Corruption and bribery have run rampant throughout Mexico for years. However, recent developments and policy changes of the new administration indicate that the days of doing business through bribery and graft are over.
The New Administration
Mexican President Andres Manuel Lopez Obrador campaigned on the promise of transforming Mexico and ridding it of the corruption that has long dominated business and politics. His promises struck a chord with the Mexican population, and he was elected to office in 2018 in a landslide victory. Since entering office, Obrador has taken steps to fulfill his campaign promises. One such step was installing Santiago Nieto as the head of the finance ministry’s financial-intelligence unit (“FIU”). Obrador and Nieto are working together to make good on their promise to seek to rid the country of corruption.
The Texcoco Airport Project
In October of 2018, Obrador dealt the first blow in Mexico’s fight against corruption by scrapping Mexico City’s US$13.3 billion airport while it was still under construction.1 Obrador frequently lambasted the airport as being riddled with corruption, and his move to scrap it despite the US$5 billion2 cost associated with doing so seeks to indicate that the new administration may be willing to take a zero-tolerance approach to corruption. Public reaction to the decision has been contentious. In the immediate aftermath, the peso, which traded at 19.36 to the dollar the day before, fell to 20.02.3 Additionally, the country’s benchmark index fell 4.2%.4
Businesses and investors looking to do business with the Mexican government have taken notice of this shift in policy as well. For example, Jorge Mariscal, emerging-markets chief investment officer at UBS Global Wealth Management, commented to the Wall Street Journal that “[t]here is a question mark about doing business with the government and the seriousness of the contracts that are attached to projects.”5 Alberto Ramos, chief Latin America economist at Goldman Sachs, said that the business community thought Obrador “was going to be a pragmatic, business-friendly leader, who was willing to reach out to the business community.”6 Public skepticism about doing business with the Mexican government can have potentially grave consequences for the country’s economy.
The Odebrecht Investigation and Recent Arrests
Obrador’s response to Mexico’s role in Odebrecht’s global bribery scheme further highlights his administration’s efforts to combat corruption in Mexico. In 2016, Odebrecht, a Brazilian construction firm, admitted to paying US$800 million in bribes to political leaders throughout Latin America in exchange for lucrative construction contracts.7 As part of its settlement, Odebrecht admitted to U.S., Brazilian, and Swiss investigators that it had paid roughly US$6 million in bribes to a top Mexican official at an unnamed state-owned company.8 Despite this admission, Obrador’s predecessor, President Peña Nieto, neglected to bring charges against any government officials caught up in the scandal.9
The Obrador Administration now has its sights set on correcting that mistake by bringing charges against the individuals implicated in the Odebrecht scandal.10 Indeed, at a recent anti-corruption conference in Mexico City, Julio Scherer Ibarra, Obrador’s chief legal adviser, indicated that the Obrador Administration will prosecute historical cases of anti-corruption, including offenses committed by Peña Nieto’s administration. In addition, after rejecting Odebrecht’s US$18 million settlement offer late last year, on May 6, 2019, Attorney General Alejandro Gertz Manero announced that his office will launch a probe into the scandal, stating that “[u]sing recently gathered information and within a period of no more than 60 days, a case will brought.”11
Manero kept his word, and on May 28, 2019, the Obrador Administration launched its first high-profile anti-corruption investigation related to the Odebrecht scandal. The target: Emilio Lozoya, longtime confidant and campaign manager of then-president Peña Nieto. Lozoya also happened to be the former CEO of Petroleos Mexicanos (“Pemex”), the only state-owned company to sign a contract with Odebrecht during the relevant time period.12 During the period between 2014 and 2015, Pemex awarded Odebrecht with four different engineering and construction contracts worth approximately US$1.5 billion.13 The investigation into Lozoya is centered on a US$475 million transaction between Pemex and Altos Hornos de Mexico (“AHMSA”).14 As part of the transaction, AHMSA made a US$3.6 million payment to a Swiss shell company tied to Lozoya and Odebrecht.15 The FIU is operating on the “hypothesis that [the US$3.6 million] was a bribe.”16
Alonso Ancira, chairman of AHMSA, was arrested, and an arrest warrant was issued for Lozoya, but later suspended.17 The FIU has also frozen Lozoya’s and AHMSA’s bank accounts.18 If convicted of money-laundering, Lozoya faces a maximum penalty of 15 years in prison.19
Final Thoughts
The Obrador Administration has made good on its promise to fight corruption at the highest levels of Mexican society, whether it be through scrapping a multi-billion dollar airport construction project, or through the prosecution of high-level government and business officials. Recent developments indicate that the Obrador Administration will likely seek to enforce its anti-corruption laws no matter the cost, and we should expect to see additional investigations in the foreseeable future. Business and investors seeking to do business in Mexico should craft and implement robust compliance programs to avoid corruption and minimize the risk of falling on the administration’s radar.
Footnotes
1) Anthony Harrup, Mexico to Cancel $13.3 Billion Mexico City Airport Project, The Wall Street Journal, Oct. 29, 2018.
2) Id.
3) Id.
4) Id.
5) Id.
6) Id.
7) Kirk Semple and Azam Ahmed, Mexico Charges Former Oil Official With Bribery in Anticorruption Drive, The New York Times, May 28, 2019.
8) David Luhnow and Juan Montes, Steel Executive Seized in Spain in Mexican Corruption Case Tied to Pemex, The Wall Street Journal, May 28, 2019.
9) Supra, n.7.
10) Mexico to launch criminal probe into Odebrecht – attorney general, Reuters, May 6, 2019.
11) Id.
12) Supra, n.8.
13) Id.
14) Supra, n.7.
15) Id.
16) Id.
17) Eric Martin and Andrea Navarro, Mexico Seeks to Arrest Ex-Pemex CEO Amid Corruption Probe, Bloomberg, May 28, 2019.
18) Id.
19) Mexican charges against ex-Pemex chief are for money laundering, Reuters, May 30, 2019
