Enrique Peña Nieto
Incoming Mexican President Enrique Peña Nieto, who replaces President Felipe Calderón on Dec. 1, has indicated that his administration is dedicated to addressing the corruption perceived to be rampant in a country where bribery can be a part of daily life. Transparency International ranked Mexico 100th out of 182 countries on its 2011 Corruption Perceptions Index (the top spot is least corrupt), and its position has fallen for several years.
Mexico’s new Federal Law Against Corruption in Public Procurement (or “Ley Federal Anticorrupción en Contrataciones Públicas”), which took effect June 12 under Calderón’s administration and applies to Mexican and non-Mexican corporations and individuals, will aid Peña Nieto’s efforts to battle corruption. The anti-corruption law prohibits bribery and other activity meant to gain an unlawful advantage in the procurement of public contracts with the Mexican federal government. It also prohibits bribery of non-Mexican government officials and entities by Mexican individuals and corporations.
“What Mexico is trying to do is at least try to stop the momentum [toward growing public corruption] and try to demonstrate to the international community that they’re going to get this under control,” says Michael Volkov, a shareholder in the compliance, investigations and white-collar criminal defense practice at LeClairRyan.
Mexico is a signatory to the Organisation for Economic Co-operation and Development’s (OECD) Anti-Bribery Convention, but Volkov says he would be surprised if the OECD thought Mexico was effectively fighting corruption. The law won’t change things overnight, he says, but it is a positive step.
“[Mexico’s anti-bribery law] is just another example of the efforts of governments around the world to adopt or enhance their respective laws in fighting corruption, as an initial step, and then start enforcing those laws,” says Karen Popp, global co-chair of Sidley Austin’s white-collar practice.
The transition may be difficult in Mexico, where bribery is epidemic, a perception reflected by the Transparency International ranking as well as the fact that bribery of foreign officials in Mexico has been a primary focus of many Foreign Corrupt Practices Act (FCPA) investigations and prosecutions by U.S. authorities. Certainly one of the most visible is the ongoing FCPA investigation into allegations of bribery in Wal-Mart Stores Inc.’s Mexican operations, but Mexico’s state-owned Mexican Petroleum and Federal Electricity Commission (CFE) and government-controlled health care system also have been tied to FCPA cases.
Notably, an FCPA case against Lindsey Manufacturing Co. led to investigating Mexican authorities of the CFE, multimillion-dollar fines and the dismissal of high-ranking CFE officials—another possible signal that Mexico is dedicated to addressing corruption.
A First Step
The Federal Law Against Corruption in Public Procurement provides that violations against individuals may result in fines ranging from 1,000 to 50,000 times the daily minimum wage for Mexico City (currently 62.33 pesos, or $4.80), an approximate range of $4,800 to $240,000. Individuals who violate the law also will be barred from entering into federal public contracts for up to eight years. Corporations (and other legal entities) found to be in violation will face fines up to 2 million times the daily minimum wage, or $9.6 million at current conversion rates, and may be disqualified from federal public contracts for up to 10 years. Individuals and corporations that self-report violations are subject to penalty reductions of up to 70 percent.
The law took effect June 12, but experts say it may be some time before Mexican officials can build cases against violators and begin to enforce the new law, particularly in complex situations.
Popp points to the U.K. Bribery Act, which has been active since July 2011. So far U.K. prosecutors have brought only one minor case under the law.
“Prosecuting corruption can be a very tedious and time-consuming endeavor,” Popp says. “So I don’t think [the Mexican law] will change things overnight. But is it groundwork to ultimately change the way things are done? Yes, absolutely it could be, and I expect that’s why the Mexican government has pursued it.”
Along with tackling corruption, Peña Nieto has expressed a commitment to labor reform, pressing his political party, the Institutional Revolutionary Party (PRI), to back the first overhaul of the nation’s labor laws since 1970. Mexico’s legislature continues to close in on passage of a final bill, although it faced a setback in October.
“We haven’t changed a comma of the labor laws for 42 years, so it’s a big, big event,” says Oscar De la Vega, managing shareholder of Littler Mendelson in Mexico City. “This is going to be a big change and will reduce the cost of operating in Mexico for employers.”
Although many Mexicans see the need for modernization in a post-North American Free Trade Agreement, globalized Mexico, there has been disagreement on some parts of the proposed decree, which Calderón’s administration crafted. Mexican workers, students and unions have protested against it, fearing it will strip them of rights and make it easier for employers to fire workers or replace them with less-expensive contracted labor.
As for lawmakers, on Oct. 23, Mexico’s Senate returned the bill to the Chamber of Deputies (Mexico’s lower house of Congress) to reconsider rules over union transparency and accountability. The version of the bill that the Chamber of Deputies approved and passed to the Senate in September was stripped of a number of amendments that would have imposed on trade unions greater disclosure requirements, including an annual audit of assets for unions with more than 150 members, and a voluntary, direct and secret voting process.
De la Vega says that if the legislature can come to a consensus and pass the new law, it will generally benefit employers and could lead to job creation (see “Labor Law Updates”). OECD Secretary General José Ángel Gurría has said the reform could lead to millions of new jobs and economic growth in Mexico.
“It makes Mexico friendlier for inves- tors to do business in, from a labor perspective,” De la Vega says. “The idea is to make the law more flexible because when we look at the international experience, [we see that] when the laws become more flexible, it generates more formal jobs.”