoothers regressed in overall performance in this regard since they were last evaluated in2009. Mexico was said to have had setbacks in its anti-corruption and governance mecha-nisms with declines in every category.9 While the country was said to be strong interms of its relevant legal framework, it was weak as measured by the overall score, and

very weak in actual implementation of the legal framework. The GIR said that the moststriking issue in Mexico is the extent to which the drug war has negatively influenced thecountrys anti-corruption and transparency efforts. It qualified this statement, however,

by noting that some parts of the country (i.e., the northern states) are more affected thanothers, as evinced by a dispute over the perceived unwillingness of government authoritiesto release accurate statistics on the drug wars death toll. The report noted that the drug

war has affected the autonomy and physical safety of judges and journalists.

6 Available atwww.transparency.org/news/pressrelease/20110511_Mexico_worse.7 Available atwww3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf.8 Available at http://cpi.transparency.org/cpi2011/results.9 Key findings are available atwww.globalintegrity.org/report/findings; for the full report, seewww.globalintegrity.org/files/GIR2011.pdf.

According to the World

Economic Forums Global

Competitiveness Report

2010-2011, crime and

thet is perceived as themost problematic actor

or doing business in

Mexico, ollowed closely

by corruption
http://www.transparency.org/news/pressrelease/20110511_Mexico_worsehttp://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdfhttp://cpi.transparency.org/cpi2011/resultshttp://www.globalintegrity.org/report/findingshttp://www.globalintegrity.org/files/GIR2011.pdfhttp://www.globalintegrity.org/files/GIR2011.pdfhttp://www.globalintegrity.org/report/findingshttp://cpi.transparency.org/cpi2011/resultshttp://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdfhttp://www.transparency.org/news/pressrelease/20110511_Mexico_worse


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Finally in terms of lamentable international corruption comparisons is theBribe PayersIndex 2011, compiled by Transparency International.10 This indicator ranks 28 of theworlds largest economies by the perceived likelihood of companies from these nationspaying bribes to win business abroad. Mexico had the dubious distinction of coming in

26th in the listing, ranking ahead of only China and Russia.

The Wal-Mart Investigation

On April 21, 2012, The New York Times published a front-page investigative article11 thatsent shock waves through the global anti-corruption compliance community, with par-ticular implications in the United States and Mexico. In essence, the article alleged thatthe worlds largest retailer, Wal-Mart Stores, Inc., engaged in a campaign to implement anambitious growth strategy in Mexico. According to the article, a company whistleblowerinformed a senior in-house attorney in 2005 of a sweeping practice of making paymentsto Mexican officials and bureaucrats to expedite permitting necessary to construct new

stores. To facilitate the alleged bribes, Wal-Mart de Mexico (Wal-Marts Mexican subsid-iary, also known as Walmex) is reported to have kept a dual set of books and records ofthe illicit payments through third parties, who are known in that country as gestores. Thearticle said that these payments were targeted at . . . mayors and city council members,obscure urban planners, low-level bureaucrats who issued permitsanyone with the powerto thwart Wal-Marts growth. Payments were said to have been designed to, among otherthings, secure zoning approvals, reduce environmental impact fees, and gain the allegianceof neighborhood leaders in connection with these construction projects.

Purportedly, the company commenced an internal investigation, which the article saiduncovered more than $24 million in arguably questionable payments. The Times chargedthat the investigation was halted by senior Wal-Mart executives. In December 2011, after

being informed that the newspaper was investigating the companys dealings in Mexico,

Wal-Mart reported these potential FCPA violations to the DOJ. Both relevant enforcementauthorities in the United States and Mexicos comptroller office have launched investiga-tions of these matters. The latter Mexican entity is said to be checking a decades worth offederal paperwork and permits that Wal-Mart de Mexico obtained to open its stores andoperate within the country. Moreover, the comptrollers office stated that it would ask U.S.authorities in the case to turn over any evidence they develop.

It is important to stress that whether Wal-Mart has violated the FCPA or any relevantMexican laws has yet to be determined. Notwithstanding eventual resolution of these mat-ters, the ongoing case has become perhaps the highest profile FCPA/bribery investigationin historyone that has far-reaching implications in the United States and Mexico, as wellas for Wal-Mart and other global companies.

IMPACT IN THE UNITED STATES

With regard to the impact of the case in the United States, first and foremost, any effortsto relax the FCPA are on indefinite hold. The flurry of FCPA enforcement activity over thepast several years has drawn some criticism of the statute. Business advocates have main-tained that strict enforcement of the law has a chilling effect on U.S. companies overseasdesigns. Moreover, they argue, stringent interpretation of the law is at odds with theObama administrations stated goal of doubling U.S. exports over a five-year period. Now10 Available at http://bpi.transparency.org/bpi2011/results.11 David Barstow, Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle, The New YorkTimes, April 21, 2012,www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-silenced.html?_r=2&partner=rss&emc=rss.
http://bpi.transparency.org/bpi2011/resultshttp://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-silenced.html%3F_r%3D2%26partner%3Drss%26emc%3Drsshttp://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-silenced.html%3F_r%3D2%26partner%3Drss%26emc%3Drsshttp://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-silenced.html%3F_r%3D2%26partner%3Drss%26emc%3Drsshttp://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-silenced.html%3F_r%3D2%26partner%3Drss%26emc%3Drsshttp://bpi.transparency.org/bpi2011/results


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the laws proponents can point to this case as proof positive that tough anti-bribery lawsand their rigorous enforcement are justified.

A key proposed amendment of the FCPA deals with a compliance defense similar tothe so-called adequate procedures affirmative defense in the UKBA. The essence of theproposed compliance defense is that it would allow companies to protect themselves fromFCPA liability if an individual employee or a group of employees circumvented compliancemeasures that were otherwise reasonable in identifying and preventing such violations. Itis maintained that such an affirmative corporate defense is necessary because employerscan now be held liable for violations committed by rogue employees, agents, or subsidiar-ies, even if the company has a state-of-the-art compliance program.

Wal-Mart has prided itself on having a world-class global anti-corruption complianceprogram. The alleged illicit payments are still said to have taken place over the better partof a decade and were brought to the companys attention by a whistleblower. The scenariodepicted in The Times article does not portray a rogue employee or group of employees.Some might argue that having a best-in-class compliance program did not result in Wal-Mart doing business more ethically. Moreover, the line of argument goes that if Wal-Mart

had truly been kept in the dark prior to the whistleblowers charges, what does that sayabout the overall adequacy of the compliance program? Given the alleged facts, it is dif-ficult to imagine why the parent company should not be part of any eventual enforcementaction. As such, a compliance defense would not seem to benefit Wal-Mart.

Another proposed FCPA amendment would clarify the definition of a foreign official (thestatute prohibits payments to foreign officials to secure or retain business). In some inter-national business dealings, it is not clear just who is a foreign official. Again, consideringthe circumstances alleged in The Times article that Walmex targeted mayors and citycouncil members, obscure urban planners, low-level bureaucrats who issued permitsany-one with the power to thwart Wal-Marts growth, it does not seem that the company couldclaim to not know that foreign officials were involved in such transactions. No change inthe FCPAs definition of foreign officials would likely help the company in the case.

IMPACT IN MEXICO

The Wal-Mart matter became a cause clbre in the recent Mexican presidential election;virtually all of the candidates demanded a full investigation and, if the allegations proveto be correct, punishment of the involved wrongdoers. The investigation by the Mexicancomptrollers office was launched on April 25, 2012 (during the election campaign). It

appears that the announcement of the probe was timed to precede by 24hours the governments approval of a tough new anti-corruption law. Theinvestigation will focus on the purported misdeeds of Mexican officials asopposed to the companys actions. If the comptrollers office determinesthat a public servant engaged in wrongdoing, it can levy a fine against

and perhaps suspend the person from his/her position. That governmentagency could then turn its findings over to the Mexican attorney gen-eral for a possible criminal investigation. The comptrollers office could

bar Wal-Mart from future government contracts but cannot fine thecompany.

The comptrollers office has not been known for particularly tough enforcement actions,and some commentators in Mexico predict that this investigation will be of little conse-quence. There are two reasons, however, why this matter may prove to be an exception tothe rule. First, Mexico is the current chair of the Group of 2012 economic powers and the

12 A group of finance ministers and central bank governors from major economies that serves as a forum forcooperation and consultation on matters pertaining to the international financial system.

The comptrollers oce

has not been known

or particularly tough

enorcement actions,

and some commentatorsin Mexico predict that

this investigation will be

o little consequence


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co-chair of the groups anti-corruption panel. These global leadership positions could cre-ate pressure for the comptrollers office to take a hard line on the investigation. Second,since Mexico is expecting a dramatic increase in foreign direct investment, failure toaggressively pursue this high-profile case could be seen as a cautionary signal to potential

investors that may have concerns about corruption in Mexico.

IMPACT ON WAL-MART

Wal-Mart has taken aggressive and specific actions to both address the issues touchedupon in The New York Times article and shore up its global anti-corruption complianceprogram, as highlighted in a statement issued by its vice president of corporate communi-cations on April 24, 2012. He said that the company has been working diligently on FCPAcompliance and has a rigorous process in place to quickly and aggressively manage relatedissues that arise. In the year prior to the statement, the company took steps to investigatethe allegations concerning its Mexican operations and strengthen its global FCPA pro-cesses and procedures. At its corporate headquarters in Bentonville, Arkansas, Wal-Marthas added a series of new escalation and review protocols to ensure that FCPA investi-gations are managed consistently and independently and that their findings are appro-priately addressed. The company also created two new positions, one for a global FCPAcompliance officer and one for a dedicated FCPA compliance director in Mexico. In March2011, the company launched a worldwide review of its anti-corruption program.

The April 24 statement also pointed out, for the sake of perspective, that the allegationsin The Times article involved matters that were more than six years old. These matters arethe subject of an ongoing Wal-Mart investigation being conducted under the auspices andsupervision of the Audit Committee of its Board of Directors. The Audit Committee con-sists entirely of independent directors, who are being assisted by outside legal advisors andforensic accountants. In addition to this independent investigation, the company launcheda worldwide FCPA compliance review designed to ensure that effective policies and proce-dures are in place in every country in which it operates. Moreover, the company continues

to cooperate fully with federal law enforcement authorities.

It would appear that Wal-Mart is pulling out all of the stops in addressing this seriousthreat. Still, this is just the beginning of what will probably be a long and costly exercisefor the company and certain executives. In addition to potential federal criminal and civilenforcement issues, the company has already witnessed the first of what is likely to bemultiple private civil suits. On April 25, 2012, a shareholder sued the companys boardand several officers, seeking to recover damage to the companys reputation as well as theinvestigative costs the company is expending as a result of the Mexican allegations.

The 2012 Mexican Presidential Election

After ousting the PRI party from the Mexican presidency in 2000, Vicente Foxs PAN partyraised hopes of a new dawn for democracy in Mexico and an end to a permeating culture ofcorruption. Years of weak growth, little success in reigning in corruption, and the unprec-edented wave of violence associated with the war on the drug cartels began by PresidentFox (and significantly escalated by his PAN successor Felipe Caldern) eroded the partyspublic support, hence the election of PRI presidential candidate Enrique Pea Nieto.

Pea Nietos election sparked fears in some quarters that efforts to address the countryscorruption problems will be shelved; the less than stellar reputation of the PRI in this areaprovides ample basis for such concerns. The president-elect maintains that the PRI has


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undergone a transformation and is now a modern democratic party that has learned fromits mistakes.

A history of official corruption and influence peddling marks the PRIs seven-decade rulein the 20th century; it is often charged that the party played a significant role in promot-ing criminal activity throughout society. During that period, Mexico became known asa centralized authoritarian regime with dominant state regulation of the economy. Thissituation created opportunities for homegrown criminals to perpetrate a variety of illicitschemes, including facilitation of official access, extortion, and protection. Organizedcriminal elements in Mexico have traditionally resorted to widespread bribery of politi-cians, civil servants, and the police to facilitate their criminal activities. One reputed drugkingpin in the 1980s, Juan Garca brego, was known to boast that he spent up to $50 mil-lion a month to secure protection from the law and judicial officials in Mexico.

The political influence of organized crime in the country is said to have peaked during thePRI presidency of Carlos Salinas de Gortari (1988-1994). During that time, drug traffickers

are said to have gained unprecedented influence at high levels within thefederal government and with regional governors. Public anger over this era

of corruption came to a boil at the end of the century and contributed sig-nificantly to the defeat of the PRI in the 2000 presidential election. Again,many commentators reflect that this prolonged rule of the PRI was in largepart responsible for creating an atmosphere of impunity for some govern-ment officials and institutionalizing Mexicos culture of corruption. As theline of argument goes, there was no accountability to the governed by the

government. In the PRI at that time, the knowledge that your successor would be from thesame party allowed officials to act with impunity.

It is with this spotted history in mind that some have trepidation about the return of the PRI.These concerns are further stoked by such developments as having three of the last PRI gov-ernors in the violence-plagued border state of Tamaulipas investigated on suspicion of aidingand abetting the cartels. Claims of prevalent vote-buying and other irregularities in the recent

election did little to allay concerns about Mexico going back to the future with the PRI.During the campaign, Pea Nieto said he would focus on curbing the violence, kidnap-ping, and extortion associated with the drug war. Little was said about bringing prominentcartel figures to justice. He promised to disengage the military from the conflict with thecartels and discussed expanding the federal police ranks by adding a gendarmerie para-military for the most violent rural areas where police presence is notably lacking. Thesepromises have caused consternation in some quarters of the United States that the newMexican president will cede drug trafficking to the cartels and, perhaps, even negotiatedirectly with them to reach an accommodation. In his victory speech, however, Pea Nieto

vowed that he would never make pacts with organized crime.

One other promise that the president-elect made that, if kept, would have an impact oncorruption is to breach the monopoly of Mexicos state-owned energy giant, Petrleos

Mexicanos (PEMEX), reputedly the biggest enterprise in Latin America. PEMEX losessome $2 billion per year from fuel theft. Reportedly, criminals dig up pipelines that are

buried in rural areas, attach a valve, and siphon off the fuel. They then sell the stolen fuelto corrupt service station owners or companies that operate large fleets of vehicles inMexico. From 2007 to 2009, Los Zetas milking of these pipelines was said to be of mas-sive scale; investigators have said that the cartel had some 557 outlets along the pipe-lines. The overall dealings of PEMEX are often alleged to be tainted with corruption. Thisincludes charges that company revenues were previously skimmed and laundered by thePRI to finance their candidates for municipal, state, and federal elections. While not goingas far as suggesting PEMEX would be privatized, Pea Nieto has said that some elementsof petrochemicals, refining, and the oil business would be opened to private investment.

Pea Nietos election

sparked ears in somequarters that eorts to

address the countrys

corruption problems

will be shelved


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Mexico seems poised for better economic times. Its relatively well-run economy is recover-ing strongly from the global recession, and export manufacturing is competitive. Many seeMexico as a better bet than Brazil for economic growth in Latin America, especially consid-ering there are fledgling indications that drug violence is receding. Mexicans enjoy a good

measure of political freedom and a middle-class society is emerging.To foster these encouraging developments, the new president would be wise to do every-thing in his power to ensure that corruption is reigned in. Pea Nieto is positioned to

be the beneficiary of sound economic growth and an improved standard of living in hiscountry if he embraces the changes that are taking place in Mexico and resists any urge toreturn to the ways of the PRIs checkered past.

The Existing Anti-Corruption Legal Framework

While by almost all accounts, Mexico has a strong anti-corruption legal framework, prob-

lems persist in the countrys enforcement of those laws.

INTERNATIONAL CONVENTIONS

Mexico is a signatory to and has ratified three main international anti-corruption conven-tions: the Organization of American States (OAS) Inter-American Convention AgainstCorruption (ICAC),13 the OECDs Convention on Combating Bribery of Foreign PublicOfficials in International Business Transactions,14 and the United Nations Conventionagainst Corruption (UNCAC).15 The countrys Law on the Adoption of Treaties (Ley Sobrela Celebracion de Tratados) defines ratification, accession, or acceptance as an act by

which it makes public to the international community its consent to be bound by a treaty.Upon ratification, accession, or acceptance, Mexico has an international legal obligation toimplement a treatys provisions through national legislation. The country has the right toexclude certain provisions of a treaty by lodging reservations. As a sovereign state, Mexicohas the right to decide the degree to which it will implement international agreements.

Article 133 of the Mexican Constitution provides that all of its provisions, the national lawstemming from it, and all treaties that are in agreement with it, adopted by the presidentof the Republic with the Senates consent, are the supreme law of the country. The judgesin each Mexican state are required to adhere to the constitution, its laws, and treaties,over and above any provisions that might exist in the constitutions or laws of the states.Concerning the hierarchy afforded these measures by the Mexican judiciary, the NationalSupreme Court of Mexico (La Suprema corte de Justicia de la Nacin) has ruled that trea-ties are placed above federal and local laws but below the constitution.

These three conventions are examined in turn.

The OAS Inter-American Convention Against Corruption (ICAC).The ICAC,signed in 1996 by the OAS States Parties, was the first international legal agreement forcombating corruption. It requires signatories to take judicial and public policy steps toprevent, detect, sanction, and eradicate corruption. Mexico deposited its instrument ofratification of the ICAC on June 2, 1997 and the agreement entered into force in Mexico onJuly 1 of that year.

13 OAS Inter-American Convention against Corruption, http://oas.org/juridico/english/Treaties/b-58.html.14 The OECDs Convention on Combating Bribery of Foreign Public Officials in International BusinessTransactions,www.oecd.org/dataoecd/4/18/38028044.pdf.15 UN Convention against Corruption,www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdf.
http://oas.org/juridico/english/Treaties/b-58.htmlhttp://www.oecd.org/dataoecd/4/18/38028044.pdfhttp://www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdfhttp://www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdfhttp://www.oecd.org/dataoecd/4/18/38028044.pdfhttp://oas.org/juridico/english/Treaties/b-58.html


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The OECDs Convention on Combating Bribery of Foreign Public Officials inInternational Business Transactions.This OECD Convention sets forth the obli-gations of governments and businesses in its member countries to adopt and implementmechanisms to prevent, detect, and sanction offenses committed by natural or legal (e.g.,

corporations) persons of giving or promising undue pecuniary or other advantage, whetherdirectly or through intermediaries, to a foreign public official in international businesstransactions, in order that the official acts or refrains from acting in relation to the perfor-mance of official duties. As such, this OECD Convention is similar in import to the FCPA.

The OECD Convention was adopted in 1997. Mexico deposited its instrument of ratifica-tion on May 27, 1999 and the agreement entered into force in the country on July 26, 1999.

The United Nations Convention against Corruption.The UNCAC was opened forsignatures during the High-Level Political Conference of the United Nations in Mexico in2003. It represents a milestone in the history of international agreements that emerged inthe battle against corruption, and the multilateral treaty covers all fundamental themes inthis effort. The UNCAC establishes jointly agreed standards and methods for internationalcooperation as well as for local efforts to combat corruption. Of particular significance is

the agreements provisions regarding mutual legal assistance, which simplify the proce-dures and processes for the prosecution of transnational corruption investigations and forthe repatriation of funds from these transactions moved across international borders.

Mexico signed the UNCAC on December 9, 2003, deposited its instrument of ratificationof the agreement on June 24, 2004, and the Convention entered into force in the countryon December 14, 2005.

THE STATUTORY FRAMEWORK

In the wake of allegations made in the Wal-Mart case, Mexico has taken two significantsteps to enhance its capabilities to fight corruption. In March 2012, the Mexican Senateapproved the creation of the National Anti-Corruption Prosecutors Office, an agency withan exclusive focus on corruption and money laundering. It will target corruption thatleads to political and institutional crime, and promotes organized crime. While the office

is still subject to approval by the lower house of the Mexican legisla-ture, it will have authority to go after officials at the local, state, andfederal levels of government, as well as officials of certain govern-ment agencies. It will have investigative authority and the ability toseize financial resources from illicit sources.

On June 8, 2012, President Caldern signed the Federal Anti-Corruption in Public Contracts Law. It was passed by the MexicanSenate on April 25, 2012 after more than a year of legislative delib-

erations. After being published in the Mexican Official Gazette, the law went into effect onJune 12, 2012. It levies a range of fines on foreigners or Mexican citizens that engage in

corruption or bribes linked to public work contracts. With this law, public servants will berequired to report any illegal actions or omissions proscribed under the statute that cometo their attention under penalty of sanction for failure to do so.

In addition to being part of Mexicos effort to comply with its international obligationsunder the ICAC, the OECD Convention, and the UNCAC, the new law complements thecountrys anti-corruption legal framework in force regarding public officials. The mostprominent Mexican domestic anti-corruption law is the Federal Criminal Code (CdigoPenal Federal).

The Federal Criminal Code.While rules prohibiting the bribery of foreign publicofficials arise mainly from the international conventions to which Mexico is a signatory, in

In March 2012, the Mexican

Senate approved the

creation o the National

Anti-Corruption Prosecutors

Oce, an agency with an

exclusive ocus on corruption

and money laundering


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12



the domestic legal realm, rules prohibiting bribery of domestic and foreign public officialsare primarily found in the Federal Criminal Code. The statute provides a range of sanctions forattempted corruption, active and passive bribery, extortion, bribing a foreign public official,abuse of office, influence peddling, embezzlement (misappropriation), and money laundering.

Concerning domestic bribery, the Federal Criminal Code defines as a criminal offensethe following acts of bribery involving a Mexican official: when a public official directlyor indirectly unduly requests or receives for his own benefit or for the benefit of a thirdparty, money or any other gift or accepts any promise, for purposes of taking any action orrefraining from taking action, whether fair or unfair, relating to his functions; and whenan individual or company spontaneously gives or offers money or any other gift to anypublic official or third party, to induce the official to take action or refrain from an action,

whether fair or unfair, relating to his functions.

From a criminal perspective, a domestic public official is any person who fills an employ-ment or commission of any nature: in the public federal administration; in the publicadministration of the federal district; in decentralized agencies; in state-owned companies;in state-controlled organizations or companies that are comparable to state-owned compa-

nies; in public trusts; in the federal congress; in the federal judiciary or the judiciary of thefederal district; or that manages federal economic resources. State governors, represen-tatives in local/state congress, and justices of state superior courts shall also be deemedliable for criminal offenses within the purview of the Federal Criminal Code.

Violations of the anti-bribery provisions of the Federal Criminal Code can result in penal-ties such as imprisonment, fines, and dismissal of the involved public official. Moreover, ifthe value of the bribe does not exceed 500 times the annual minimum wage in Mexico City(approximately $2,500), the term of imprisonment for the person paying the bribe rangesfrom three months to two years, and accompanying fines range from 30 to 360 fine days(i.e., dias multa provides that the fine will vary depending on certain economic cir-cumstances such as the minimum wage at the time and in the place where the crime wascommitted). Public officials involved could be discharged from their positions for a period

of between three months and two years. If the value of the bribe exceeds the threshold,the term of imprisonment could range from 2 to 14 years and the finecould range between 300 and 1,000 fine days. Public officials could berelieved from duty for between 2 and 14 years.

Concerning bribery of a foreign public official, the Federal CriminalCode provides that it is a criminal offense for any person to deliber-ately offer, promise, or give, either directly or through an intermediary,money or other type of gift, whether goods or services, for the purposeof obtaining or retaining for himself or another party, undue advantage

in the development or carrying on of an international business transaction. Such money orgifts are prohibited if directed to: any foreign public official or to any person designated byhim, in order for such official to act or refrain from acting on the processing or resolution of

any matter related to the functions inherent to his position, office, or post; any foreign publicofficial so that the official acts or refrains from acting on the processing or resolution of anymatter outside the scope of the functions inherent to his position, office, or post; and/or anyperson to propose or request that a foreign public official effect the processing or resolutionof any matter related to the functions inherent to his position, office, or post.

The Federal Criminal Code defines a foreign public official as any person who holds apublic office, employment, or commission, whether appointed or elected, in the legisla-tive, executive, or judicial branches, regardless of the level of government in any foreignstate, or any person undertaking a function for an authority, organization, or state-ownedenterprise in any foreign country as well as any public officer or agent in any internationalpublic agency or organization.

Violations o the anti-

bribery provisions o the

Federal Criminal Code can

result in penalties such as

imprisonment, fnes, and

dismissal o the involved

public ocial


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For individuals violating these anti-bribery provisions with regard to foreign officials,applicable penalties include imprisonment, fines, and dismissal of involved officials. Ifthe value of the bribe does not exceed the previously described threshold of 500 timesthe annual minimum wage in Mexico City, the term of imprisonment ranges from three

months to two years, and fines range between 30 and 360 fine days. Any public offi-cial taking fines below the threshold could be discharged from duty for a period rangingbetween three months and two years. If the bribery threshold is exceeded, these penaltiesescalateimprisonment between 2 and 14 years, fines ranging between 300 and 1,000 finedays, and being discharged from official duty for a period between 2 and 14 years.

Concerning the extraterritorial application of this aspect of the law to foreign corporations,pursuant to the Federal Criminal Codes general jurisdictional rules, any transgressioncommitted outside Mexican territory by a Mexican against a Mexican or a foreigner willonly be prosecuted if: the offender is within Mexican territory or the crime has an effectin Mexico (it is important to note that this standard is met if the offender is an employeeof a company with a presence in Mexico); the offender has not been tried in the countryin which he perpetrated the crime; and the crime that is being prosecuted is considered a

crime in both the foreign country and Mexico.It should be noted that the legal concept of facilitating payments to secure the perfor-mance of routine governmental action is notrecognized as an affirmative defense to brib-ery charges in Mexico.

Other Mexican anti-bribery laws.Without going into great detail, several otherMexican laws and provisions regarding the prohibition of bribery of domestic publicofficials include the Federal Law of Administrative Accountability of Public Officials(Ley Federal de Responsabilidades Administrativas de los Servidores Pblicos) and theFederal Law of the Accountability of Public Officials (Ley Federal de Responsabilidadesde los Servidores Pblicos). The former of these two statutes applies general anti-bribery

standards to all federal public officials, including those who are pub-licly elected, members of the Federal Judiciary Power, members of the

Federal Public Administration, members and employees of the FederalCongress, members of the autonomous agencies, and, in general, allpeople who handle or apply federal public resources. The latter of thetwo statutes applies similar dictates to governors of the different statesof the federation, the executive in the Federal District, deputies of localcongresses (including the Federal District), judges of superior state tri-

bunals, and members of the judiciary at the local level (including the Federal District).

Freedom of Information Act.Mexico is one of 10 Latin American countries to haveenacted a Freedom of Information type of law. The Mexican measure, first passed in 2002and amended in 2006, is seen as a major weapon in the war against public corruption. Inessence, the law ensures that citizens have access to information at all levels of govern-ment. In 2007, the 6th principle of the Mexican Constitution was reformed and access

to government information is now enshrined as a fundamental right of the countryscitizenry.

The new anti-corruption law.As aforementioned, in June 2012, Mexico enacted anew Federal Anti-Corruption in Public Procurement Law (Ley Federal Anticorrupcin enContrataciones Pblicas). The statute makes it illegal for domestic or foreign individuals orlegal entities (e.g., corporations) to give or offer to give, directly or through a third party,to a government official any type of bribe or gift to obtain or retain a privilege or improper

business advantage when procuring public contracts with the federal government. Again,this prohibition applies to everyone involved in federal government procurements inMexicoMexican and foreign individuals and companies alikeand specifically includes

bidders, participants in tenders, recipients of requests for proposal (i .e., invitees), persons

Much like the FCPA, the

Mexican law prohibits

Mexican individuals and

companies rom bribing

oreign (i.e., non-Mexican)

government ocials


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awarded contracts, suppliers, contractors, permit holders, licensees, and concessionaries,as well as shareholders, partners, associates, representatives, principals, agents, attorneys-in-fact, brokers, handlers, managers, advisors, consultants, subcontractors, and employ-ees. Also subject to the law are public officials that, directly or indirectly, participate in

federal public contracting procedures and who are accountable under the terms of theTitle Fourth of the Mexican Constitution, regulated by the Federal Law of AdministrativeAccountability of Public Officials.

Much like the FCPA, the Mexican law prohibits Mexican individuals and companies frombribing foreign (i.e., non-Mexican) government officials. Importantly, this aspect of thenew law would seem to have less stringent territorial requirements than the similar provi-sions in the Federal Criminal Code.

Under the relevant provisions of the law, federal public contracting includes those pro-cedures, prior acts, or acts that derive from contracting, entering into, and the executionand performance of contracts dealing with acquisitions, leases, services, and public worksand related services, that are undertaken by contracting public institutions, according togovernment provisionsregardless of the legal type of engagement. This includes acts and

procedures related to a public bidding, a call, or public auction for the granting of federalpermits or concessions or the extensions of such permits or concessions,as well as any other authorization or arrangement related with publiccontracting.

As for international commercial transactions, the relevant provisions ofthe law include: acts and procedures related to the contracting, execution,and performance of contracts with regard to acquisitions, leases, services,public works, and services related thereto; acts and procedures relatedto the granting and extension of permits and concessions; and any other

authorization or arrangement related to the above-described transactions. The new law inrelevant part applies to such transactions undertaken by any public organization of a foreign(i.e., non-Mexican) country or that may involve the participation of a foreign public official,

in which Mexican individuals or legal entities may participate either directly or indirectly.The law is enforced by various Mexican agencies, most notably the Ministry of Public

Administration. Targeted conduct is addressed in a two-step procedurean initial inves-tigation followed by an administrative proceeding. Enforcement authorities enjoy a widerange of investigative powers, including authority to issue requests for information thatmight be deemed confidential.

The laws anti-corruption in contracting provisions provide for fines to be calculatedpursuant to established domestic economic benchmarks and for temporary exclusion fromfuture bidding on federal contracts. At the current exchange rate, the approximate rangeof fines on individuals is between $5,000 and $250,000. In the case of certain permits,concessions, and other approvals, however, if it is determined that the benefit to theoffender from the unlawful activity exceeds that range of fines, they can be increased by up

to 50 percent. If the maximum fine amount is 30 percent or less of the contracts value, thefine can be between 30 and 35 percent of that value if the offender was the recipient of thecontract award. Offenders can also be barred from the federal procurement process for aslong as eight years.

Fines for companies range from approximately $50,000 to $10 million. Companies canalso be disbarred for up to 10 years.

This law does not provide for disgorgement of profitsan equitable remedy often used inFCPA settlements. Like that U.S. statute, the Mexican law does not impose any self-report-ing obligation on individuals or corporations. Offenders who do self-report, however, canreceive up to a 70 percent reduction in sanctions.

Enorcement authorities

enjoy a wide range o

investigative powers,

including authority

to issue requests or

inormation that might

be deemed confdential


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Finally, the new law, in relevant part, encourages the countrys authorities to enter intoagreements with federal government contractors to set up policies and procedures for self-regulation, internal controls, and ethics programs in order to promote and develop a com-pliance culture within their organizations. In establishing such programs, it is suggested

that international best practices be taken into consideration, including training programsfor directors, officers, managers, and employees; tools for reporting potential wrongdoing;and protection for whistleblowers.

Conclusion

As world commerce expands and global trade barriers are relaxed, anti-corruption effortsare being undertaken worldwideeven in those countries that posed the most troublesomeproblems in that regard in the past. While corruption can never be completely eliminated,countries such as Mexico are endeavoring to improve their international trade and invest-ment opportunities by making themselves into safer and more ethical places to do business.

In light of these developments, companies should expect a growing number of jurisdictionsto pursue corruption charges based on conduct occurring within their borders. This trendposes the threat that global companies could be subject to different and perhaps conflictingnational legal standards and parallel enforcement proceedings.

Most MAPI member companies that operate globally have long monitored their poten-tial FCPA exposure. As such, their anti-corruption compliance activities are generally

well refined. Recent anti-corruption activities in the BRIC countries, Mexico, and else-whereas well as the entry into force of the UKBAare vivid reminders that a companysinternational dealings can simultaneously expose it to enforcement scrutiny for chargesof corruption in a number of different jurisdictions. Moreover, authorities from differ-ent jurisdictions are increasingly willing to cooperate with one another in transnationalinvestigations. This continuing development of global anti-bribery/anti-corruption laws

necessitates that companies review their related compliance policies and programs toensure that they take into consideration the nuances of the different national legal regimesto which they might be exposed.

Basic risk mitigation factors considered in a companys anti-corruption compliance pro-grambased largely on guidance provided by the UK Ministry of Justiceshould includeat a minimum:

Top-level commitmentThe companys top-level management (be it a board of direc-tors, the owners, or any other equivalent body or person) are committed to preventingcorruption/bribery by a person with whom it is associated. Management should fostera culture within the organization in which such conduct is never acceptable.

Risk assessmentThe company should assess the nature and extent of its exposure topotential internal and external risks of corruption on its behalf by associated persons.Such assessments should be periodic, informed, and documented.

Due diligenceThe company should apply due diligence procedures, taking a risk-based approach, with respect to persons who perform or will perform services for it oron its behalf in order to mitigate identified corruption risks. This step is critical in acountry such as Mexico, where use of third-party intermediaries in business dealings

with the government is a prevalent practice.

Communications (including training)The company should seek to ensure that itsanti-corruption policies and procedures are embedded in and understood throughoutthe organization via internal and external communications, including relevant train-ing for key personnel. Increasingly, a recognized anti-corruption best practice is to


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conduct training of foreign personnel, partners, and agents in the indigenous lan-guage of the country in which they are located.

Monitoring and reviewThe company should monitor and review its corruptionprevention policies and procedures and make modifications and improvements where

necessary.In revising policies and practices to reflect the changing global anti-corruption landscape,an area to which close attention should be paid is a companys relationships with thirdparties. This is a particular challenge for corruption risks associated with doing businessin Latin America, where such third parties are used extensively to navigate opaque bureau-cracies and to process day-to-day regulatory paperwork. Whether these parties are calledgestores in Mexico or despachantes in Brazil, the anti-corruption risks they pose aresimilar and it is imperative that a commercial organization ensures that its agents, sup-pliers, subcontractors, distributors, joint venture partners, consultants, and other thirdparties live up to its standards of ethical conduct.

Establishing an effective third-party ethics and compliance program is strongly advised.Such a program should, at a minimum:

Survey these third parties as to their ethics and compliance efforts;

Use the results of these surveys to create an approved list of acceptable third partieswith whom doing business is acceptable (third parties on the approved list should bemonitored to ensure that they maintain the standards that qualified them in the firstinstance);

Set standards in a code of conduct for third parties so they understand that integrityis a prerequisite for doing business with your company;

Include the third parties in your companies anti-bribery training programs orconduct separate training for them (preferably local training will be in the nativelanguage of the country where the third party resides);

Closely monitor all payments to and from third parties, such as commercial represen-tatives, agents, and consultantsparticularly in high-risk countries;

Maintain an ongoing communication link with your third parties on key issues relatedto your anti-bribery policy;

Create an anonymous whistleblower facility for third parties;

Ensure that contracts with third parties include provisions addressing the issue ofbribery, such as warranties that no secret commissions have been paid, no competi-tion rules have been violated, no bid rigging or price fixing has been engaged in, etc.(contracts should have provisions for immediate termination if any of the standardsare not adhered to); and

Provide ready access for third parties to relevant documents such as the code of con-duct, contracts, the approved list, etc.

Many companies anti-bribery policies and procedures may already touch upon these

issues in the FCPA context, but the evolving global anti-corruption environment mightwell warrant a reexamination and tightening of these measures.

The recent anti-corruption developments in the BRIC countries, Mexico, the UnitedKingdom, and elsewhere present an opportunity for companies to reexamine and reassessthe adequacy of their compliance activities and to update as necessary their controls, cor-porate policies and practices, and self-policing mechanisms. As enforcement authorities

worldwide continue to expand their extraterritorial jurisdiction and cooperate with oneanother in anti-corruption campaigns, companies must adopt a global approach to theirrelated compliance efforts.

In conclusion, MAPI recommends that companies keep anti-bribery and anti-corruptionissues high on the agendas of both senior management and boards of directors, tailoring


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their related compliance measures to deal with this new global enforcement environment.Companies would be well advised to interpret this cavalcade of new anti-corruption devel-opments in as broad a light as possible to guard against future unpleasant surprises.

MAPI will continue to monitor issues associated generally with global anti-bribery andanti-corruption enforcement and report on them to its membership.

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2012 - Surveying Mexico's Anti-Corruption Landscape - MAPI Policy Analysis

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Transcript of 2012 - Surveying Mexico's Anti-Corruption Landscape - MAPI Policy Analysis