Mexican Asset Forfeiture Redux
As a response to the increased violence of organized crime, Mexico passed its first forfeiture law in 2008. At the time, the law was seen as an agile tool for federal and state governments to reach the financial assets of drug cartels and organized crime within the limits of existing constitutional protections. In practice, however, the forfeiture procedure was slow and Mexican authorities were often unsuccessful in their efforts to secure the assets and proceeds of organized crime.
Following a political campaign focused on combating political impunity, corruption and organized crime, in March of 2019, the Morena Administration passed Constitutional amendments to articles 22 and 73, reducing certain constitutional restrictions. Congress then subsequently passed the National Asset Forfeiture Law (Ley de Extincion de Dominio) in August. This month, the Federal Attorney General created a Special Forfeiture Unit within the Fiscalia General de la Republica (Mexican equivalent of the Department of Justice) to investigate forfeitable assets and exercise the Federal Government’s rights under the law. The law was influenced by the laws and practices of the U.S., Guatemala, Colombia and Italy.
In general, the law creates a civil judicial procedure whereby a Federal or state Prosecutor (Ministerio Publico) may seek a court order forfeiting the title of certain assets in favor of the Federal Government, or that of a state. Through this civil action, the Federal or state prosecutors may thus extinguish a holder’s title to assets used in or derived from the following typified crimes: organized crime, drugs, corruption, extortion, kidnapping, carjacking, human trafficking and obstruction of justice. Unlike forfeiture in the United States, a forfeiture decree in Mexico is independent and can potentially come before, or even without, a criminal conviction. Further, assets may be forfeited if reasonably linked to listed criminal conduct even if the titleholder herself did not engage in criminal conduct.
This new law has been the subject of much controversy, and the constitutionality of some of its provisions was recently challenged by the National Human Rights Commission (NHRC). Several individuals filed constitutional Amparo procedures objecting to its application. The Mexican Supreme Court has accepted the NHRC constitutional challenge and federal district courts are considering the various individual amparo proceedings. Regardless of the controversy, companies doing business in Mexico should be aware of at least three implications of this new law.
First, it incentivizes companies to monitor the use of company assets and continues the trend of encouraging cooperation and reporting of potential employee misconduct. Assets subject to forfeiture include those used in the commission of a crime. This extends to assets owned by an unrelated third party where that third party knew, or should have known, of the asset’s criminal use, but failed to notify the authorities. This creates potential pitfalls for those doing business in Mexico. What if an employee uses company assets in furtherance of a bribery scheme? What if employees know of the criminal use of company assets by an outsider, but fail to report this procedure out of apathy or fear? Companies should create strong internal compliance protocols and procedures for detecting and alerting management to potential criminal conduct.
Second, companies should reinforce recordkeeping and due diligence. The forfeiture law places the burden of proof on owners to prove their asset’s legitimate origin or their status as a good faith purchaser. The law provides some guidance in this regard. Companies should be able to justify the legitimacy of their assets through proper documentation, including: written contracts, proof of payment of any applicable taxes, proof of continuous ownership and possession of the assets, and proper and timely recording in any applicable public registries. To prove their good faith, companies may also consider performing background checks or due diligence on sellers, and requiring sellers to provide satisfactory proof of an asset’s legitimate origin. However, the reality is that these precautions can be expensive and time-consuming. Because other business laws in Mexico – anticorruption and privacy come to mind – all require companies to conduct background checks and other diligence to show reasonable care, it might make sense to incorporate due diligence processes for asset acquisition and management.
Third, the law strengthens intergovernmental cooperation in fighting transnational crime. The Mexican Forfeiture Law empowers Mexican officials to seek assistance from foreign governments when assets subject to forfeiture are found outside Mexico’s borders. The law also contemplates assistance by Mexican authorities, at the request of foreign governments, in instituting and prosecuting forfeiture proceedings for assets found in Mexico. In this latter scenario, the asset or proceeds from the sale of the asset would be turned over to the foreign government after a judicial decree of forfeiture.
Asset forfeiture laws are a staple of legal systems throughout the world. The United Nations Convention Against Corruption encourages their adoption as a tool to fight corruption. The idea behind these laws is laudable; preventing criminals from taking advantage of their ill-gotten gains. They can also be a source of revenue for cash-strapped government agencies. However, overzealous governments can sometimes be accused of overreaching, particularly when the value of assets used in criminal ventures far exceeds the plunders of the criminal enterprise or the links between assets and criminal conduct are tenuous. Like the United States, Mexico’s constitution has a provision preventing excessive fines and seizures, though Mexico’s constitution expressly exempts certain crimes. It will be interesting to see how the Mexican Supreme Court balances these competing interests.