CORRUPTION: THE FCPA & THE BA

The subject of ethical business has been acquiring an increasing importance in the international commercial transactions.[1] Several enactments, legal amendments in different jurisdiction, as well as international treaties and conventions have been held, with the purpose of struggling corruption and improper action of people and entities in their transactions and investments. 

In this sense, Mexico has executed several treaties, agreements and international conventions, among which, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997, the AEO Inter American Convention against Corruption 1997, The U.N. Convention against Corruption (Convention of Merida) of 2003 and the International Anti Corruption Academy under the UNCAC. Further more, in its national legislation, Mexico has been promoting the fight against corruption, in compliance with its international obligations, by among other things, classifying this conduct as criminal offence in the articles 222 and 222 Bis of its Federal Criminal Code, providing tax dispositions prohibiting the deduction of this type of expenses (Art. 31,32,172 and 173 of the Mexican Income Tax Act), enacting the Federal Act of Transparency and Access to the Public Governmental Information and creating the Inter-Departments Mexican Group against Corruption (Mexican acronym GIMC). Likewise, during the recent months the Ministry of the Public Operation has been urging the enactment of a new Anti-Bribery Act and the amendment to many legal dispositions. With all these, Mexico counts on with legal and constitutional provisions, which have allowed it to advance meaningfully in the fight of corruption, establishing measures that promote the transparency in the governmental operations and activities. 

As well, there exists the provisions contained in two of the most important foreign legal instruments enacted for fighting the corruption: the U.S. Foreign Corrupt Practices Act (FCPA), and the U.K. Bribery Act (BA), that as we will review have great relevance for the foreign companies that operate in Mexico.

FCPA:

The FCPA is a federal law, enacted in 1977 by the U.S. government that has the purpose of prosecuting the payment of bribes and unduly gifts to foreign governmental officials and political parties’ officials.

The provisions of the FCPA can be divided in two big categories: the anti-bribery provisions, and the accounting provisions. 

A violation of the anti-bribery provisions is constituted by the following elements:

1.     Payment: includes offers, payments and promises to pay, gifts, promises to give, or authorization to pay, offer, or give anything of value (including tax benefits, information or scholarships).[2]

2.     Foreign official: only payments to foreign officials, political parties, political party officials or candidates are prohibited. However, payments made to third parties are also prohibited if the payer knew that the payment was meant to a foreign official.

3.     Intent: there must be a corrupt intent, which is defined as the payment made with the purpose of influencing an act or a decision.

4.     Business purpose: the objective has to be obtaining, retaining and/or directing a business. 

The accounting provisions apply to issuers who are required to keep records and accounts that accurately reflect the transactions and dispositions of their assets. These companies are required to maintain a system of internal accounting control for providing reasonable assurance that transactions are executed in line with management’s authorizations. Likewise, these companies can also be held liable for the conduct of their foreign subsidiaries. 

As well, in 2001 the Act called “Sarbanes-Oxley” was passed with the purpose of strengthening the scope of the FCPA, establishing that senior management may be also liable if they fail to disclose known violations of the FCPA’s accounting provisions.

The penalties under the FCPA can be civil and/or criminal. In the case of individuals, the fines may range from US$10,000.00 to US$5 millions, and/or imprisonment of up to 20 years, depending on the kind of violation and penalty. In the case of entities, the fines may range from US$10,000.00 to US$25 millions, depending on the kind of violation and penalty.[3]

BA:

The 2010 BA is an Act of the Parliament of the U.K. that was passed into the statute book on April 8th, 2010, and that came into effect in April of this year. 

The concept of “Bribery” is defined in very broad terms in the BA, with the purpose of capturing the different ways by which bribes are made or received. As oppose to the FCPA, the BA prohibits bribes paid to any person, and not just to foreign officials. Likewise, it focuses in the improper action, rather than the business nexus, and applying to both the public and private sector. As result, full private transaction can be prosecuted under the BA. 

A violation of the BA is constituted when indistinctively:

§   A bribe is offered or paid;

§   A bribe is requested or received;

§   A foreign public official is bribed;[4]

§   There is a failure to prevent bribery undertaken on one’s behalf, benefit or representation (corporate offence).[5]

Any reward for behaving in an improper manner is included; even knowing or believing that the recipient’s acceptance of the advantage was improper is considered a violation. Thus, it does not matter whether or not the company’s representatives are aware that accepting or performing a bribe is improper, they can be in violation of the BA.

The BA has also a global reach, applying to any company, business, partnership, association and/or individual based in the U.K., as well as foreign companies or individuals that do business within the U.K. Hence, offences apply to behaviors that take place either inside or outside the U.K., proving in this last case, that the relevant person has a “close connection” with the U.K. 

Finally, penalties are more severe than in the FCPA. Fines can be potentially unlimited, and individuals can be punished with up to 10 years of imprisonment. 

Prevention of liabilities:

Following the advices and guidelines issued by the respective governments of the U.S. and the U.K. may constitute a good defense against charges, and protect the companies, employees, managers and administrators from liabilities for violation of these laws. Below we list the must common procedures and measures, recommended by both the U.S. and the U.K. for preventing responsibilities:

1.    Compliance programs: incorporation of compliance programs, policies and training, including: training of employees, verification of relationships with third parties, and periodic monitoring.

2.    Relationship risk assessment: performance of risk assessments on the relationships with any partner or associate, agent, third party, employee, potential partner and in general any third person, analyzing in every case if any company or individual is in some affiliated, related or involved with a foreign government or authority.

3.    Databases and screening: implementation of a comprehensive database and screening of politicians, their associates, government owned entities, government officials, business partners or associates, employees or agents, with the purpose of ensuring that there are not conflicts with either the FCPA’s and/or the BA’s dispositions.

4.     Due diligence systems: implementation of due diligence systems that be consistent and comprehensive, and that alert the administration when the policies and guidelines are not followed. The due diligences must be systematic (i.e. initial and ongoing due diligences) and be applied to all divisions and branches of the company.

Application in Mexico:

The application of the FCPA and the BA still faces several questions and controversies for reasons of sovereignty and extra-territorial reach of foreign laws. The relevant fact however is the existence of a business connection with an individual in the U.S. or the U.K.

In this sense, the reach of these dispositions comprises all the companies, individuals, entities, functionaries, agents and dependents, as well as transactions and investments related with, with implication in, or of U.S. or U.K. precedence, that operate in Mexico. Both legal dispositions have a global and practically unlimited reach.

As result, perhaps the implementation of all the proper measures for preventing corruption may be difficult, expensive and complicated; however, in light of the increasing relevance that this subject is taking internationally, companies must start taking into consideration all the liabilities and obligations to which they might be subject to. 

We trust that this information is useful for you. In case you need any additional information, please do not hesitate to contact our attorneys: Hugo Cuesta hcuesta@cuestacampos.com, Elena Robles erobles@cuestacampos.com, or Rafael Sánchez rsanchez@cuestacampos.com. 

The above is provided as general information prepared by professionals with regard to the subject matter. This document only refers to the applicable law in Mexico. While every effort has been made to ensure accuracy no responsibility can be accepted for errors or omissions. The information contained herein should not be relied on as legal, accounting or professional advice being rendered