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Mexico Bribery: Cost of Doing Business?

Is bribery just a cost of doing business in


Inter-American Dialogue 


Executives of Wal-Mart de México allegedly bribed officials with more than $24 million over the past several years to speed up expansion in Mexico, The New York Times reported April 21. According to the report, the retailer failed to notify law enforcement of the evidence its investigators had uncovered, instead shutting down the internal probe. The retailer said it is aggressively investigating the allegations. What do the allegations say about the state of doing business in Mexico? Is bribery a widespread cost of doing business in the country? Are Mexican laws and other regulations, such as the U.S. Foreign Corrupt Practices Act, proving to be inadequate?  


Andrés Rozental, member of the Advisor board, president of Rozental & Asociados in Mexico City and senior fellow at the Brookings Institution: The Wal-Mart scandal is deeply disturbing and shows an unfortunate, yet undeniable, facet of doing business in Mexico when companies-either domestic or foreign-participate in corrupting government officials in order to 'accelerate' or 'facilitate' permit issuance or other legal requirements. Since it takes two to tango, both the corruptors and the corrupted share equal blame for this state of affairs. The U.S. Foreign Corrupt Practices Act probably makes it more difficult for American companies to make payoffs abroad, but evidence shows that it doesn't deter those who find ways to hide their activities through third parties, or 'gestores.' Many foreign companies also engage in these illegal practices, especially in-but not limited to-developing countries. Recently, there has been a spate of similar incidents involving multinational companies in Mexico, although none of the magnitude that the Wal-Mart accusations indicate. What is most worrying is the official reaction by the Mexican government after The New York Times broke the Wal-Mart story; it was to the effect that, since this case apparently only involved bribes paid to local or state officials, not federal ones, there was nothing for the national authorities to formally investigate. Bribery is not solely a Mexican issue. In China, India, Brazil, Russia and South Africa-the so-called BRICS countries so much in vogue these days-corrupt practices are equally tolerated and sometimes even encouraged. The OECD and other organizations have helped promulgate global anti-corruption rules, but there is always the temptation for individuals and companies to sidestep tedious bureaucracies, or slow-moving procedures, to have things move more expeditiously. The Wal-Mart case, if the allegations are proven, will surely act as a deterrent to others, but probably won't end corruption per se.


Jon French, director of security consulting firm Problem Solvers Group in Mexico City: Like a lot of other places around the globe, there is corruption and fraud in Mexico, particularly at lower levels, for government permits. But this is no excuse, as a multinational business abroad must operate to a higher standard. Most do, particularly because of the painful consequences of being caught contravening the U.S. Foreign Corrupt Practices Act (FCPA).  Bribery is not the cost of doing business in Mexico, as most multinationals can and do successfully operate here without bribery payments. In fact, it is admirable that most multinationals live up to the same high ethical standards, whether at corporate headquarters in the United States or in their operations abroad. And it is precisely because of this reputation that multinationals abroad are subjected to less pressure for 'expediting' fees for government permits. Government bureaucrats know that these companies just do not pay for such blatantly illicit expenditures. As a consequence, multinationals can be victims of a tardy approval process, but in most cases, because they can represent important investments into the local economy, the delays are minor and not out of the ordinary. Lastly, Mexican laws and enforcement are inadequate because the rule of law is a work in progress here. But the extraterritoriality of the United States' FCPA is well known to U.S. and European multinationals, particularly with the recent reminders from the multimillion-dollar fines levied by the U.S. Department of Justice against well-known multinationals.


Tapen Sinha, professor of risk management at the Instituto Tecnológico Autónomo de México and professor at the University of Nottingham Business School: Most Latin American countries are not known for being free of corruption. The only country in the region in the top 30 of Transparency International's Corruption Perception Index is Chile. Even among the Latin American countries, Mexico is one of the most corrupt. In the 2011 index, Mexico ranked at 100, along with Malawi, Madagascar and Indonesia. There are legendary cases of corruption in Mexico. Raúl Salinas, the brother of the then-president, suddenly became very rich. The police chief of Mexico City, with a salary of $200 a month, built a multi-million dollar fortress for himself at the edge of Mexico City. A school teacher, known as 'el professor,' built a multi-million dollar empire out of his meager salary. There are an untold number of smaller cases. The problem is that every layer of government in Mexico, virtually everywhere in the country, is corrupt. In order to set up any business anywhere, people have to pay bribes. And for every peso of bribe paid, a slice is shared at different levels of the municipal, state and federal levels. Given the scale and speed at which Walmex grew in Mexico, there is no way it could not have not bribed anyone. It is part of the Mexican political fabric. There is a well-known quote in Mexico: 'A politician who is poor is a poor politician.' 

John A. Detzner, of counsel to Neville Peterson LLP: The recent Wal-Mart de México allegations say less about business in Mexico and more about increased enforcement of anti-corruption laws worldwide. All countries-including Mexico-have anti-corruption laws, and they will always face the challenge of enforcing those laws effectively. Transparency International's most recent 'Corruption Perception Index' ranks Mexico at 100 out of 183 countries-certainly not a positive ranking, but 11 other countries are tied with Mexico and 72 additional countries are perceived to be more corrupt. In general, the index reflects a perception of significant corruption in all but a handful of countries throughout the world. None of this is news. The news is the trend in recent years of increased enforcement and the reason for that increased enforcement: a growing recognition of the unacceptable harm that corruption causes to business, economies and democratic governance. The problem of corruption may never be solved entirely, but increasingly it is being addressed. In this case, the problem is being addressed in both Mexico and the United States. The announced investigations will review alleged actions by municipal and state officials in Mexico, and alleged actions by officials of Wal-Mart de México and its parent company in the United States. As always, time will tell. In the meantime, the adequacy of current anti-corruption laws may be debated, but their impact through enforcement already has been felt by companies in both countries.

Ruben Olmos, partner at Global Policy Strategies in Washington: Corruption has been Mexico's Achilles' heel and a key impediment to boosting competitiveness in the global economy. However, in recent years, there have been important steps toward cutting government red tape and thus the corruption that comes with it. The executive branch and Congress have worked together at the federal level and some states have followed by creating legislation that promotes greater transparency and accountability, especially when it comes to government contracts. The private sector, both local and foreign, also has a big responsibility and is required to observe the same standard that is usually demanded of the government. The so-called 'Wal-Mart-gate' is a reminder that in order for Mexico to continue to attract investors, in a fragile and uncertain environment given the current security factor, it is fundamental to hear new ideas and proposals by the presidential candidates on how they would tackle this problem. Front-running presidential candidate Enrique Peña Nieto of the PRI recently said an independent governmental anti-corruption commission is needed to root out the bribes and payoffs. While U.S. investors are responsible for complying with regulations such as the U.S. Foreign Corrupt Practices Act, they should encourage their in-country management to act responsibly and comply with Mexico's laws. Partners are supposed to work together.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter




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