Co-authored with Juan Pablo Téllez González, Legal Director, Chubb Group en México
Mirroring his counterparts in Brazil and Colombia, Mexico’s new President Andrés Manuel López Obrador focused his presidential campaign on, among other things, attacking corruption. He has his work cut out.
In a 2017 report, the World Economic Forum ranked corruption as the most problematic factor for doing business in Mexico. The Mexican population agrees. An April 2018 poll of 400 citizens found 37% reported corruption was worse than the previous year. And 73% reported corruption had taken root in “all of the Mexican government.”
Another report by a Mexican transparency non-profit supports this. It revealed 51% of Mexicans surveyed reported they had to pay a bribe to get a government service within the past year. It also noted Mexican low-income families paid up to 33% of their annual income in bribes to public officials.
There’s more: out of 180 countries in Transparency International’s 2017 Corruption Perceptions Index, Mexico ranks 135th. It’s tied with Laos and Papua New Guinea.
Corruption remains a hot issue
Despite this outlook, Mr López Obrador has vowed to tackle corruption. He has proposed complementing legislation with initiatives to decrease public corruption, but some people remain skeptical. They point to Mr López Obrador’s inaugural address, in which he said he wouldn’t investigate public servants involved in earlier acts of corruption. Instead, he proposed the Mexican people “…put a final period in this terrible history,” saying, “it is best that we start over…”.
On balance, however, if you do business in Mexico, you should expect corruption to remain a hot-button issue. And you should expect enforcement to pick up. Especially since Mr López Obrador has promised to fill the head position of the Special Prosecutor’s Office for Combating Corruption. He’s also promised to appoint the other positions needed to implement Mexico’s anti-corruption legislation.
Current legislation and new initiatives
In 2017, Mexico changed its constitution. It put in place new anti-corruption legislation: Ley General de Responsabilidades Administrativas and Ley General del Sistema Anticorrupción. Together, these are known as the Anti-Corruption Law. This in turn created the National Anti-corruption System (NAS) and imposes higher administrative liability on serious offenses. Examples include bribery, mismanagement of public funds, undue use of privileged information, and so on.
The NAS was designed to curtail corrupt conduct by public officials and private parties. Other laws were enacted, too, such as the Federal Criminal Code and local state laws like the federal laws. Previously, public administration employees were subject to the Federal Law on the Administrative Accountability of Public Officials and the Federal Anti-Corruption Law on Public Procurement. On 19 July 2017, both were superseded by the Anti-Corruption Law.
The NAS operates as an independent body with both public and private participation. It coordinates federal, state, and municipal authorities in the fight against corruption. It is made up of four bodies: the Coordinating Committee, Citizen Participation Committee, Governing Committee of the National Audit System, and local state anti-corruption systems. Each committee has its own functions. They coordinate federal and local anti-corruption bodies, supervise their operation, and issue anti-corruption policies or guidelines. Notably, the Anti-Corruption Law puts liability on individuals as well as the entities that may benefit from corruption. This requires entities from the private sector to implement and enforce policies and procedures to prevent acts of corruption.
More legislation announced
On 31 October 2018, before taking office, Mr López Obrador proposed legislation to put an end to public sector corruption relating to federal inspections and audits of companies and corporate entities. Seeking to streamline the registration and oversight process for corporate entities and to curb potential abuses by federal inspectors and auditors, the Citizen Trust and Responsibility Law aims to end the systemic practice of bribery in Mexican society. But this legislation has not yet been implemented.
While campaigning for the presidency, Mr López Obrador also proposed an initiative called “50 Measures to Combat Corruption and to Apply a Republican Austerity Program” — or the 50 Measures Plan. It recommends a ban on the hiring of relatives, no bail in corruption-related trials, a ban on certain public agencies’ members going on paid-for trips, and autonomy for the anti-corruption prosecutor, among other measures.
No more business as usual
The stakes are high. Mexico loses 2% to 10% of GDP (roughly US$53 billion) a year to corruption. That’s according to the World Economic Forum, the Mexican Center for Studies of the Private Sector, and the World Bank. If the country carries out its reforms — and they succeed — it could try to reallocate this sum to finance government programs to help the population. That’s the view from some commentators.
Others note the plan lacks specificity. They predict Mr López Obrador will have a hard time implementing its anti-corruption measures. But he does have a historic opportunity to meaningfully address corruption in Mexico, and he has the population’s support. The Mexican people are dissatisfied with the status quo. Yet the question remains: will he use his political will to fulfill his campaign promises? Allowing the Special Anti-Corruption Prosecutor independence to carry out its tasks will be a paramount consideration. It will signal a willingness to fully implement Mexico’s anti-corruption legislation.
Time will tell. But what’s certain is Mexico will not return to an era where corruption was business as usual. Domestic and foreign companies in Mexico should be conscientious of this change. You, too, must prepare for it.