Mexico

Mexico Corruption Report

(Want to receive more corruption report updates? Subscribe here!)

Snapshot

Mexico_247x134.pngCorruption is a significant risk for companies operating in Mexico. Bribery is widespread in the country's judiciary and police, and business registration processes, including getting construction permits and licenses, are negatively influenced by corruption. Organized crime continues to be a very problematic factor for business, imposing large costs on companies. Collusion between the police, judges and criminal groups is extensive, leading to widespread crime, theft, impunity and weak law enforcement. The petroleum industry is dominated by the state-owned oil company Pemex, which has been the subject of several high-profile corruption cases. Gifts and hospitality are not forbidden by law and may be permissible, depending on intent. Attempted briberyextortionabuse of office, bribery of foreign public officials and facilitation are criminalized under Mexico's Federal Penal Code (Código Penal Federal, in Spanish). However, Mexico's anti-corruption laws are almost never enforced, and public officials are rarely held liable for illegal acts.

Last updated: February 2016
GAN Integrity

Judicial System

Businesses face a high corruption risk when dealing with the judiciary in Mexico. The vast majority of Mexicans perceive the courts to be corrupt and subject to political interference both at state and local levels (GCB 2013HRR 2014). Reportedly, criminal groups have also taken advantage of Mexico's judges' susceptibility to corruption to advance their interests (BTI 2014). 

The costs of conducting business in Mexico is higher than in other regional countries, and the corrupt judicial system limits market competitiveness (BTI 2014). Surveyed business executives believe that the judiciary is ineffective in settling disputes and challenging government regulations (GCR 2015-2016). Furthermore, judicial procedures are impeded by lengthy delays and appeals (HRR 2014).

Police

The security apparatus carries a high corruption risk for businesses operating in Mexico. The police is perceived to be highly corrupt, incompetent and unreliable due to infiltration by organised crime groups and the influence of corrupt politicians (BTI 2014). Mexican police are frequently reported to be involved in extortion, kidnappings and providing protection for organised crime in exchange for bribes. In recent years, over 400,000 police officers across Mexico have taken anti-corruption exams, but those who failed testing continued their service and did not experience any consequences (Times Live, Nov. 2014). Citizens consider Mexico's police to be the most corrupt public institution in the country (GCB 2013). The reliability of Mexican police to protect companies from crime is among the lowest in the world, and the business costs of crime and theft are high (GCR 2015-2016).

In September 2014, dozens of Mexican police officers were accused of kidnapping 43 students in the town of Iguala and handing them over to a local drug gang to later be killed under the order of a high-level politician (Independent, Nov. 2014). The case is indicative of the high-level of corruption and impunity within Mexico's law enforcement authorities.

Public Services

The public services sector carries a high risk for companies operating in Mexico: Almost two-thirds of businesses claim that corruption is part of the business culture and that it affects their daily operations (IMCO, 2015). The efficiency of Mexico's public services is severely hampered by corruption, and foreign companies experience high costs and long waiting times when trying to establish a business. In the same vein, almost half of all surveyed companies report that they experience delays upon refusal to pay facilitation payments (Control Risks, 2015). Furthermore, companies report inefficient government bureaucracy to be one of the most problematic factors to doing business in Mexico (GCR 2015-2016).

On a more positive note, an overwhelming majority of companies in Mexico believe that resisting demands of bribery by corrupt officials pays off, as officials eventually become less likely to issue demands in the future (Control Risks, 2015). The government established Tramitanet (in Spanish) to allow for the electronic processing of transactions within the bureaucracy and to thereby reduce the risk of bribery (ICS 2015). Starting a business in Mexico is less time-consuming and less costly than the regional average, as is dealing with construction permits (DB 2016).

Land Administration

Mexico's land administration lacks transparency and is susceptible to corruption. Companies report that property rights are not adequately protected due to weak law enforcement (GCR 2015-2016). Property rights in Mexico are also threatened by the frequent solicitation of bribes and extortion by officials and bureaucrats (BTI 2014). Likewise, government officials act with impunity and use bribery or threats to obtain property for private gain (CatC 2012). Unlawful seizure and deprivation of property occurs, and forced land sale and transfer often take place (CatC 2012). In the same vein, Mexico's government officials ignore the illegal activities related to land administration in exchange for bribes (CatC 2012). It is more time-consuming but less costly to register property in Mexico compared to averages in the Americas (DB 2016).

Tax Administration

Companies face a moderate risk of corruption when dealing with Mexico's tax administration. Mexico has the weakest tax revenues in the 34-nation Organization for Economic Co-operation and Development (OECD), partially due to corruption (Reuters, Jan. 2014). Companies rank tax rates and regulations among the most problematic factors for doing business (GCR 2015-2016); they spend a subtantial amount of time preparing, filing and paying taxes, and the costs amount to over 50% of the commercial profit of firms, higher than in other Latin American countries (DB 2016). However, Mexico's government has reduced the number of payments companies must make each year, limiting opportunities for tax officials to extort bribes (CatC 2012). 

Customs Administration

Mexico's customs administration carries a high corruption risk for businesses. Kickbacks to customs officials at ports and border points, burdensome import procedures, and tariffs are the main impediments to trade, and the customs administration lacks efficiency and transparency (GETR 2014). To reduce opportunities for corruption, the Mexican government introduced the Secretariat of the Economy website that offers information and forms related to investment and trade; import and export permit applications can be downloaded on the website. Trading across borders is less costly and less time-consuming than the regional average (DB 2016). 

In 2014, approximately 100 employees of the Finance Ministry tax agency’s customs service were prosecuted for corruption and abuse of office; 73 of the customs agents were fired. The same year, almost half of all 13,000 complaints received by the Ministry concerned customs agents (Agencia EFE, July 2015). 

Public Procurement

Mexico's public procurement sector carries a high corruption risk for companies operating in the sector. Businesses believe that public funds are often diverted to companies and individuals due to corruption and perceive favoritism to be widespread among procurement officials (GCR 2015-2016). Most surveyed companies report that they have lost business opportunities due to competitors resorting to corruption (IMCO 2015), while almost half of businesses have failed to win contracts because competitors have bribed procurement officials (Control Risks, 2015). Compliance with procurement regulations by state bodies is erratic, and corruption is extensive, despite laws covering conflicts of interest, competitive bidding and company blacklisting procedures (CatC 2012). An online federal procurement website, Compranet, is intended to increase transparency in the government and to decrease the frequency of bribery (ICS 2015). 

A conflict of interest case plagued the presidential palace in 2015 when a special investigation on a USD 7 million mansion (located in Mexico City’s most exclusive area) belonging to the President and his wife was published. The house was purchased from Grupo Higa, a company that won several construction contracts in the State of Mexico during the time President Pena was governor of the state. Grupo Higa had also recently won a contract to build the new Mexico-Queretaro high-speed railway, yet, in the midst of the allegations, the contract was withdrawn without any explanation (TeleSUR, Nov. 2014). President Pena assigned the investigation into the alleged conflict of interest to the minister of finance, who had himself purchased properties from important government contractors. The minister cleared the President of any wrongdoing (Vice News, Aug. 2015). Companies are recommended to use a specialised public procurement due diligence tool to mitigate corruption risks associated with procurement in Mexico.

Natural Resources

Corruption represents a very high risk for companies operating in Mexico's extractive sector. The oil and mining industries suffer from poor contract and reporting transparency, ineffective audits and a weak rule of law. The fourth largest oil production company in the world, Petróleos Mexicanos (Pemex), dominates the industry by law and constitutes one third of government income. Legally, Pemex is allowed to award contracts through a non-competitive direct award process, contributing to non-transparent practices in the industry (RGI 2013).

Pemex has recently experienced a number of corruption allegations. In 2011, USD 427 million in fines were imposed on 14 Pemex executives for irregularities in the process of awarding contracts to companies that did not meet tender requirements. In another instance, a nepotism case that broke out in mid-2015, revealed that the niece of President Pena was hired by Pemex. The President's niece was reportedly far from qualified for the job, a fact that neither her top executive position nor her salary reflected (TeleSUR, July 2015).

Legislation

Despite a strong legal framework, Mexico's anti-corruption legislation is not effectively enforced (BTI 2014). The FederalPenal Code (in Spanish) criminalizes corruption, active and passive bribery, extortion, abuse of office, money laundering,bribery of foreign public officials and facilitation payments. Criminal penalties for corruption range from five to ten years' imprisonment. The Federal Public Servants' Responsibilities Law (in Spanish) prohibits public officials from requesting or accepting goods or services, either free or at a price less than market value, from individuals or corporations whose professional interests conflict with the official duties of the public servant. The law requires public officials to declare any gift valued at ten times the minimum wage in Mexico (USD 48) within 15 business days or deliver it to the administrative authority. The Anti-Money Laundering Law restricts operations for a variety of vulnerable activities and provides criminal sanctions and administrative fines for failure to comply. Public procurement is regulated by the Law on Acquisitions, Leases and Public Sector Services (in Spanish) and the Law on Public Work and Related Services (in Spanish) that address conflicts of interest among federal procurement officials, competitive bidding, asset declaration and monitoring, reviews of procurement decisions, and blacklisting measures. Mexico has adopted the Transparency Standards on Government Procurement by the Asia-Pacific Economic Cooperation (APEC). Whistleblower protection is very weak, and no legal protection is established for those reporting corruption. Mexico has ratified theUnited Nations Convention against Corruption (UNCAC) and is a signatory to the OECD Anti-Bribery Convention.

Civil Society

Mexico's law guarantees freedoms of speech and press, but these rights are not respected in practice. Reporters face physical violence, imprisonment, murder and kidnappings by organized crime groups or from corrupt public officials (RWB, June 2013). Mexico is ranked as the world's second most dangerous country for investigative journalists, with 88 journalists killed between 2000 and 2014 (FotP 2015). Most journalists killed in 2014 were investigating links between Mexican government officials and organized crime (RWB, Feb. 2015). Journalists reporting on police issues, drug trafficking and official corruption, in particular, face high risks of physical harm and are forced to practice self-censorship. Access to the internet is not restricted, but citizens who attempt to report crime via online platforms face threats, reprisal and murder by criminal groups (FitW 2015). The Freedom of Information Act (in Spanish) ensures public access to information at all government levels, and the government has reportedly implemented the law effectively (HRR 2014). The media environment in Mexico is considered 'not free' (FotP 2015).

Rights of association and assembly in Mexico are formally established, but civil society in Mexico is relatively weak in comparison to other Latin American countries. Many civil society groups (CSOs) retain patronage-based relations with political parties (BTI 2014). CSOs stay active and express their views despite facing threats from local police and government officials (FitW 2015).

Sources

Topics: The Americas