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Whistleblower Lawsuits in Mexico under the Foreign Corrupt Practices act

by  Foreign Corrupt Practices Act Violation  Lawyer Jason S. Coomer

To explore a potential anonymous and confidential action regarding Mexican official illegal bribes, kickbacks, and/or other illegal acts, please feel free to contact Foreign Corrupt Practices Act Lawyer Jason Coomer via e-mail message or use our submission form

Mexican Free Trade Policies have Attracted Foreign Investment into Mexico and Allowed the Mexican Government to Expand Domestic Industries

The Mexican government has used new free trade policies to improve and expand its economy.  By developing international trade and encouraging foreign investment through policies such a free trade agreement, Mexico has create a large free trade zone with Latin American countries, European countries, Japan, Israel, Canada, and the United States.  This free trade zone has made Mexico one of the most open countries in the world to trade.  It has also allow Mexico to attract foreign direct investments, develop its domestic industries, expand its industrial infrastructure, and   prosper from increased trade. 

Mexico has several sources of foreign income including oil & gas, industrial exports, manufactured goods, electronics, heavy industry, automobiles, construction, food, banking & financial services, and tourism.  Among the most important industrial manufacturers in Mexico is the automotive industry.  The Mexican automobile industry has developed their automobile manufacturing technology through working with multinational automobile manufacturers for several decades.  This advanced technology is internationally recognized and is one of the best in all of the Latin American countries and developing nations.  The Mexican automobile industry is more than an automobile assembly manufacturer.  The Mexican automobile industry develops advanced components and engages in advanced research activities.  Many large foreign automobile manufacturers have large manufacturing plants in Mexico and have been operating in Mexico for decades.  Though the automobile industry in Mexico is dominated by foreign corporations, the domestic automobile industry includes DINA Camiones S.A. de C.V. that manufactures trucks, buses, and military vehicles.  Through its purchase of foreign bus manufacturers, DINA Camiones S.A. de C.V. has become the largest bus manufacturer in the world.

Mexico has also a large electronics industry including large corporations that design and manufacture computers, solar power panels, electronic components, smartphones, appliances, computer components, and some robotics. Some of Mexico's major electronic manufacturers are Falco, Meebox, Texa, Lanix, Mabe and OEM. Most of Mexico's electronics industry is driven by foreign companies and/or is heavily involved in international production and trade. Some of Mexico's major electronics corporations have international production facilities in Mexico, India, China, Chile, and throughout South America.

Other large industries in Mexico include construction, alcohol and beverage, and the aerospace industry.  Cemex is the world's largest building materials supplier and third largest cement producer.  The construction company is based in Monterrey, Mexico and has operations extending around the world, with production facilities in 50 countries in North America, the Caribbean, South America, Europe, Asia, and Africa.  Cemex has rapidly grown internationally since the early 1990s when it began acquiring cement companies and cement plants in Spain, Venezuela, Panama, Dominican Republic, Colombian, the Philippines, Indonesia, Egypt, Costa Rica, the United States, Puerto Rico, and Europe. 

Mexico's alcohol beverage industry includes Grupo Modelo that exports beer to the United Kingdom, United States and Canada and Fomento Económico Mexicano, S.A.B. de C.V. (FEMSA) the largest beverage company in Mexico and in Latin America and the largest independent Coca-Cola bottler in the world.

Mexico is developing an aircraft aerospace industry including the assembly of helicopter and regional jet aircraft fuselages. Foreign Corporations including MD Helicopters, Bell, Cessna and Bombardier build helicopters and other aircraft in Mexico. Although the Mexican aircraft industry is mostly foreign, as is its automobile manufacturing industry, Mexican domestic companies including Aeromarmi and Hydra Technologies build light propeller airplanes and unmanned aerial vehicles.

PEMEX

Mineral resources including oil and gas are owned by the Mexican government by constitutional law. Because of the government ownership of mineral interests, the energy sector including oil production and gas production is administered by the government with varying degrees of private investment. Mexico is the seventh-largest oil producer in the world. PEMEX is the public energy company that is in charge of administering research, exploration and sales of oil.  It is the largest company in Mexico, and the second largest company in Latin America after Brazil's Petrobras. 

Because of the Mexican tax system, PEMEX has limited resources to find new sources of oil or upgrade infrastructure.  It is estimated that the Mexican federal government takes over 90% of the national oil company PEMEX’s profits for the Mexican federal budget. For this reason PEMEX has been unable to maintain, upgrade, and/or expand its oil and gas production.  This failure to maintain and upgrade its oil and gas infrastructure has created declining production causing Mexico to slip from the sixth to the seventh largest producer of oil and gas.  It also has raised several environmental concerns with its onshore fields and pipelines as well as its plans to go into deep water drilling.  Though PEMEX claims most of its onshore problems are a result of vandalism, failure to properly invest in the Mexican petrochemical infrastructure is causing several issues.

To stabilize production output, the Mexican government and PEMEX are planning to move into deep water drilling to stabilized output after sharp decreases in some of it largest onshore aging fields.  It is estimated that there are about 30 billion barrels of oil beneath Mexico territorial Gulf waters, but the trick is to have sufficient investment capital to obtain deep water drilling technology.  By adopting new technology and investing in deep water drilling technologies, PEMEX hopes to have some 50 deepwater oil wells operating by 2015 and hopes this will stabilize production for many years.  It is yet to be see, what foreign investment will be needed to upgrade the PEMEX infrastructure to allow the necessary deep water production.

It should be interesting to see if PEMEX, like Brazil's Petrobras seeks foreign investment to obtain the capital needed to safely advance its plans for deep water offshore drilling.  If so, the competition for these oil infrastructure contracts could be fierce and include bribes of PEMEX officials, bribes of Mexican government officials, and other corrupt practices.  It should also be noted that the Mexican national oil company, PEMEX, has many of the same characteristics of  the Mexican electric company CFE.  CFE has been determined to be a foreign government instrumentality in the Lindsey Manufacturing case.  This means that PEMEX can probably be considered to be a foreign government instrumentality and will be covered under the FCPA and will be subject to Bounty Actions.  The characteristics of foreign government instrumentalities under the FCPA include whether the entity was created as a public entity; does its governing Board consist of high ranking government officials; does the entity describe itself as a government agency; does it perform a function that the Mexican government itself designates as a government function; and is the entity financed through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties.

Mexican government officials are becoming targets for illegal bribes

With the attraction of foreign business has come competition between large foreign multinational corporations that are vying through legal and illegal acts to obtain large Mexican oil & gas contracts, Mexican industrial manufacturing  contracts, Mexican manufacturing permits, Mexican heavy industry contracts, and Mexican construction contracts.  This increased competition between large multinational businesses to invest in Mexico and reap financial rewards from Mexican industries has created an environment where Mexican government officials are becoming targets for illegal bribes, illegal kickbacks, fraud and other illegal practices. 

When large foreign companies and/or Mexican companies violate international law at the expense of Mexican citizens and local citizens through bribes, illegal kickbacks, false accounting statements, tax fraud, and other illegal acts, new bounty actions and whistleblower reward laws may provide the opportunity for whistleblowers to expose illegal acts and to also claim large rewards for turning in corrupt government officials and corporations.

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U.S. SECURITIES & EXCHANGE COMMISSION Litigation Release No. 21673 / September 29, 2010 Accounting and Auditing Enforcement Release No. 3191 / September 29, 2010 U.S. Securities and Exchange Commission v. ABB Ltd, Civil Action No. 1:10-CV-01648 (DDC) (PLF) SEC CHARGES ABB FOR BRIBERY SCHEMES IN MEXICO AND IRAQ - ABB TO PAY $39 MILLION IN DISGORGEMENT AND CIVIL PENALTIES

The Securities and Exchange Commission announced today that it filed a settled civil action against ABB Ltd ("ABB") in the United States District Court for the District of Columbia, charging the company with violations of the Foreign Corrupt Practices Act. ABB is a Swiss corporation that provides power and automation products and services worldwide. The SEC alleges that ABB, through its subsidiaries, paid bribes to government officials in Mexico to obtain business with government owned power companies, and paid kickbacks to the former regime in Iraq to obtain contracts under the United Nations Oil for Food Program. As alleged in the complaint, ABB's subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB.

In the Mexican bribery scheme, the SEC alleges that from 1999 through 2004, ABB Network Management ("ABB NM"), a business unit within ABB's U.S. subsidiary, ABB, Inc., bribed officials in Mexico to obtain and retain business with two government owned electric utilities, Comision Federal de Electricidad ("CFE") and Luz y Fuerza del Centro ("LyFZ"). According to the complaint, the bribes were funneled through ABB NM's agent and two other companies in Mexico. The complaint alleges that ABB failed to conduct due diligence on these payments and entities and improperly recorded the bribes on its books as payments for commissions and services on projects in Mexico. Examples of illicit payments in the complaint include checks and wire transfers to relatives of CFE officials, cash bribes to CFE officials, and payment of a Mediterranean cruise vacation for CFE officials and their wives. The SEC alleges that, as a result of this bribery scheme, ABB NM was awarded contracts with CFE and LyFZ that generated over $90 million in revenues, and $13 million in profits, for ABB.

The SEC further alleges that from approximately 2000 to 2004 ABB participated in the United Nations Oil for Food Program (the "Program"). The Program was intended to provide humanitarian relief for the Iraqi population, which faced hardship under the international trade sanctions that followed Iraq's 1990 invasion of Kuwait. According to the complaint, ABB participated in the Program through six subsidiaries: ABB Near East Trading Ltd. ("ABB Jordan"), ABB Automation, ABB Industrie AC Machines and ABB Solyvent-Ventec (collectively referred to as "ABB France"), ABB AG ("ABB Austria"), and ABB Elektrik Sanayi AS ("ABB Turkey"). The SEC alleges that these subsidiaries developed various schemes to pay secret kickbacks to Iraq to obtain contracts under the Program. ABB's Jordanian subsidiary acted as a conduit for other ABB subsidiaries by making the kickback payments on their behalf. Some of the kickbacks were made in the form of bank guarantees and cash payments. ABB improperly recorded the kickbacks on its books as legitimate payments for after sales services, consultation costs, and commissions. According to the complaint, the Oil for Food contracts obtained as a result of the kickback schemes generated $13.5 million in revenues, and $3.8 million in profits, for ABB.

Without admitting or denying the allegations in the complaint, ABB has agreed to settle the SEC's action by consenting to the entry of a final judgment that permanently enjoins the company from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, orders the company to pay $22,804,262 in disgorgement and prejudgment interest, orders the company to pay a $16,510,000 civil penalty, and requires the company to comply with certain undertakings regarding its FCPA compliance program.

In related criminal proceedings, ABB has reached a settlement with the U.S. Department of Justice in which ABB has agreed to pay $19 million in criminal penalties.

The Commission acknowledges the assistance of the Department of Justice, Criminal Division, Fraud Section, the Federal Bureau of Investigation, and the United Nations Independent Inquiry Committee.

http://www.sec.gov/litigation/litreleases/2010/lr21673.htm

Further, as for criminal indictments in this case, Federal Judge Lynn H. Hughes has recently refused to dismiss 17 counts from the indictment of a former manager at ABB Ltd. who allegedly authorized his company to bribe government officials in Mexico to secure electrical equipment and services contracts worth nearly $100 million.

Foreign Corrupt Practices Act Prohibits Bribes of Government Officials and Bounty Actions Allow Whistleblowers to Confidentially Report Violations Through Bounty Action Lawyers and Potentially Claim Large Rewards

The Foreign Corrupt Practices Act (FCPA) prohibits bribery of foreign officials by U.S. companies and foreign companies listed on the U.S. securities exchange.  The Foreign Corrupt Practices Act (FCPA) also requires such companies to maintain accurate books and records.  Foreign Corrupt Practices Act Whistleblowers that properly report violations of the Foreign Corrupt Practice Act by a U.S. or foreign companies listed on the U.S. securities exchanges can recover a large reward for exposing Foreign Corrupt Practices Act (FCPA) violations. 

By combining the Foreign Corrupt Practices Act with the new SEC Whistleblower Incentive Program, whistleblowers with original and specialized knowledge and evidence of corporate bribery and illegal kickbacks are eligible to recover large economic awards.  By gathering this evidence and going through a lawyer, these whistleblowers can protect their identity through the process and potentially collect large rewards of 10% to 30% of the monetary sanctions including disgorged funds. 

Please keep in mind that the Foreign Corrupt Practices Act Bounty Action Whistleblower may be entitled to not only the amount of the illegal bribe or kickback, but the benefit of the illegal bribe or kickback.  As such, in cases where $50,000.00 bribe is made to obtain a $200 million building project such as a hospital or pipeline, the Foreign Corrupt Practices Act Bounty Action Whistleblower may be entitled to 10 to 30% of the $200,000,000.00 and the $50,000.00 translating into over a $20 million to $60 million award.

Mexico's Banking Industry

Mexican has a strong banking system that is dominated by foreign financial companies.  Mexico has worked to liberalize its financial industry and has inserted the Mexican economy  into world markets.  Large acquisitions of Mexican banks by foreign institutions include acquisitions by  US-based Citigroup, Spain’s BBVA and the UK’s HSBC. This globalization along with a better regulatory framework, has allowed Mexico’s banking system to recover from the 1994–95 peso devaluation. A wave of acquisitions has left Mexico’s financial sector in foreign hands. These foreign-run financial firms compete with independent financial firms operating as commercial banks, brokerage and securities houses, insurance companies, retirement-fund administrators, mutual funds, and leasing companies.

Damage done by Bribes and Kickbacks

 Latin America has a population estimated at more than 590 million and a combined GDP at 5.16 trillion United States dollars (6.27 trillion at PPP).  Latin America includes the following countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama,  Paraguay, Peru, Uruguay, and Venezuela.  Further, Mexico City Mexico, São Paulo Brazil, Buenos Aires Argentina, Rio de Janeiro Brazil, Santiago Chile, Bogotá Colombia, Brasilia Brazil, Lima Peru, Monterrey Mexico, and Guadalajara Mexico are the largest metropolitan cities in Latin America.

As international trade continues to increase, large foreign corporations are aggressively competing to enter into many Latin American Countries.  This fierce competition often results in illegal bribes to government officials, illegal kickbacks, fraud, and other illegal actions. 

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SEC Charges Alcatel-Lucent With FCPA Violations

Company to Pay More Than $137 Million to Settle SEC and DOJ Charges

The Securities and Exchange Commission charged Paris-based telecommunications company Alcatel-Lucent, S.A. with violating the Foreign Corrupt Practices Act (FCPA) by paying bribes to foreign government officials to illicitly win business in Latin America and Asia.

The SEC alleges that Alcatel’s subsidiaries used consultants who performed little or no legitimate work to funnel more than $8 million in bribes to government officials in order to obtain or retain lucrative telecommunications contracts and other contracts. Alcatel agreed to pay more than $45 million to settle the SEC’s charges, and pay an additional $92 million to settle criminal charges announced today by the U.S. Department of Justice.

“Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting their employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Alcatel’s bribery scheme was the product of a lax corporate control environment at the company.”

Glenn S. Gordon, Associate Director for Enforcement in the SEC’s Miami Regional Office, added, “The serious sanctions Alcatel has agreed to, including paying back all net profits made on the contracts Alcatel illegally obtained, should serve as a reminder that we are committed to enforcing the FCPA and a level playing field for companies seeking to obtain or retain business in other countries.”

According to the SEC’s complaint filed in the Southern District of Florida, Alcatel’s bribes went to government officials in Costa Rica, Honduras, Malaysia, and Taiwan between December 2001 and June 2006. An Alcatel subsidiary provided at least $14.5 million to consulting firms through sham consulting agreements for use in the bribery scheme in Costa Rica. Various high-level government officials in Costa Rica received at least $7 million of the $14.5 million to ensure Alcatel obtained or retained three contracts to provide telephone services in Costa Rica.

The SEC alleges that the same Alcatel subsidiary bribed officials in the government of Honduras to obtain or retain five telecommunications contracts. Another Alcatel subsidiary made bribery payments to Malaysian government officials in order to procure a telecommunications contract. An Alcatel subsidiary also made illegal payments to various officials in the government of Taiwan to win a contract to supply railway axle counters to the Taiwan Railway Administration.

According to the SEC’s complaint, all of the bribery payments were undocumented or improperly recorded as consulting fees in the books of Alcatel’s subsidiaries and then consolidated into Alcatel’s financial statements. The leaders of several Alcatel subsidiaries and geographical regions, including some who reported directly to Alcatel’s executive committee, either knew or were severely reckless in not knowing about the misconduct.

The SEC’s complaint charges that Alcatel violated Section 30A of the Securities Exchange Act of 1934 by making illicit payments to foreign government officials, through its subsidiaries and agents, in order to obtain or retain business. Alcatel violated Section 13(b)(2)(B) of the Exchange Act by failing to have adequate internal controls to detect and prevent the payments. Alcatel violated Section 13(b)(2)(A) of the Exchange Act by improperly recording the payments in its books and records. Alcatel violated Section 13(b)(5) of the Exchange Act when its subsidiaries knowingly failed to implement a system of internal controls and knowingly falsified their books and records to camouflage bribes as consulting payments. Without admitting or denying the SEC’s allegations, Alcatel has consented to a court order permanently enjoining it from future violations of these statutory provisions; ordering the company to pay $45.372 million in disgorgement of wrongfully obtained profits, and ordering it to comply with certain undertakings including an independent monitor for a three-year term. The settlement is subject to court approval.

The SEC’s case was investigated by Ernesto Palacios and Thierry Olivier Desmet of the Division of Enforcement’s FCPA Unit and by Teresa J. Verges and Fernando Torres – all of the Miami Regional Office.

The SEC acknowledges and appreciates assistance from the U.S. Department of Justice, Fraud Section; the Federal Bureau of Investigation; the Office of the Attorney General in Costa Rica, the Fiscalía de Delitos Económicos, Corrupción y Tributarios in Costa Rica; and the Service Central de Prévention de la Corruption in France.

Large Financial Incentives to Bounty Action Whistleblowers Use Largest Trading Partners and the Opening of New Trading Markets

In developing new markets and exploiting existing markets, large multinational corporations often become extremely competitive to the point where they will violate laws and ethics in the pursuit of advantages to obtain large profits.  By offering large financial rewards and increased whistleblower protections, the United States through the SEC is working to use financial incentives and market forces to enforce existing laws and prevent unlawful exploitation by large and corrupt multinational corporations.

For more information on Foreign Corrupt Practice Act Bounty Actions, please feel free to go to the following web pages, Foreign Corrupt Practices Act Lawsuits and SEC Bounty Action Lawsuits and International Contract Government Official Bribe Bounty Actions.