This GT Alert provides a general overview of the new Ley Federal Anticorrupción en Contrataciones Públicas (Federal Anti-corruption Law for Government  Procurement) (the “Law ”), published in the Official Gazette on June 11, 2012, effective as of June 12, 2012.

The Law complements the legal anti-corruption frame in force in Mexico regarding public officials, which includes, among other laws, the Código Penal Federal (Federal Criminal Code), the Ley Federal de Responsabilidades Administrativas de los Servidores Públicos (Federal Law of Administrative Accountability of Public Officials), the Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público (Law on Government Acquisitions, Leases and Services) and the Ley de Obras Públicas y Servicios Relacionados con las Mismas (Law on Government Construction and Public Work and Related Services).

The Law sanctions fines of up to approximately US$9 million dollars and prohibition on companies’ participation in federal procurement contracts for up to 10 years. This new Law has not only extraterritorial application (akin to the FCPA in the United States) but it may also pierce the corporate veil, which is a major change in the Mexican legal framework.

Purpose

One of the main purposes of the Law is to hold accountable and sanction individuals and companies, whether Mexican or foreign, for violation committed upon their participation in “federal public contracting” procedures in Mexico, as well as Mexican individuals and companies, for violations committed upon their participation in “international commercial transactions.”

Persons subject to the Law

• Individuals or entities, whether Mexican or foreign, that participate in federal public contracting procedures in their capacity as interested parties, participants in public auction procedures, invitees, suppliers, persons awarded contracts, contractors, permit holders, concessionaries or similar cases. 
• Individuals or entities, whether Mexican or foreign, that participate in public contracting processes set forth in the Law in their capacity as shareholders, partners, associates, representative, power grantors or attorneys-in-fact, legal representatives, brokers, agents, advisors, counselors, subcontractors, employees, or in any other capacity. 
• Mexican individuals or entities that participate, directly or indirectly, in international commercial transactions, in terms of the Law. 
• Public officials that, directly or indirectly, participate in federal public contracting procedures, who are subject to accountability in terms of Title Fourth of the Mexican Constitution, regulated by the Federal Law of Administrative Accountability of Public Officials.

Relevant concepts

• “Federal public contracting” procedures from which violations may derive in terms of the Law are those procedures, previous acts or acts that derive from the contracting, entering into, execution and performance of contracts concerning acquisitions, leases, services, public work and related services, that are undertaken by contracting public institutions, according to government procurement provisions and regardless of the legal type of engagement.

This includes: acts and procedures related to a public bidding, or call, or public auction for the granting of federal permits or concessions or the extension of such permits and concessions, as well as any other authorization or arrangement related with public contracting.

• “International commercial transactions” from which certain conducts may derive that may be sanctioned in terms of the law include:

(i) acts and procedures related to the contracting, execution and performance of contracts regarding acquisitions, leases, services of any nature, public work and services related thereto;

(ii) acts and procedures related to the granting and extension of permits or concessions; and,

(iii) any other authorization or arrangement related to the above transactions

that may be undertaken by any public organization of a foreign state or that may involve the participation of a foreign public official, in which Mexican individuals or entities may participate, directly or indirectly.

Conduct subject to sanctions

• Promising, offering or delivering money or any other gift to a public official or to a third party, in consideration for doing or refraining from doing any act that is within such public official’s duties or within the duties of another public official, for purposes of obtaining or maintaining certain benefit or advantage, regardless of whether the money or gift is accepted or received, or whether the expected result is actually obtained.

Also, any promise or offer to give money or any other gift to a third party that may intervene, in any way, in the design and drafting of any call for a public auction or of any other act in connection with a federal public contracting procedure.

• Undertaking conduct that implies or has the purpose or effect of obtaining any unlawful benefit or advantage in federal public contracting.
• Undertaking conduct or refraining from undertaking conduct with the purpose or effect of participating in federal public contracting, even when there may be an impediment to participation by virtue of law or pursuant to an administrative resolution.
• Undertaking conduct or refraining from undertaking conduct with the purpose or effect of evading requisites or rules set forth in federal public contracting procedures, or simulating that such requisites are complied with.
• Intervening personally but upon the interests of a third party that is impeded in turn from participating in a federal public contracting procedure, for purposes of such third party obtaining, whether totally or partially, the benefits that are embedded in the corresponding contract.
• Forcing or obliging a public official, without having the right to do so, to subscribe, grant, destroy or deliver any good or document in order to obtain a personal a advantage or benefit, or an advantage or benefit for a third party.
• Promoting or using influence, economic or political power, whether real or fictitious, on any public official, for purposes of obtaining a personal benefit or advantage, or a benefit or advantage for a third party, regardless of whether there is any acceptance by the public official, or whether the expected result is actually obtained.
• Showing documents or information that are altered or false, for purposes of obtaining an advantage or benefit.

Any agent or broker that may participate in any of the above described conducts, may also be sanctioned in terms of the Law.

Sanctions

The Law sets forth an investigation phase as well as an administrative procedure to impose sanctions.

Administrative sanctions for individuals may consist of (i) a fine, ranging from one thousand times to fifty thousand times the minimum general salary of the Federal District (“MGSFD”); this means, from $62,330.00 pesos (approximately US$4 thousand dollars, using an exchange rate in the average of $14.00 pesos per US dollar), to $3,116,500.00 pesos (approximately US$223 thousand dollars); and (ii) prohibition to participate in federal public contracting for a period not less than 3 months and not greater than 8 years.For entities, sanctions may consist of (i) a fine, ranging from ten thousand times to two million times the MGSFD; this means, from $623,300.00 pesos, (approximately US$45 thousand dollars), to $124,660,000.00 pesos (approximately US$9 million dollars); and (ii) prohibition to participate in federal public contracting, for a period of no less than 3 months or greater than 10 years.

In both cases, the amount of the maximum fine may be increased by 50% if the benefit that is obtained surpasses the maximum fine and, regarding contracts, the maximum fine may be increased if the amount of such fine is less than 30% of the amount of the corresponding contract, in which case the fine may be between 30% and 35% of the amount of the contract if it was actually awarded.

Subject to certain requisites set forth in the Law, in the event that the party violating the Law confesses such violation, that party may obtain a reduction of up to 60% of the applicable penalties.