The approval in December 2013 of amendments to the Mexican Constitution designed to foster greater private sector investment in the Mexican energy industry will usher in a new era for Mexican oil and gas and electricity markets. These reforms will create new business opportunities in Mexico for Asian, European and U.S. energy companies. In addition, they will also lead to increased contracting by private sector companies (both domestic and foreign) with state-owned companies such as Pemex in the oil and gas market or CFE (the Comisión Federal de Electricidad) in the electricity market. Such new agreements will be subject to scrutiny under Mexico’s 2012 Anti-Corruption Law and the U.S. Foreign Corrupt Practices Act, with important considerations for business.
In the United States, the Foreign Corrupt Practices Act (FCPA) is a U.S. law designed to prevent improper payments or inducements to foreign governmental officials in order to corruptly influence their actions. The FCPA seeks to discourage foreign corrupt practices through two principal mechanisms: (i) anti-bribery provisions and accounting and (ii) record-keeping provisions. U.S. companies and their officers, directors, employees, and agents (as well as all U.S. citizens) are subject to the anti-bribery provisions of the FCPA. In addition, foreign companies whose shares are publicly traded in the United States (including through the use of American Depositary Receipts) are subject to the accounting and bookkeeping provisions requiring the company to keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company.
Under the FCPA, it is unlawful for any U.S. company (or any officer, director, employee, or agent of such U.S. company) or citizen to act with corrupt intent in furtherance of any offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorize the giving of anything of value to any foreign government official for purposes of influencing a foreign official.
However, in an effort to help U.S. companies stay competitive, in 1988 the FCPA was amended to allow payments to foreign governmental officials in order to secure routine governmental action. These are commonly referred to as facilitation payments or “grease” payments that are not prohibited because they are nominal payments that help companies secure a governmental authorization or permit to which they are otherwise lawfully entitled to obtain.
The Mexican Anti-Corruption Law
The Mexican Federal Anti-Corruption Law for Public Contracts, adopted on June 12, 2012, is designed to prevent corruption in public contracts similar to the efforts undertaken in the 1970s in the United States to adopt the Foreign Corrupt Practices Act. In addition, over the past 10 years, Mexico has adopted anti-corruption conventions promulgated by the Organization for Economic Cooperation and Development, the Organization for American States, and the United Nations.
However, the scope of Mexico’s Anti-Corruption Law may be broader in some respects than the FCPA. First, the Mexican Anti-Corruption Law applies to all persons and companies (whether Mexican or not) that participate in public contracts in Mexico of a federal nature as bidders, suppliers, contractors or concessionaires. However, the Law also applies to all persons or companies that, as a shareholder, partner, representative, attorney-in-fact, agent, advisor, subcontractor, or employee, intervene in public contracts in Mexico of a federal nature. Unfortunately, the Mexican Anti-Corruption Law does not specify what level of involvement constitutes “intervention” in public contracts in Mexico of a federal nature.
Second, the Mexican Anti-Corruption Law applies to all Mexican companies and persons that participate in international commercial transactions that take place outside of Mexico and that are related to the execution and performance of contracts for the procurement and leasing of goods and services, public works contracts, as well as the issuance of permits and concessions undertaken by a foreign governmental entity or agency. Third, the Mexican Anti-Corruption Law applies specifically to Mexican governmental officials that participate in or oversee public contracts of a federal nature. Under the Law, Mexican governmental officials have an express obligation to report any violation of the Mexican Anti-Corruption Law.
The provisions of the Mexican Anti-Corruption Law that target corrupt behavior are similar to the anti-bribery provisions of the FCPA. For example, the Law prohibits offers, or payments, of anything of value to a governmental official with the intent that the governmental official fails to undertake his lawful duties in order to provide a benefit or advantage to the offering party, including, but not limited to, an unfair benefit or advantage in connection with public contracts in Mexico of a federal nature or international commercial transactions occurring outside of Mexico. The Mexican Anti-Corruption Law also bars companies or persons that are barred from participating in public contracts in Mexico of a federal nature from taking any action to circumvent such prohibition.
Differences between the Two
Again, the breadth of the prohibitions of the Mexican Anti-Corruption Law appears broader than the FCPA in certain aspects because the Mexican Anti-Corruption Law adopts a zero tolerance approach to corrupt conduct. In other words, the Law does not allow facilitation payments or “grease” payments or allow for the affirmative defenses added in 1988 to the FCPA. This zero tolerance approach taken by Mexico is similar to that taken by the United Kingdom in the U.K. Anti-Bribery Act of 2010 and consistent with the international anti-corruption conventions promulgated by the Organization for American States, the Organization for Economic Cooperation and Development and the United Nations.
The anti-bribery provisions of the FCPA define a “foreign governmental official” as any officer or employee of a foreign government (or any department, agency or instrumentality or state-owned entity thereof), foreign political party or a public international organization, or any person acting in an official capacity for or on behalf of any such government or public international organization. In the context of the Mexican oil and gas and electricity markets, past FCPA prosecutions in the U.S. involving bribes paid in Mexico have found that corrupt payments to employees of Mexican state-owned companies such as Pemex or CFE constitute prohibited payments to foreign governmental officials under the FCPA. The Mexican Anti-Corruption Law is similar to the FCPA in that “foreign governmental official” as defined in the Law includes any person that is employed by, or holds a public charge or commission on behalf of, a foreign governmental agency or instrumentality or public international organization.
Penalties for violations of the FCPA are severe. A U.S. company (or foreign company acting in the United States) may be fined up to $2 million per violation of the FCPA. A U.S. company (or foreign company acting in the United States) may be subject to a civil penalty of up to $10,000 per act in violation of the statute. Finally, any officer, director, employee, or agent of a U.S. company (or foreign national acting in the United States) may be fined up to $100,000 and/or imprisoned for not more than five years, plus be subject to a civil penalty of not more than $10,000 per act in violation of the FCPA. The U.S. Department of Justice enforces the anti-bribery provisions of the FCPA whereas the U.S. Securities and Exchange Commission enforces the accounting and recordkeeping provisions of the FCPA. In addition, the FCPA provides that a company cannot pay for civil penalties levied against officers, directors or employees of the company.
The Mexican Anti-Corruption Law also establishes stiff penalties for violations of the statute, which may apply along with bribery felony sanctions set forth in Mexican criminal laws. Individuals are subject to civil penalties that can range from 1,000 to 50,000 times the daily minimum wage in Mexico City (currently Mx. $67 pesos or US$5). At current exchange rates, the highest fines for individuals are approximately USD $250,000. In addition, in the event that it can be proven that the monetary benefits to the individual exceeded the amount of the penalty, the enforcing agency can increase the penalty by 50 percent. Individual violators can also be barred from participating in public contracts in Mexico of a federal nature for a term ranging from 3 months to 8 years.
Conversely, for companies, the civil penalties can range from 10,000 to 2 million times the daily minimum wage for companies. At current exchange rates, the maximum penalties would be approximately USD $10 million. In addition, these penalties can be increased by 50 percent if it can be proven that the monetary benefit to the violator exceeded the amount of the penalty. Companies and individuals that are found to have violated the Law may also be barred from participating in public contracts in Mexico of a federal nature for a term ranging from 3 months to 10 years.
One interesting fact regarding the aforementioned penalties that can be imposed under the Mexican Anti-Corruption Law is that the penalties are levied as tax credits. In other words, the enforcing agency can proceed to seek collection of the penalty through the administrative procedures already in place for collection of tax credits by the Mexican Treasury.
Conversely, individuals or companies subject to these civil penalties can also challenge the validity of the penalties through a challenge procedure before the administrative authority, or a nullity lawsuit filed in federal courts.
Although the FCPA provides for a five-year statute of limitations, the statute of limitations for violations under the Mexican Anti-Corruption Law is 10 years. The Mexican Anti-Corruption Law also provides leniency programs with reduced penalties for “whistleblowers,” which incentive should allow the authorities to better prosecute and prevent illegal conduct.
The Mexican energy reforms that will be ushered in during 2014 will open up many opportunities for U.S. energy companies. However, companies vying for federal public contracts in Mexico will need to be aware of the provisions of the FCPA and the Mexican Anti-Corruption Law and educate their executives and employees accordingly by implementing compliance programs designed to prevent prohibited conduct.
*Charles E. Meacham is a Partner and Chairman of the International Practice Group at Gardere Wynne Sewell LLP. Practicing in the Firm’s Houston and Mexico City offices, he assists on transactional projects throughout Latin America, including acquisitions and divestitures, creation of equity joint ventures, participation in public bids and international contracting, as well as advising clients on the Foreign Corrupt Practices Act and international anti-corruption conventions.