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Criminal sanctions for cartel conduct in Mexico: The challenges of criminal prosecution

Introduction

Mexico is now part of the countries where criminal prosecution for individuals involved in cartel activities2 is a reality.

Although the provisions have been in the books for 6 years, until this year, they were not applied, and businessmen considered this as a minor risk.

This year, for the first time in Mexico, the chief prosecutor of the Federal Economic Competition Commission ("COFECE") submitted a criminal complaint before the Office of the Attorney General (Procuraduría General de la República – the "PGR") against several individuals allegedly involved in cartel activities related with the healthcare sector, and after the criminal proceeding, they could be spending up to 10 years in prison. This event represents a major step forward in the Mexican competition enforcement system.

For many years, cartel activity was not correctly deterred and sanctioned in Mexico. Cartels were sanctioned with fines that were worth less than the direct benefit of the cartel. In an effort to correct this situation, in 2011, monetary sanctions were increased to represent up to 10% of annual turnover and the Federal Criminal Code (Código Penal Federal – the "Criminal Code") was amended to introduce criminal sanctions for individuals involved in cartel activity. The Criminal Code was again amended in 2014 in order to increase the criminal liability; however, different challenges prevented COFECE from making criminal referrals for some years, but that was surpassed this year.

Pursuant to a press release issued by COFECE3, in this specific case, the Investigative Authority gathered sufficient evidence on the coordination between bidders in public tenders related to the health sector between 2009 and 2015, affecting public bids that represented more than MXN$1,200 million (around USD$63 million). COFECE's officials have stated that more cases will be referred for criminal prosecution in the near future.

Background

Criminal liability for cartel members is governed by Article 254-Bis of the Criminal Code and is prosecuted according to the National Code of Criminal Proceedings (Código Nacional de Procedimientos Penales). The Criminal Code provides penalties from 5 to 10 years of imprisonment, as well as fines from one thousand up to ten thousand UMAs4, for those individuals that ordered, executed or carried out cartel activities (a.k.a absolute monopolistic practices). Criminal prosecution and adjudication for these conducts corresponds to the PGR and the Federal Courts, respectively.

For a criminal action to be lodged, COFECE's chief prosecutor must submit a formal complaint before the PGR. Charges may be brought forth at the time the Notice of Probable Responsibility (Dictamen de Probable Responsabilidad – "DPR")5 is issued.

Entities and/or individuals who received leniency under COFECE´s leniency program will not face criminal charges. This benefit is applicable to all economic agents receiving leniency, either if they are "first-in" or subsequent applicants. In addition, COFECE's Plenum is entitled (but not obliged) to request the dismissal of the criminal case if the administrative sanctions are complied with by the economic agent, as long as the following requirements are met: (i) lack of appeals against the COFECE's decisions; and (ii) the economic agent is a first-time offender in terms of Article 127 of the Competition Law and in terms of Article 254-bis of the Criminal Code.

Challenges of criminal prosecution in Mexico

Naturally, the new reality of cartel investigations and prosecution brings new challenges to a competition system that is still young.

COFECE and the PGR will have to work with a legal framework that has never been applied and impose sanctions that are completely unfamiliar to economic agents in Mexico, and the PGR will have to deal with cases that are very different to what is normally in their docket.

The following are some of the most relevant challenges that, we consider, will need to be overcome in order to effectively give this major step forward in the Mexican competition enforcement system for good and that both authorities and business people should take into consideration in their risk analysis.

Lack of Precedents and Judicial Criteria

The number of precedents and judicial criteria on criminal liability for competition matters is simply zero. COFECE and the PGR will have to construe their cases with the minimum of legal framework available. As more cases end at Federal Courts, relevant and substantial case law will raise, hopefully working as guidelines for practitioners in the next cases.

The development and resolution of this case will likely be a watershed on competition enforcement in Mexico and therefore, it is of the essence that the authorities carefully make any procedural step pursuant to law. Criminal law in Mexico is extremely formalistic, and any procedural mistake may mean the dismissal of evidence and jeopardize the whole process. On top of this, a core amendment to the criminal legal framework entered into force in June 2016 and both, practitioners and authorities are still familiarizing with the new oral system.

Lack of Expertise

Criminal lawyers are not necessarily experts in competition law and competition lawyers are not necessarily experts in criminal law. The prosecutors will likely suffer this lack of specialized human capital. Nonetheless, Mexico is finally giving the next step on specialization and the new generation of lawyers is starting to focus on new areas at a very early stage, which will certainly have worthy outcomes in the near future.

An interesting experiment comes from having external experts advising COFECE on criminal law and in how to present the cases to the prosecutors. This innovative way of catching up on needed expertise is new for the competition authority but may prove to be the way forward.

Effective Outcomes

It is of the essence that COFECE and the PGR start having successful results on criminal prosecution for competition matters soon. Nowadays, individuals and entities consider going to jail as a serious risk for cartel activities. If business people perceive that such risk is not real, the deterrent factor will cease and cartel activity could potentially increase.

Moreover, the effectiveness of the leniency program will likely be affected as the appealing of amnesty is, among other things, the possibility to avoid prison. If economic agents lose that fear, there will be less reasons for applying for leniency.

"All-in or Nothing" for Years in Prison

As opposed to other jurisdictions, neither COFECE nor the PGR are allowed to "negotiate" or "agree" on reducing criminal sanctions. For example, the US system provides for the plea agreements whereby a company that loses the race for full immunity can still obtain substantial benefits in return for timely cooperation. According to Scott D. Hammond6, a former Deputy Assistant Attorney General for Criminal Enforcement of the DOJ's Antitrust Division and now a partner at Gibson Dunn, over 90% of the corporate defendants charged with an antitrust offense enter into plea agreements. In the year 2016, the US imposed criminal sanctions to 22 individuals for cartel conduct with a total prison time of 239.8 months7. This means that the average sanction was 10.9 months.

In Mexico, as mentioned, the Criminal Code provides that individuals claimed for carrying out cartel activities could be sanctioned with 5 to 10 years of imprisonment. There are in principle, two ways of eliminating criminal liability (i.e., the leniency program and the COFECE's Plenum request to dismiss the criminal case) but there is no way to reduce the term of jail. In this regard, COFECE needs to find a middle ground to balance those cases in which they opt to eliminate criminal liability and those cases in which they choose to put someone behind bars for at least five years. That is not easy.

Legal framework gaps

COFECE and PGR will certainly find several legal framework gaps on their way to success. The Competition Law and the Federal Criminal Code, respectively, do not necessarily cover all tools required to develop a complete proceeding and grant legal certainty to defendants.

The number of queries that arise when trying to analyze the criminal procedure in competition matters step by step could probably fill a whole book. Will the PGR carry out its own investigation as it should, or the evidence collected by COFECE will be used directly on the criminal proceeding? Does the PGR needs to make sure that COFECE followed the chain of custody for its evidence, or this must be taken for granted? Does the PGR needs to wait until COFECE's Plenum issues its resolution? What would happen if COFECE's Plenum finds someone guilty and the PGR does not or vice versa?

Several more questions will need to be answered by the authorities and overcome by practitioners when dealing with this type of proceedings.

Conclusion

In regarding the objectives of public policy, the referral of cartel cases for criminal prosecution by COFECE is a very good step forward. The system needs to correctly deter and sanction individuals that participate in illegal activities.

The challenges that come with the new system are enormous for all parties involved but, until now, COFECE seems to be finding a way to navigate through the criminal system and the cases are advancing.

Companies and individuals need to be aware of the risks now involved in participating in cartel conduct in Mexico and should consider that such conduct is defined broadly in the laws and include exchanges of information with anticompetitive object or effect.

Entities and individuals should also consider that prosecutors are restrained by a criminal system that does not allow for sentences of less than 5 years in prison if found guilty.

COFECE is now the very active and aggressive authority that many believed was needed for an economy plagued with cartels and privileges. We will see if criminal sanctions are the correct tool for retribution and deterrence in the Mexican markets soon.


  1. Carlos Mena Labarthe is partner and Sebastián Martínez Pastrana is an associate in the Competition and Antirust practice at Creel, García-Cuéllar, Aiza y Enríquez, S.C.
  2. Pursuant to Article 53 of the Federal Economic Competition Law (Ley Federal de Competencia Económica - the "Competition Law"), cartel activities are all contracts, agreements, arrangements or combinations between competitors, which have either the object or effect of price fixing, restricting the production or distribution of products or services, allocating segments of a particular market and bid-rigging. The exchange of any information between competitors with the purpose of or that have the effect of any of the mentioned activities is also considered as cartel activity under Mexico law.
  3. Available at: https://www.cofece.mx/cofece/ingles/images/ingles/press_release/COFECE-008-2017_English.pdf.
  4. Fines are calculated based on the equivalent in pesos to the general Measure Unit (Unidad de Medida y Actualización, "UMA"). The value of each UMA for the year 2017 is MXN$75.49 pesos.
  5. The DPR is issued by COFECE's Investigative Authority 60 business days following the conclusion of the investigation if it considers there is enough evidence to presume the responsibility of a party. After the review of the DPR, COFECE's Plenum will decide to request either the beginning of and administrative procedure (based on the alleged existence of an illegal conduct) or the closing of the investigation file due to the lack of evidence.
  6. Hammond D. Scott y Barnett A. Belinda (October 2006), The "U.S." Model of Negotiated Plea Agreements: A Good Deal With Benefits For All. Available at: https://www.justice.gov/atr/file/518421/download.
  7. Source: Global Competition Review – Rating Enforcement 2017.