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Mexico

Published on Tuesday 5th December 2017

    Basics

    • Mexico

      The Mexican cartel enforcement regime is of an administrative nature, but contemplates criminal sanctions and the possibility of also initiating civil actions against cartel offenders.

      In general terms, investigation of cartel behaviour is conducted within an administrative procedure, whereby enforcers will investigate and potentially sanction any cartel conducts based on the local statutory framework.

      In terms of such regulations, enforcers may apply administrative sanctions such as substantive fines (ie, fines equivalent to up to 10 per cent of the offender’s annual income), up to a five-year disqualification term for involved executives, employees or board members, individual fines to individuals who participated or contributed in the commission of the unlawful conduct or, under specific scenarios, orders for the divestiture of assets.

      Nevertheless, once a statement of objections has been issued by the regulators, criminal proceedings may also be initiated at the enforcer’s discretional request (whereby the Federal Criminal Code contemplates a 5-to-10-year imprisonment sanction term.

      As to civil actions, third parties, including consumers and competitors, may initiate civil actions for damages (both, individual or class actions) once there are no challenges available against the resolutions issued by the competition regulator.

      Last verified on Tuesday 21st November 2017

    • Mexico

      The Mexican cartel statutory framework is governed by §28 of the Mexican Political Constitution, which, in broad terms, forbids “monopolies and monopolistic practices”. Moreover, §28 of the Constitution stipulates that

      the law will severely punish, and the authorities will effectively prosecute (…) any agreement, procedure or combination of producers, industrialists, merchants or service entrepreneurs, who in any way do, to avoid free competition or competition among themselves or to compel consumers to pay exaggerated prices (…). 

      Although a general prohibition against “monopolies and monopolistic practices” has been contemplated in the Mexican constitution since 1857, in June 2013, §28 underwent a mayor constitutional amendment in order to considerably strengthen the application of the local competition policy.

      In consequence to the constitutional stipulations, the Mexican cartel regime is currently ruled by the recently enacted July 2014 Federal Economic Competition Law (FECL), although cartel enforcement has been in effect since 1993. In addition, the following statutes and regulations are also applicable in concordance with the FECL: 

      • the Federal Telecommunications and Broadcasting Law (Telecom Law);
      • the Regulatory Provisions of the FECL and the Regulatory Provisions to the Telecom Law;
      • the Organic Statutes of both competition enforcers (as explained below);
      • the Federal Criminal Code;
      • the Federal Civil Proceedings Code; and 
      • additional non-binding guidelines and technical criteria per the interpretation and application of the previous regulations.

      As a result of the June 2013 constitutional amendment to §28, the current competition enforcers in charge of enforcing the local cartel regime, which are constitutionally autonomous bodies (ie, non-dependent from any power branch of the Mexican Republic), are (i) the Federal Economic Competition Commission (Cofece) and the (ii) the Federal Telecommunications Institute (IFT).

      The IFT is the enforcer and regulator in charge of the cartel regimen exclusively in the telecom and broadcasting (including TV) arena and Cofece manages the rest of the industries, markets and sectors in Mexico. 

      These new competition enforcers took office on 10 September 2013 and are composed of seven commissioners each, who need to be approved by the Senate and the Executive branch.

      In addition, Cofece and the IFT have federal jurisdiction, and cartel enforcement is exclusively limited to their authority.

      Last verified on Tuesday 21st November 2017

    • Mexico

      Current investigative powers of the investigative authority of both enforcers, which is independent and autonomous to the decision-making body of each enforcer (ie, the Board or Plenary of Commissioners), include the following: 

      • Written requests for information and documents, which can be address either potential offenders or any third party that might or could be involved with the conducts under investigation;
      • Dawn raids, which can be performed at the offenders business (ie, offices, headquarters, plants, etc) and do not need to be previously announced nor require a judicial approval. Dawn raids can last up to two months (which can be prorogued for additional two months in case of need), although standard practice is for dawn raids to be performed in one single day; and
      • Formal appearances or depositions of any individuals that could or might be related with the investigated conduct, where constitutional rights to no auto-incrimination or due defence are limited.

      In addition, it is worth highlighting that the investigative phase of a cartel investigation can last up to approximately 600 business days and the statutory framework contemplates relevant sanctions in case of non-compliance to this investigation tools such as, among others, (i) accumulative monetary fines per each day the requested party fails to comply with the request and (ii) during dawn raids, criminal sanctions to those who oppose, impede or obstruct the raid or destroy, alter or hide documents and information (ie, the Criminal Federal Code contemplates a one-to-three-year imprisonment penalty) and the presumption that any accusation formulated in the statement of objections will be assumed as true by enforcers.

      Last verified on Tuesday 21st November 2017

    • Mexico

      As described, the latest amendments to the Constitution were the June 2013 constitutional reform, which provoked the issuance of the new FECL and the other regulations described above.

      Likewise, currently, Cofece has issued a preliminary draft of an amendment to the Regulatory Provisions of the FECL for public opinion to review and comment, whereby is intending to limit and restrict the protection over attorney-client privilege and secret communications protected at a constitutional and conventional instance.

      Last verified on Tuesday 21st November 2017

    • Mexico

      The local statutory framework applies to corporations and individuals equally, whereby specific sanctions are designed per each particular case.

      Nonetheless, both types of sanctions for corporations and individuals are equally relevant and application of sanctions is not necessarily related between one and the other, so there have been cases where only corporations are sanctioned, cases where only individuals could be sanctioned or a combination of both, which is the most common practice for the enforcers.

      Last verified on Tuesday 21st November 2017

    • Mexico

      In terms of the previous question and considering that in a great portion of cartel cases, there is an international impact or effect that involves Mexico, local enforcers have executed cooperation agreements with mayor competition enforcers around the world and have the legal authority (with certain limitations as explained further on), to coordinate efforts per the investigation and sanction of cartel behavior.

      Some examples of inter-agency cooperation agreements between local enforcers (especially Cofece) include US antitrust authorities and the Canada Competition Bureau. In fact, Cofece has conducted certain trainings, especially for criminal cartel enforcement, with the Antitrust Division of the US Department of Justice.

      Cooperation agreements executed by the Mexican authorities are limited to local legal boundaries and restrictions. Non-public information and evidence that the Mexican competition authorities obtain directly from the cartel members during their prosecution cannot be shared with other authorities if such information or evidence is protected under local confidentiality laws or without gaining the consent or waiver of the investigated party (which is highly unlikely to occur). 

      A similar circumstance arises in the context of, for example, extradition cases. Although Mexico could eventually agree to extradition requests, as its local legislation and international treaties formally contemplate such authority, there are several hurdles, such as: (i) complying with the statuary formalities under the extradition principles and rules, (ii) the complexity of local procedure to endorse the extradition, (iii) the inconsistency between international treaties and local and foreign legislation; and (iv) the lack of formal legal binding obligations between nations to force extradition.

      Last verified on Tuesday 21st November 2017

  • Penalties for Cartel Conduct

    • Mexico

      The local statutory framework (§127, FECL) contemplates that corporations can receive a fine up to 10 per cent of the corporation’s annual revenue when found guilty of charges of cartel behaviour.

      Therefore, the variation as to whether enforcers apply the 10 per cent fine or impose a reduced amount will depend on specific factors also contemplated by the regulations (§130, FECL), which include the damage caused, the signs of intentionality, the participation of the offender in the affected markets (ie, market share), the size of the affected market, the duration of the practice, as well as the economic capacity of the offender; and, if applicable, the effect on the exercise of the Commission's powers. 

      Moreover, in cases of recidivism (second or more offences and subject to further requirements met), the local statutory framework (§127, FECL) also contemplates the possibility of the enforcers for doubling the corresponding fine or, at the discretion of the enforcer, a potential order to divest assets, which has never been applied in Mexico.

      In addition, corporations who indirectly intervened in the conduct by means of contribution, encouragement, facilitation or induction, may also receive a fine up to 13 million pesos.

      Finally, once an investigation has been terminated and offenders have executed all means of extraordinary legal defence before the judiciary, the local statuary framework, along with civil legislation applicable in Mexico, allow third parties (ie, consumers, competitors, etc), to initiate either individual or collective actions (class actions) against offenders per the damages caused.

      Last verified on Tuesday 21st November 2017

    • Mexico

      In addition to corporations, individuals involved in the sanctioned conducts can also be subject to administrative fines as follows:

      • those individuals who intervene directly in the conduct, or on behalf of corporations, can receive a fine equivalent to 15 million pesos  and an up-to-five year disqualification sanction; and
      • those individuals who intervene indirectly in the conduct by means of contribution, encouragement, facilitation or induction, may also receive a fine up to 13 million pesos.

      Likewise, individuals can also be held responsible and be sued by civil actions individually, so as similar to the potential consequences for corporations, once an investigation has been terminated and offenders have executed all means of extraordinary legal defence before the judiciary, the local statuary framework, along with civil legislation applicable in Mexico, allow third parties (ie, consumers, competitors, etc), to initiate either individual or collective actions (class actions) against offenders per the damages caused.

      Last verified on Tuesday 21st November 2017

    • Mexico

      As explained, individuals may also face criminal responsibility.

      The recently reformed Federal Criminal Code (§254, bis) contemplates a minimum five, maximum 10-year imprisonment term for offenders.

      Criminal prosecution is relevant in Mexico due to the fact that criminal actions can be initiated at the sole discretion of the enforcers, once the Statement of Objections is issued (ie the initial accusation through which the investigative phase is terminated), so offenders will have to defend themselves not only before administrative charges with the enforcers, but, at the same time but in a different arena, from criminal prosecution before the Attorney-General.

      As to practice, to the current date, Mexico has not incarcerated any cartel offender despite the fact that criminal sanctions were introduced back in 2011. However, in early 2017, the Investigative Authority filed before the Attorney-General, the first request to initiate criminal actions against certain individuals over the course of an investigation within the pharmaceutical industry.

      Last verified on Tuesday 21st November 2017

    • Mexico

      As explained before, corporate fines are determined in terms of annual income of the offender, where a fine could be equivalent to the 10 per cent of the offender’s annual income.

      Nevertheless, in some recent cases, enforcers (especially Cofece) have intended to sanction trading companies not because the trading company was involved in the sanctioned conduct, but rather because is the holding company of what the local legislation defines as “group of economic interest”.

      Therefore, there have been cases (most still under judicial scrutiny) whereby the annual revenue contemplated per the determination of a corporate fine, is not the income of the company actually involved in the conduct, but rather the income reported by the holding company as head of the corporate group.

      Last verified on Tuesday 21st November 2017

    • Mexico

      In Mexico, fines are determined exclusively by the enforcers, as this is a legal authority reserved to the Board or Plenary of Commissioners and parties are never involved in such exercise. 

      Based on the elements previously described such as damage caused, the signs of intentionality, the participation of the offender in the affected markets (ie, market share), the size of the affected market, the duration of the practice, as well as the economic capacity of the offender; and, if applicable, the effect on the exercise of the powers of the Commission, the Board or Plenary of Commissioners, when rendering their final decision, will include the fines to be applied along with the justification of the methodology per such calculation.

      Last verified on Tuesday 21st November 2017

    • Mexico

      The Constitution specifically mentions that the only recourse to challenge a final resolution of a cartel investigation (as previous acts of authority conducted by enforcers cannot be challenged also), is a constitutional challenge (formally known as amparo indirecto), which needs to be filed with 15 business days following the notification of the final resolution.

      In fact, also a result of the 2013 constitutional amendment, specialised courts (two) and tribunals (two) in competition, broadcasting and telecom matters were created, and the afore-mentioned constitutional challenged needs to be filed, exclusively, before such courts. Finally, in extraordinary circumstances, constitutional challenges might also be resolved by the Supreme Court of Justice.

      Last verified on Tuesday 21st November 2017

    • Mexico

      As addressed before, private litigation for cartel behavior in Mexico is regulated under the statutory framework described before and civil legislation. However, a requirement for civil actions to proceed against cartel violations is that such violations need to be sanctioned by the enforcers and then later confirmed by the judiciary (in case appeals are filed) under the res iudicata principle.

      In such terms, any third party that has suffered a damage as a result of the illegal conduct, may initiate (either individually or collectively) a civil action. However, civil legislation in Mexico provides that damages need to be “real” (ie, material) and “direct”, and cannot be assumed nor multiplied in any sort of manner. Likewise, claimants have the obligation to prove the existence of the damage despite the fact that the illegal conduct has already been evidenced by enforcers, in order to have the right to be compensated in the proper way.

      Moreover, each offender will need to be sued specifically, as local legislation does not provide any sort of joint responsibility between offenders and each offender will have to defend itself directly, although the action can be initiated as a result of one sole procedure.

      Last verified on Tuesday 21st November 2017

    • Mexico

      Based on local constitutional standard, burden of proof per the accusation and attribution of a conduct is of the enforcer, under the constitutional rights to a presumption of innocence. 

      During damages actions, affected parties have the burden of proof to evidence, beyond reasonable doubt, that a real and direct damage was generated in its detriment as a result of the specific conduct, where a causal nexus needs to be accredited.

      Last verified on Tuesday 21st November 2017

    • Mexico

      Considering that during the last years there has been a considerable amount of penalties and investigations conducted by enforcers, the following list of matters makes relevant to some of most notorious cases, whereby a brief description of the relevant aspect of such particular matter is provided:

      1. The first civil action and the use of indirect evidence: In a matter that was resolved by the former competition authority, the Federal Competition Commission or the FCC, related to bid-rigging conducts against the national health institute by certain pharmaceutical laboratories, there are two aspects to be highlighted. One, when the Supreme Court of Justice resolved the appeals of the pharmaceutical laboratories, the head of the judiciary in Mexico resolved that enforcers are qualified to use indirect evidence of burden to demonstrate the existence of cartel behavior, which set-off the first precedent in the matter. Second, as a result of the confirmation rendered by the Supreme Court, the Mexican Social Security Institute recently initiated the first civil damage claim against the pharmaceutical laboratories, which is currently under the scrutiny of the specialised courts;
      2. The first criminal action request: As explained before, as a result of another investigation that is currently under the scrutiny of Cofece, the former Head of the Investigative Authority requested the Attorney-General, for the first time, to initiate criminal prosecution against potential offenders;
      3. The highest cumulative fine in Mexican cartel history: In a recent case involving the pensions fund market in Mexico, Cofece imposed the highest fine it had imposed in the existence of the competition regime in Mexico since 1993. The fine, which was imposed to four different companies and several individuals, summed a total of $1.1 billion pesos, which was unprecedented for Cofece;
      4. Cofece sanctions international maritime shipping cartel: By mid-2017, Cofece sanctioned certain car carriers over a maritime shipping investigation that was a result of an international cartel, which originated in Asia. Cofece’s decision was related to those routes, ports or vehicles that were related to Mexico, demonstrating inter-agency cooperation and Cofece’s intention to sanction cartel behavior that directly or indirectly affects Mexican markets or consumers; and
      5. The Supreme Court confirms the scope of price-fixing”: In a constitutional appeal that resulted from an investigation within the poultry industry, the Supreme Court of Justice confirmed that the scope of price-fixing in Mexico should be understood as any manipulation of the prices (even if prices are reduced), despite the fact that former §28 of the Constitution specifically stipulated that “the law will severely punish, and the authorities will effectively prosecute (…) any agreement, procedure or combination of producers, industrialists, merchants or service entrepreneurs, who in any way do, to avoid free competition or competition among themselves and compel consumers to pay exaggerated prices (…)”.

      Last verified on Tuesday 21st November 2017

  • Raids

    • Mexico

      As addressed before, the investigative authority of the enforcers can conduct dawn raids at any time once an investigation has been formally initiated and at any business premises of the potential offenders.

      A relevant aspect to highlight is that despite the fact that the Mexican Constitution forbids intrusion to private domiciles without a judicial order, the investigative authority does not need to obtain such order during the course of an investigation.

      During the course of the raid, the investigative authority may reproduce all electronic and material information and documentation, but may not seize nor confiscate materials. Therefore, general raids include forensic teams from the investigative authority that reproduce electronic equipment (ie, computers, cellphones, tablets, servers, among others), and the investigative authority can review their content later on when the raid is terminated.

      Last verified on Tuesday 21st November 2017

    • Mexico

      Once the Investigative Authority arrives to the premises of the potential offender and hands in a copy of the administrative order for the conduction of the raid to whomever is present (despite whether is a legal representative or not of the corporation), the investigative authority can initiate with the raid. Therefore, although external counsel can be present during the raid, the investigative authority has no legal obligation to wait for their arrival.

      The common practice is that case-handlers of the investigative authority physically conduct the raid and access offices, but can also request for information or documents to company officials, especially when a representative of the company is designed to attend the raid.

      A relevant aspect that has been highly criticised in Mexico is that enforcers do not respect constitutional provisions for private communications, that include information that may be protected under legal privilege and, although enforcers might not use such information later on during the procedure, materially, they access information that constitutionally should be out of their scope.

      This matter is still under the scrutiny of the judiciary, but Cofece is intending to regulate such circumstance as explained above despite the lack of authority to do so.

      Last verified on Tuesday 21st November 2017

  • Leniency/Amnesty

    • Mexico

      The local statutory framework contemplates a relevant leniency program, which was introduced around 10 years ago in Mexico and has been recognised by Cofece as the most effective tool to identify cartel behaviour.

      Last verified on Tuesday 21st November 2017

    • Mexico

      The local leniency programme is similar to programmes from other jurisdictions such as the US or Europe. Basically, local leniency programme provides immunity to those offenders (to corporations or any other individual that applies individually or collectively) who self-report the conduct before the enforcer and benefits will depend on the place leniency was requested. 

      In general terms, the first applicant will receive a reduction of the fine equivalent to around 75 pesos and immunity over other sanctions such as criminal prosecution or disqualification. The rest of the applications will receive proportionate fine reductions (ie, 50 per cent to the second place, 40 per cent to the third place, etc), but will also receive immunity over other sanctions such as criminal prosecution or disqualification.

      The leniency programme does not provide immunity over civil actions, which once the aforementioned requirements are completed, can be imitated against offenders subject to the leniency programme.

      Finally, leniency can be requested at all times during the investigation but before the investigation docket is formally closed and the Statement of Objections is issued by the investigative authority of the enforcers.

      Last verified on Tuesday 21st November 2017

    • Mexico

      One of the core elements to be benefited from the local leniency programme is to maintain full, constant and unarguable cooperation with enforcers not only as a result of the application to the programme, but also during the investigation and procedural phase of the matter. 

      This includes providing auto-incriminatory evidence, attending hearings and depositions to recognise facts and evidence and being at the full disposal of the enforcers during the procedure until the final resolution is rendered.

      Last verified on Tuesday 21st November 2017

    • Mexico

      The first applicant will receive a reduction of the fine equivalent to around 75 pesos and immunity over other sanctions such as criminal prosecution or disqualification.

      The rest of the applications will receive proportionate fine reductions (ie, 50 per cent to the second place, 40 per cent to the third place, and so on), but will also receive immunity over other sanctions such as criminal prosecution or disqualification. Nevertheless, the standard for cooperation for second, third and subsequent places remains the same so the first applicant.

      One final relevant aspect to highlight is that the leniency programme in Mexico does allow for ringleader to apply to leniency benefits.

      Last verified on Tuesday 21st November 2017

    • Mexico

      Owing to legal restrictions provided in the statutory framework, enforcers have the undisputable obligation to guarantee confidentially of the leniency applicants at all times and even when the matter is terminated, which includes the identity of the applicant and all information and documentation provided.

      Recent practice has been that, in some cases, the investigative authority requests leniency applicants to formally submit evidence within the formal investigation docket but without making any kind of reference to the leniency docket or application.

      Last verified on Tuesday 21st November 2017

    • Mexico

      For  Cofece, there is no formal marker system but such information is generally confirmed by the case-handlers once the leniency application has been submitted. For the IFT, certain non-binding guideline for their leniency programme does provide a marker system with the intention of specific certain rules.

      For both cases, enforcers are open and transparent when dealing with a leniency application and do provide relevant information about the place of the request, when no legal restrictions forbids them.

      Last verified on Tuesday 21st November 2017

    • Mexico

      In Mexico, leniency benefits are granted since the original application and are later on confirmed by the Board or Plenary of the enforcer when the final resolution is rendered, based on the cooperation of the interested party.

      Therefore, the standard for obtaining leniency benefits in Mexico practically involve a self-report of the conduct and disclosing and providing relevant evidence of the existence of the conduct, for the enforcer to have an “objective cause” (sustained motive) to initiate an investigation.

      Finally, in order for a leniency applicant to maintain leniency benefits will only include demonstrating that full cooperation was maintained during the procedure and that no action was performed in the sense that it could jeopardise the investigation of the enforcer.

      Last verified on Tuesday 21st November 2017

    • Mexico

      Although there is no legal provision, officers from the Investigative Authority of each of the enforcers tend to confirm availability of leniency applications per a particular market on a no-name basis even if an investigation has been initiated.

      Last verified on Tuesday 21st November 2017

    • Mexico

      No. In order to receive a marker or leniency benefits, requests need to be done by the interested party directly by identifying itself and other subsidiaries, affiliates and individuals that are also applying to leniency benefits, even if formally done through external counsel.

      Last verified on Tuesday 21st November 2017

    • Mexico

      In order to be a recipient of leniency benefits in Mexico, interested parties have the obligation to provide written materials (ie, hard evidence) that evidence or relate to the investigated conduct such as emails, internal documents, etc. Nevertheless, discovery is forbidden in Mexico, so when civil actions are initiated, there is no legal obligation to disclose such materials.

      Last verified on Tuesday 21st November 2017

    • Mexico

      Due to the fact that leniency applications are classified as confidential in Mexico, it is difficult to track cases where leniency was granted. Nevertheless, Cofece recently published a document in the framework of the celebration of the 10 years of the implementation of the leniency program in Mexico whereby it reported some relevant data, as follows:

      • Since the creation of Cofece in 2013, 42.5 per cent of all the applications presented to date correspond to the period from January 2014 to September 2016.
      • In that period, national economic agents represent up to a 78.8 per cent of the total applications. Additionally, of the 113 applications presented, 54 correspond to applications presented by national economic agents. 
      • It should be noted that from 2014 to 2016, once COFECE was consolidated as an autonomous constitutional body, the number of applications from national economic agents was increased; reaching a 79.6 per cent of the total applications.
      • Coupled with the above figures, 50.44 per cent of the applications presented were first in, meaning economic agents that applied to the programme before the other cartel members.

      Likewise, until September 2016, the total amount of applications (113) was related to the following sectors:

      • agriculture, forestry, livestock, fishing and hunting: 2.70 per cent;
      • retail trade: 3.60 per cent;
      • manufacturing industries: 64.86 per cent;
      • mass media information: 0.90 per cent;
      • health and social services: 10.81 per cent;
      • financial services and insurance; 4.50 per cent;
      • real estate and rental of personal property and intangible services: 1.80 per cent; and
      • transportation and storage: 10.81 per cent 

      For more information per the above, please refer to Cofece’s document entitled “10 years since the implementation of the Federal Economic Competition Commission’s Leniency Program: what has been its impact?”

      Last verified on Tuesday 21st November 2017

    • Mexico

      On one recent investigation, the Board or Plenary of Cofece revoked leniency benefits to applicants when rendering the final resolution, which implies that the revocation did not permit interested party to defend or contra-argue against such revocation.

      Based on public records, Cofece revoked leniency benefits under the course of a cartel investigation against automotive part manufacturers, where such companies were sanctioned for price-fixing and unlawful information exchanges, with fines equal to 72 million pesos. According to Cofece, these companies colluded over a private tender regarding the acquisition of air conditioning compressors organised by OEMs as part of an international cartel.

      In 2013, one of the impeached parties applied for leniency benefits, a circumstance that triggered the initiation of the investigation. However, Cofece’s Plenary revoked such benefits when rendering the final resolution as a result of not “fully cooperating” in the procedural phase of the investigation.

      The relevant party filed a constitutional appeal before the judiciary against the revocation of the benefits, whereby a district judge resolved that such revocation was illegal and that although offenders might apply to the leniency programme; this is no reason to restrict their constitutional right to a proper defence by the enforcers. Such decision is currently under the scrutiny of a tribunal and is expected to be resolved shortly. 

      Last verified on Tuesday 21st November 2017

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