Anticorruption Update – Stalled Reform, Policing PEMEX/CFE

Forgotten Reform

As discussed in previous posts, corruption in Mexico is a serious issue, costing the country up to around 9 percent of GDP. Thus, it’s not surprising that corruption has made its way onto the reform agenda of the Pacto por Mexico. The Mexican Senate passed the anticorruption initiative in December 2013, but the legislation never made any progress in the Chamber of Deputies. The legislation’s most noteworthy element is the creation of a National Anticorruption Commission, which would have the power to investigate, administratively punish corrupt acts, and refer criminal cases to the Prosecutor General.

The Commission would supplant the Ministry of Public Administration (Secretaria de Funcion Publica or SFP), whose sad anticorruption site serves as a reminder of its imminent irrelevance. The disappearance of SFP is probably for the best – its anticorruption enforcement has declined markedly – by about 50 percent in the last year and a half. Moreover, even  though the SFP has meted out around USD 10.8 million in fines over the past three years, it only collects in about 0.1 percent of cases. The problem is the SFP’s lack of ‘teeth’, something which the anticorruption reform was supposed to correct. But SFP’s incompetence has been magnified by a lack of leadership as Pres. Pena has delayed appointing a Minister of Public Administration in anticipation of the reform.

At first, the anticorruption reform seemed to be one of the top priorities for the administration. But the reform has been stuck in legislative purgatory since January, when the Senate passed the measure and handed it to the Chamber of Deputies. Since then, the Committee on Transparency has met three times but never took up the anticorruption reform; absent an extraordinary session, the soonest we could see movement on the reform is in the September 1 – December 15 session.

In the meantime, the status of the anticorruption reform has been confused by the creation of a Special Prosecutor for Corruption Crimes (Fiscalia Especializada en Materia de Delitos Relacionados con Hechos de Corrupcion), within the office of the Prosecutor General. The Special Prosecutor would have the ability to investigate and criminally prosecute violations of Mexican anticorruption law. But this entity also seems to have been left leaderless, and I cannot find any information on it from the Prosecutor General website. Some have argued that the Special Prosecutor spells the end of the Anticorruption Commission, but I’m not so sure. In any case, the existence of overlapping, equally powerless anticorruption agencies naturally has not been effective in combating corruption.

One potential explanation for the anticorruption reform delay: it was a strategic decision by Pena to minimize PRI-PAN tensions while passing the other reforms, on energy and telecom, for which he needed PAN support. Any anticorruption drive will almost certainly be focused on conduct occurring in the previous PAN government(s) (e.g., the Banamex case). This is partly out of necessity – the PRI has not been in charge long enough for there to be many post-PAN cases. But, whether fair or not, any cases brought against Panistas will probably be viewed as politically-motivated, and could undermine PAN support in the legislature. With the major reforms passed, Pena may be ready to end his ‘truce’ with PAN and launch an anticorruption drive.

PEMEX Anticorruption Plan

Although the overarching anticorruption reform is languishing in congress, the soon-to-be-enacted Energy Reform contains several specific anticorruption provisions.

Why does PEMEX need special attention when it comes to anticorruption? It is often considered the most corrupt entity in the federal government, with 80 percent of Mexicans associating the company with corruption. About one out of every three Mexico-related foreign bribery enforcement actions by the US authorities involve improper payments to officials at PEMEX (some case studies).

A good portion of PEMEX’s numerous and costly legal battles involve corruption claims against former employees related to schemes like using offshore shell companies to resell diesel fuel to PEMEX at artificially inflated costs. Notably, in many of these cases the ex-officials who engaged in improper conduct have been neither imprisoned nor fined.

The current version of the Senate’s revised Law on PEMEX and Law on the Federal Electricity Commission includes 50 anticorruption-related changes (extract from Senate document here). Most important, the changes include:

  • a new article that expressly states that all contracts with PEMEX/CFE are covered by the Federal Law on Anticorruption in Public Procurement, which was enacted in 2012
  • transparency requirements on public procurement contracts with PEMEX/CFE, including creation of a public system with information on contracts from past 5 years
  • mandatory creation of an anonymous whistleblower system
  • development of a system at each entity for identifying, systematizing, and administrating the risk factors associated with public procurement
  • definition of the basic qualifications a prospective contractor must meet (e.g., technical/financial capacity, previous experience, fiscal status)

The intended effect of these provisions is to discourage and prevent corruption in the multi-billion-dollar public procurement opportunities that will open up as early as 2015. Indeed, the Energy Reform auctions will be more closely watched – both in Mexico and abroad – than usual. Indeed, the foreign investors that PEMEX is hoping to attract agree: anticorruption measures must be incorporated into the Energy Reform for it to be successful.

I suspect, however, that the measures described above will not have much of a deterrent effect absent a dramatic and publicly-visible increase in enforcement, particularly against the still unpunished ex-PEMEX officials whose misdeeds are a matter of public record. Which brings us back to the Anticorruption Reform: if it isn’t effective – not to mention enacted – it is doubtful the Energy Reform will achieve its goals.

This entry was posted in corruption, economy, energy, legislation, oil and gas, Pact for Mexico, pemex, politics, reform. Bookmark the permalink.

2 Responses to Anticorruption Update – Stalled Reform, Policing PEMEX/CFE

  1. Pingback: Anticorruption Update – Wither the Commission? | The Mexico Monitor

  2. Pingback: Anticorruption Update – PAN Unveils its Initiative, Finish Line in Sight | The Mexico Monitor

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