On August 9, 2019, Mexican President Andrés Manuel López Obrador passed legislation that added corruption to the catalogue of criminal conduct subject to asset forfeiture proceedings. Mexico’s new Ley Nacional de Extinción de Dominio (Asset Forfeiture Law), in conjunction with harmonizing amendments to the Código Nacional de Procedimientos Penales (National Code of Civil Procedure), empowers the Mexican government to seize from corrupt private individuals and companies any assets acquired illicitly, used in furtherance of illicit activity, or in respect of which good title cannot be evidenced. Just recently, a Special Forfeiture Unit in the Fiscalía General de la República (the Attorney’s General Office) was established to investigate and bring asset forfeiture cases.
However, one aspect of the new law has been criticized heavily, including by former Mexico Attorney General Ignacio Morales Lechuga, and even has led to Amparo suits (Constitutional appeals) by aggrieved parties. Specifically, detractors believe the new law’s controversial application to asset forfeiture procedures initiated as of the effective date of the Law, being August 10, 2019, even where the relevant corrupt acts occurred prior to that date, contravenes the Constitución Política de los Estados Unidos Mexicanos (the Constitution of Mexico), which expressly forbids Mexican law from prejudicing persons retroactively.
Ley Nacional de Extinción de Dominio and the Fiscalía General de la República’s Special Forfeiture Unit
Asset forfeiture—states recovering ill-gotten gains from criminals—is nothing new. Indeed, Mexico passed its first forfeiture law in 2008 in response to a perceived increase in violent organized crime. The 2008 law was welcomed, as it purportedly enabled the government to pursue the finances of Mexico’s drug cartels. However, that law provided for asset recovery within the limits of existing constitutional protections and ultimately was less successful than envisaged.
Following a political campaign focused on combating political impunity, corruption, and organized crime, President Obrador’s Movimiento de Regeneración Nacional (Movement for National Regeneration, or “Morena” Administration) amended Articles 22 and 73 of the Mexican Constitution in March of 2019, in order to reduce certain constitutional restrictions. The new Asset Forfeiture Law followed five months later. Though influenced by the laws of the United States, Italy, Guatemala, and Colombia, the new law deviates from them in interesting ways. Unlike forfeiture in the United States, for example, a civil forfeiture decree in Mexico is independent of, and can come before or even altogether absent, a criminal conviction. Moreover, there is no statute of limitations in Mexico for the recovery of assets determined to have illegal origins.
More recently, in November of 2019, the Mexican Attorney General launched a new Special Forfeiture Unit, tasked with investigating forfeitable assets, building cases against defendants and, where appropriate, seeking to exercise the government’s rights to recovery by bringing civil forfeiture actions. Under the new law, bringing an action leads to a judicial stage and an oral trial. If a forfeiture action is upheld, a defendant’s title to assets used in or derived from a corrupt act is extinguished in favor of the government.
Key Implications for Parties Doing Business in Mexico
First, the new law incentivizes companies to implement robust internal protocols for detecting and alerting management to potential criminal conduct, to monitor and scrutinize the use of corporate assets, and to encourage reporting of potential employee misconduct. This is because assets owned by third party titleholders conceivably may be forfeited even if the titleholder was not a party to corruption, provided the titleholder knew or ought to have known that the assets were used in or derived from a corrupt act but failed to notify the authorities. This potentially implicates companies doing business in Mexico whose employees might use corporate assets to commit bribery.
Second, the new law requires companies to reinforce recordkeeping and due diligence. This is because the law places the burden of proof on the owner to evidence beyond a reasonable doubt good title to assets or status as a good faith purchaser. The law provides some guidance as to how owners may achieve this. To evidence good title, owners should obtain and retain proper documentation that may include written contracts, proof of payment of any applicable taxes, and copies of any applicable public registry filings. To evidence good faith, owners should perform background checks and other due diligence on sellers and assets, including requiring sellers to provide satisfactory proof of the legitimate origins of assets. Notwithstanding the guidance, the mere fact that companies whose assets are seized are burdened with having to prove beyond reasonable doubt the legality of its assets may in practice strengthen the position of Mexican authorities when negotiating to resolve corruption investigations.
Third, the new law seeks to frustrate any attempts by corrupt actors to insulate themselves from forfeiture by hiding assets or moving them overseas. Specifically, the law empowers Mexican officials to seek assistance from foreign governments when assets determined to be forfeitable are outside Mexico’s borders. The law also empowers Mexican authorities to institute proceedings related to domestic assets at the request of foreign governments and then to relinquish forfeited assets to foreign governments. Additionally, the law provides for injunctive relief—seizure of assets pre-judgment—where the prosecutor believes a defendant is likely to hide or move assets.
The new law is Ley de Órden Público (Public Policy Law) and the Mexican legislature believes it aligns with the United Nations Conventions against Transnational Organized Crime and Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which encourage asset seizures in order to fight corruption more effectively. The new law also expressly protects fundamental rights recognized in the Mexican Constitution and relevant International Treaties. Nonetheless, the new law faces continued public scrutiny and several legal and constitutional challenges in the year ahead. Aggrieved parties have brought several Amparo suits already, which currently are before federal district courts for determination. Additionally, the Suprema Corte de Justicia de la Nación (Mexican Supreme Court) has accepted a constitutional challenge lodged by the Comisión Nacional de los Derechos Humanos (Mexican National Human Rights Commission), which alleges the new law violates the non-retroactivity principle enshrined in Article 14 of the Mexican Constitution.
Regardless, individuals and multinationals transacting in Mexico should familiarize themselves with the key implications of the new law and this powerful new forfeiture remedy that Mexican prosecutors now wield in connection with corruption inquiries.