I. Corporate liability deriving from criminal activity
1. What it is the nature of corporate liability deriving from criminal activity? What is its legal basis?
As of June 2016, the Mexican Federal Criminal Code and the National Criminal Procedures Code establish direct corporate liability for criminal activity. Corporate entities are liable for crimes when: a) they are committed in their name, on their behalf, for their benefit or using means that they provide; and b) due control was not exercised in the company.
The Criminal Code for Mexico City, formerly known as the Federal District, also recently implemented criminal liability for corporate entities. The element of intent is imputed to the company if it can be shown that an individual who acted on the company’s behalf had the requisite intent. Specifically, since December 2014, criminal liability can be imposed on a corporate entity when: a) a crime is committed by a legal representative for the benefit of the company; or b) subordinates of the legal representatives commit criminal acts and the legal representatives have not exercised over them due control corresponding to their organizational level, and the conduct is carried out in connection with company activities, for the account, profit or exclusive benefit of the company.
Penalties can be based on daily company profits commensurate with the prison time to which an individual would have been sentenced for the same crime. Specifically, up to 920 days of profits can be assessed on the company for each year of prison sentence that would have been imposed had the crime been committed by an individual.
2. Types of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
The Federal Criminal Code establishes that a legal entity can be prosecuted for the following offenses:
- Illicit use of air traffic facilities
- Corruption of minors or of persons lacking legal capacity
- Counterfeiting and currency alteration
- Crimes against national consumer goods and wealth
- Trafficking minors or persons lacking legal capacity
- Fencing of stolen goods
- Automobile theft
- Obstruction of justice
- Money laundering
- Crimes against the environment
- Crimes in matters of intellectual property
- Stockpiling and arms trafficking
- Human trafficking
- Organ trafficking
- Tax fraud
- Crimes involving negotiable instruments
- Securities fraud
- Crimes involving the financial system
- Bankruptcy fraud
- Chemical weapons crimes
- Hydrocarbon-related crimes
According to the General Law of Administrative Responsibilities (GLAR), which entered into full effect in July 2017, legal entities are liable for serious administrative offenses when the acts related to the offenses are committed by individuals acting in the name or representation of the legal entity. Specifically, Title III, chapter III of the GLAR lists the crimes for which private parties can be convicted, such as bribes, illicit participation in administrative procedures, influence peddling, use of false information, and collusion, among others. The main violations are the following:
- Bribery — The private party promises, offers or delivers any undue benefit to one or more public officials, directly or through a third party, in exchange for a public official carrying out or abstaining from carrying out an act related to their official functions or duties, with the purpose of obtaining or maintaining a benefit or advantage, with independence of the acceptance or receipt of the benefit.
- Illegal participation in administrative procedures — The private party carries out acts or omissions that enable it to participate in administrative procedures, when they are prevented from doing so by judicial resolution or law.
- Influence peddling — The private party uses economic or political influence or power to induce the authority with the purpose of obtaining a benefit or advantage for itself or for others.
- Use of false information — The private party uses altered or false documentation or information, or simulates compliance with requirements or rules established in administrative procedures, with the purpose of obtaining an authorization, benefit, advantage or harm to another person.
- Obstruction of investigation — The private party has information linked to an investigation of administrative offenses, but provides false information, deliberately delays the delivery of such information or fails to answer the requests of the authority.
- Collusion — The private party, together with one or more other private parties or individuals, executes actions that are intended to obtain an improper benefit or advantage in public procurements or are intended to cause damages to the government’s property.
- Improper use of public resources — The private party executes or carries out actions intended to appropriate, misuse or divert public resources, whether human or financial resources.
- Improper engagement of former public officials — The private party engages someone who has been a public official during the previous year, and who possesses privileged information acquired through position, in the public service. Such information is then used by the private party to benefit in the market or to place it in an advantageous position towards its competitors.
3. Identification of companies and entities to which liability may apply
The liability applies to all private companies, associations and entities.
4. Corporate liability for crimes committed abroad by representatives or subsidiaries
Article 2 of the Federal Criminal Code establishes that all crimes initiated, prepared or committed abroad, with effects in Mexico, will be investigated and prosecuted in Mexico. Article 4 establishes that crimes committed abroad by a Mexican national against a Mexican national or against foreigners will also be prosecuted and investigated in Mexico if the following requirements concur:
- If the accused is in Mexican territory
- If the accused has not been sentenced in the country where the crime is committed
- If the crime is also a crime in the country where the crime was committed
Article 222 bis prohibits bribery of foreign government officials by persons, whether companies or individuals, that are subject to Mexican jurisdiction.
The GLAR also contemplates in Article 70 that the crime of collusion will be investigated and sanctioned for international commercial transactions when a Mexican entity is involved. In addition, the GLAR establishes as international commercial transactions the acts and transactions related to the engagement, execution and fulfillment of contracts related to: (i) acquisitions, leases and services of any nature; (ii) public works and services; and (iii) acts and procedures related to the granting and extension of permits and concessions, as well as any other authorization or procedure related to the foregoing transactions. These must be carried out by any public entity of a foreign state that involves the participation of any foreign public official involving Mexican entities.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
Corporate liability is not extinguished by transactions that take place after the crime. The National Code of Criminal Procedure states in Article 421 that the criminal liability of private entities will not be extinguished by the following:
- Transformation into other types of private entities
- Absorption by other entities
- Spin off
II. Applicable sanctions
1. Types of sanctions applicable to the company
If the company is found liable for any of the above-mentioned crimes committed by the top management or an individual under top management’s control, criminal courts may apply the following penalties to the company:
Sanctions imposed by the GLAR:
- fines of up to two times the amount of the obtained benefits (disgorgement), or up to MXN 111,000,000.00 (approximately USD 5,800,000.00), whichever is greater
- debarment from participating in public procurement bids for up to ten years
- suspension of activities for up to three years
- dissolution of the entity
- payment of damages and lost profits caused to the Federal Public Treasury
Sanctions imposed by the Federal Criminal Code and the National Code of Criminal Procedure:
- economic fines
- closing of their place of business
- prohibition to carry out their activities
- confiscation of instruments, objects or products of the crime
- suspension or dissolution of the entity
- debarment from public procurements
Sanctions imposed by the Criminal Code of the City of Mexico
The economic fines are of special importance to companies. In place of prison sentences, which cannot be served by a legal entity, the Mexico City criminal code establishes a rough equivalence to the effects of prison for an individual. For each year of prison time that would be assigned to an individual committing the crime in question, the criminal law assigns an economic penalty of 920 days of profits. This means that the annual profits would be divided by 365 and the result would be multiplied by 920 to determine the equivalent of a year in prison for a company.
2. Interim measures, cease and desist orders, bans and confiscatory measures
To ensure that assets and defendants are available for trial, the court has discretion to suspend activities, close locales, and establish interim management or receivership.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
No specific provision of Mexican law addresses the liability of directors and managers for not having adopted measures for the prevention of the crime, ie, a specific model of organization, management and control. However, directors or managers can be found liable if negligence is evidenced.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
Under the Federal Criminal Code and National Code of Criminal Procedure, the existence of effective controls in the company can be an affirmative defense against liability. Because this is a relatively new law that came into effect in June 2016, there is little indication on how the courts will interpret this provision.
The GLAR establishes obligatory internal controls and mechanisms for government entities and specific incentives for private entities to create internal controls and mechanisms of their own.
The basic provision of the GLAR for private entities is that they will be sanctioned when individuals who represent them carry out corrupt acts for the benefit of the private entity they represent. The GLAR provides an affirmative defense when the company has an integrity policy in place that meets the standards of the law. If the integrity policy is adequate, the authorities may decrease the imposed sanctions or exclude liability altogether.
Article 21 of the GLAR empowers the Secretary of Public Administration to establish collaboration agreements with private individuals and entities that participate in public procurement to orient them in the establishment of self-regulatory mechanisms that include internal controls and integrity programs to ensure an ethical culture within the organization. The GLAR indicates that these collaboration agreements will consider the best international practices on internal controls and specifies internal whistleblower mechanisms and anti-retaliation and anonymity provisions.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
The GLAR enumerates the following as elements of the integrity policy:
- Organizational and procedure manual that establishes the duties and responsibilities of each functional area, specifying the chains of command and leadership for its structure
- Code of Conduct that is duly communicated and distributed among all the members of the organization, and includes practical systems and mechanisms that are effectively applied
- Adequate and efficient control, surveillance and audit systems that regularly review and update compliance with the integrity standards of the organization
- Adequate reporting systems, both inside the organization and for the competent authorities, and disciplinary measures and consequences for the individuals that act contrary to law and internal policies
- Adequate training processes
- Adequate internal policies, such as human resources policies, for the purpose of avoiding the hiring of persons who may pose risks to the integrity of the Company
Although this is not yet clear, these characteristics may be applied in the criminal law context, as well.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; model of operation of such person or body
Mexican law does not establish a model of operation of such person or body. However, the GLAR establishes that best international practices on internal controls, specifically internal whistleblower mechanisms and anti-retaliation and anonymity provisions, should be applied.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
Although there are special federal criminal courts, technically all federal trial courts have jurisdiction over federal crimes.
According to Title X Chapter II of the National Code of Criminal Procedure, the Judge competent to decide on the company’s liability is the same Judge competent to decide on the personal liability of the individual charged with the crime. The Court applies to the entity the same procedural rules applicable to the Individual (with a very few exceptions).
2. Possibility of the application of interim measures
To ensure that assets and defendants are available for trial, the court has discretion to suspend activities, close locales, and establish interim management or receivership. There is not a significant body of law or precedent to determine their applicability. This is discretionary for the court.
3. Plea bargains and related effects on corporate liability
Due to recent changes in criminal procedure, criminal defendants are now able to negotiate with the prosecutors to a limited extent, to reduce their sanctions in exchange for admission of guilt.
4. Persistence of corporate liability if the crime is extinguished
Mexican criminal law is not explicit on the matter of extinction of criminal liability for companies. For some causes of extinction, such as the running of the statute of limitations and de-criminalization, the argument for extinction would be stronger, whereas for others the case is not as clear.
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
In setting out the requirements on which company liability is based, the Federal Criminal Code and the GLAR focus their attention on single entities, without providing any specific regulation for when the criminal offenses therein included are committed in the context of a corporate group.
As of today, no provision of law clarifies if and under which particular conditions, if any, a parent company may be held criminally liable in relation to offenses committed by any of the local company’s top management or its subordinates.
2. Basis of liability and applicable sanctions
This has not yet been established under Mexican law.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
Although the Mexico City criminal law came into effect in late 2014, there have been few cases where criminal liability has actually been applied to companies. However, the authorities have shown that in certain cases, they will not hesitate to impose multimillion dollar sanctions on companies. In August 2015, Mexico City settled criminal charges against a gas transportation company involved in an explosion near a children’s hospital in Cuajimalpa, in the southwest of Mexico City. Five people died and 16 were severely injured, in addition to the significant property damage caused by the explosion.
Under state criminal law, a recent case in Jalisco (January 2017) resulted in criminal charges that have not yet been resolved.
2. Proposed or contemplated new legislation
The GLAR entered into force in July 2017.