Criminal Liability of Legal Entities in Mexico and the Importance of Corporate Government in Companies.
Banking and Finance Published November 10, 2017.
I. National Code of Criminal Procedure (hereinafter, “NCCP”) and the Federal Criminal Code (hereinafter, “FCC”)
As of March 5, 2014, the National Code of Criminal Procedure (hereinafter, “NCCP”) was published. The NCCP includes a section concerning procedures for legal entities under Chapter II, Title X, Second Book. The NCCP will enter gradually in full force and effect at a federal level pursuant to the Court Decree issued by the Federal Congress, which may not be after June 18, 2016.
On June 17, 2016, in the Federal Official Gazette (hereinafter, “FOG”), an Executive Order whereby several regulatory bodies were modified, including the NCCP and the Federal Criminal Code (hereinafter, the “FCC”), was published. By means of such an amendment the current regulations of the NCCP and the provisions of the many effective Criminal Codes of the several states of our country, regarding the criminal liability wherein the legal entities may incur in our country, were supplemented.
This regulation is part of the commitments undertaken by our country upon the execution or ratification of the international agreements, such as the United Nations Convention against Transnational Organized Crime and the United Nations Convention against Corruption, which instruments set forth that the signatory countries are compelled to establish the liability of legal entities arising from their participation in serious felonies.
The Mexican criminal system already established certain consequences a judge may impose upon a legal entity if said legal entity had been used as a means for the commission of a crime; however, criminal liabilities against individuals (manager, legal representative, etc.) and legal entities currently derive in separate legal consequences.
II. Criminal Liability of Companies
In accordance with NCCP, Article 421, legal entities shall be criminally liable for any crimes committed in their name, on their behalf, for their benefit, or through the means provided thereby if disregard of due control in the organization is also found to have occurred.
For a legal entity to be criminally liable for crimes committed, the following circumstances or requirements must have happened:
- The crime must have been committed in its name, on its own, for its benefit, or through the means provided by the relevant legal entity. That is, although the crime is not committed in its name or on its own, for a legal entity to be liable for a crime, it shall suffice that the benefit obtained from the crime be for its benefit or that the means of the legal entity be used to commit the crime.
- Nevertheless, and in addition to the foregoing, for a legal entity to be liable for a crime, it must be determined that due control was disregarded by its organization; that is to say, that the crime was committed because the entity lacked internal control or proper policies as to avoid it; or that even though there existed control or policies, there was no proper surveillance or supervision to comply with the control or policies and thus prevent that the company or legal entity in general be used to commit a crime.
III. Felonies Committed by Legal Entities by Means of their Legal Representatives
To determine the criminal liability of a legal entity, it shall not be a requisite that the behavior classified as a crime be displayed by the legal representatives, managers, partners, or shareholders of the legal entity, instead, the crime may be committed by any agent, whether or not an employee of the entity, acting or not on behalf the legal entity, regardless of the name of the position or regardless of the position thereof, since the crime having being committed through the means provided by the entity -i.e. the crime having being committed through the usage of the means used by the legal entity to perform its activities- is sufficient to hold the legal entity criminally liable.
Cases that may be taken as an example to understand the seriousness of governance impact would be the scandals faced by Walmart, Monex, HSBC, Soriana, OHL, Oceanografía, Volkswagen, BANAMEX, and FICREA, among others, in which cases employees performed acts that were subject matter of administrative and judicial investigations, and, in some cases, of penalties, while the Senior Management was aware or unaware of the situation.
IV. No Cessation of Criminal Liability
NCCP, Article 421 sets forth that criminal liability of legal entities shall not be extinguished when the legal entities are transformed, merged, absorbed or severed. In such events, the application of the penalty may be adjusted in accordance with the relationship between the legal entity who is initially liable for the crime.
The criminal liability of the legal entity must not be extinguished through apparent dissolution if the legal entity continues performing its business and maintains the essential identity of its clients, providers, employees, or of the most relevant part of them.
In compliance with NCCP, Article 422, in connection with the diverse of the FCC Article 11 Bis, the legal consequences or penalties applicable to legal entities criminally liable shall depend on whether those legal entities have or not legal existence of their own.
In the case of legal entities with legal existence of their own, one or many of the following penalties may be applied:
- Monetary sanction or fine;
- Confiscation of instruments, objects, or products of the crime;
- Publication of the sentence;
- Dissolution; and
- The other penalties expressly determined by the criminal laws.
In the case of legal entities with or without legal existence of their own, who have committed or participated in the commission of a typical and unlawful act, one or several of the following legal consequences may be applied:
- Suspension of their activities;
- Closing of their premises or establishments;
- Prohibition to carry out, in the future, any activities during which a crime has been committed or during which the entity has participated in the commission of a crime;
- Temporary disqualification consisting in the suspension of rights to participate, directly or through a third party, in contracting procedures of the public sector;
- Judicial intervention to safeguard the rights of workers or creditors; and
- Public warning.
VI. Reduction of the Penalty
According to the last paragraph of Article 11 Bis of the CPF, the penalties may be reduced by up to a quarter if prior to the crime with they are charged, the legal entities had a permanent control body, in charge of verifying compliance with the applicable legal provisions to follow up on the internal criminal prevention policies they had prepared before or after the crime with which they are charged.
VII. Corporate Governance and Compliance
The provisions that impose criminal liability on legal entities in general are already in force in our country, so they represent an additional operational risk to consider as it can cause such serious consequences as the suspension of activities, the closure of establishments, the impossibility of carrying out certain activities, their intervention, or even the dissolution of the entity.
Therefore, it is very important to remember that this new framework of liabilities requires a new management framework in organizations and models of organization or prevention, which has been called “compliance”; that is, a set of internal policies that allow companies to prevent liability and, where appropriate, mitigate liability or guide it in times of crisis.
This constitutes a self-regulation and the adoption of measures aimed at preventing crimes taking into consideration both the characteristics of the company and the applicable provisions. For example, programs must consider, among others, the size of the organization and include policies to promote a legal culture, to implement supervisory mechanisms by qualified personnel, to avoid the delegation of discretionary powers, as well as disciplinary procedures.
It is necessary to establish proper policies to monitor, supervise, and prevent the company from being used as a means to commit a variety of crimes. Consequently, the legislation in our country has undergone a change in an aim at preventing and stopping such situations, giving rise to laws such as the anti-money laundering law, the law on the protection of personal data, and the amendment to various pieces of legislation, such as the NCCP, the FCC, the Federal Fiscal Code, etc., wherein a diversity of obligations and penalties for legal entities that must be known and complied with in order to avoid contingencies in companies is established.
Through “Compliance” we can implement internally the appropriate policies and controls to prevent the company from being used in the commission of the crimes that can be attributed to legal entities, and we can monitor and supervise that their operation is compliant with the legislation in general, thus avoiding contingencies as important as those already mentioned.
To receive more information in connection to the above, please contact any of the following members of BGBG:
Miguel Gallardo Guerra
Samuel Uziel Rivero Prado