As private sector companies in Mexico continue to reshape business efficiencies and increase in value, accountability and oversight remain as important as ever. Explore why regulatory efforts and internal investigations must meet the growing demand in the region.
In recent years, attention has shifted towards the private sector’s involvement in combating corruption within companies and regarding third parties. It's more important than ever that companies and individuals actively participate in efforts to prevent and address corruption in their operations. This blog explores private sector companies’ obligations and responsibilities in Mexico towards the redefinition of business efficiencies and increase of value, as well as the role of international and foreign regulations that promote accountability from companies, their own managers and third parties.
Historically, Mexico's government has been viewed as victims of corruption in the country. The State has also served as the main prosecutors of illegal acts and central party to impose sanctions and fines, as well as freeze and recover assets. But what happens when no public official participates in the misconduct scheme? And what should be done when acts of corruption are perpetrated by two companies or individuals from the private sector?
Corruption in the private sector occurs when individuals or organizations abuse their position of power for personal gain outside the scope of public office. Private-sector corruption could entail bribery to private agents, collusion to participate in private bids, or lack of identification of beneficial owners of a company, among other examples. This form of corruption is common in Mexican private companies and typically involves managers, employees, vendors or third parties involved in non-governmental business transactions.
In Mexico, according to a survey conducted by a Mexican non-profit and a confederation of employees, only 30% of companies have an anti-corruption or anti-bribery policy in place. Despite abusive practices in the private sector being considered common, private corruption is insufficiently addressed in most companies, and few sanctions against managers and employees could be accounted in the companies’ records.
Corporate compliance programs are critical tools in preventing corruption within private organizations. These programs typically include anti-bribery policies, conflict of interest regulations and internal reporting mechanisms designed to identify and address misconduct by a CFO, the head of operations, a manager or mid-level employee. Although the implementation of an internal program reassures shareholders and investors how resources are spent, prevents losses and reduces the directors' and managers' liability in an investigation, among other benefits, many companies fail to implement these programs. In many cases, compliance programs exist only as a formality, where company leadership can be absent and even negligent.
It is essential for companies to recognize that internal compliance programs are not merely bureaucratic tools; they serve a vital purpose in safeguarding the company’s financial health and creating efficiencies in the long run. Compliance programs should also be seen as binding documents that apply to shareholders, employees and third parties, such as business partners and distributors.
According to the Occupational Fraud 2024: A Report to the Nations conducted by the Association of Certified Fraud Examiners (ACFE), total losses due to fraud among 1,921 cases included in the study were calculated at $3.1 billion. As a result, it is estimated that organizations lose approximately 5% of revenue annually due to fraud. In the context of Latin America and the Caribbean, the situation becomes particularly alarming. Of 93 fraud cases analyzed from the region, there was a median loss of approximately $250,000 per case. This indicates that fraud in this region is both common and costly, affecting the viability of many organizations. The average duration of fraud in the region was approximately 16 months before detection, which is significantly longer compared to other areas of the world.
Despite unique challenges in Mexico regarding private corruption, such as the lack of compliance evaluation mechanisms or the lack of strong regulation that offers better incentives than the reduction of sanctions in investigation procedures by Mexican authorities, the conversation leads towards the enforcement by companies of foreign anti-bribery laws and to the reparation of harms suffered as a consequence of private corruption.
Oftentimes, the enforcement of those foreign bribery laws is insufficient to most businesspersons in the country. Some companies do not recognize the benefits of designing and implementing a compliance program in accordance with international regulations, such as the U.S. Foreign Corrupt Practices Act (FCPA), or cannot attest if one of their operations will have a point of contact with these types of regulations. For example, private sector companies may not be actively aware of a business partner with U.S. citizenship, a distributor with operations across borders or a transaction in U.S. dollars.
Even without the link to U.S. regulation, those harmed by private corruption can pursue legal action to seek compensation for damages, including companies that have been harmed by their own managers or employees’ misconduct. In these cases, private companies, their shareholders and investors can demonstrate the economic harm caused by corrupt practices, such as the loss of income, increased costs in their business operations or lost value of shares. When the company is listed in the stock, institutional and retail investors play an important role in this reparation’s doctrine.
International treaties have offered a stronger framework for those business operations where foreign laws like FCPA or the U.K. Bribery Act could not be applicable. For example, the United Nations Convention Against Corruption (UNCAC) sets clear obligations for states to ensure that victims of corruption have access to legal remedies, which extends to private companies. UNCAC specifically requires states to adopt measures allowing individuals or entities harmed by corruption to initiate legal action against the perpetrators. This international obligation provides a pathway for businesses and individuals to seek compensation for damages resulting from private corruption. By invoking international treaties in domestic courts, victims of corruption may gain access to justice — even in jurisdictions where national legislation is insufficient to address their claims.
Either invoking foreign laws, international treaties or national regulations, companies are entitled (and often constrained by regulations like U.S. Department of Justice (DOJ) provisions) to hold accountable individuals who commit and profit from corporate misconduct, either internally or before public authorities with investigation and prosecutorial jurisdictions.
By proactively addressing internal wrongdoing, including investigating and sanctioning managers and employees, private companies strengthen their governance frameworks and demonstrate before their boards, shareholders, investors, employees and consumers a commitment to business efficiencies, financial growth, long-term business sustainability and competitiveness in global markets.
The fight against corruption and other types of misconduct is not the sole responsibility of governments and public institutions. Private sector companies play a critical role in preventing and addressing corruption, both within their organizations and in their dealings with third parties. To ensure accountability, companies must implement and enforce effective compliance programs, while legal frameworks must evolve to provide victims of private corruption with access to justice.
International conventions, like the UNCAC, and foreign laws, like the FCPA, can offer valuable guidance for improving corporate accountability and promoting transparency in the private sector. By adhering to international standards and strengthening domestic laws, companies can contribute to a broader culture of integrity that benefits both the private and public sectors.
Carlos G. Guerrero-Orozco is a litigation attorney based in Mexico City, and a partner of the private law firm López Melih y Estrada, where he leads the anti-corruption litigation and compliance practice for private sector companies.
