Mexico's Congress recently passed federal legislation that will allow the Mexican government to seize assets from private individuals and companies accused of engaging in corruption.
The controversial law, the National Property Forfeiture Law (Ley Nacional de Extinción de Dominio), amends and expands previously enacted legislation relating to asset forfeiture and is the latest step in Mexico's recent overhaul of its anti-corruption laws. President Andrés Manuel López Obrador published the new law on August 9, 2019, and it took effect the following day.
Under the new law, companies and private individuals accused of corruption could be subject to an asset forfeiture action. The law allows the government to commence a civil asset forfeiture action against a company where (i) the assets are related to any of the crimes (hechos ilicitos) referred to in Paragraph 4 of Article 22 of the Mexican Constitution, including crimes related to corruption as defined by the Federal Criminal Code (Código Penal Federal); and (ii) either the assets were intended for use in illegal activities, or their legitimate origin cannot be proved.
Some of the law's areas of note include:
- The law does not appear to require that a prosecutor first obtain a criminal conviction (responsabilidad penal) prior to seeking asset forfeiture in a civil action.
- The law places the burden of proof on the company (or individual) accused of corruption rather than the government – to prevail in a civil asset forfeiture action, the company must prove beyond a reasonable doubt that the assets allegedly obtained as a result of criminal acts (including corrupt acts) were instead acquired legally.
- In cases where the prosecutor believes the defendant is likely to hide or move assets, there are mechanisms by which the prosecutor can seek injunctive relief granted by a judge to obtain the assets prior to resolution of the action.
- In connection with the civil asset forfeiture action, there is no statute of limitations for assets determined to have an illegal origin, but there is a 20-year statute of limitations for assets determined to be intended for use in illegal activities.
- The law provides for the anticipated sale or disposal of the assets prior to a court determination that the assets were acquired through, or intended for, illegal activities in the event that certain requirements are met (eg, that such sale is necessary due to the nature of the assets or that such assets represent a risk to the environment, among others).
The new legislation allows the Mexican government to seize private tangible assets such as inventory, equipment, stocks, and bonds as well as private intangible assets such as goodwill, trademarks, patents, and copyrights.
The creation of the civil asset forfeiture action has generated concern among some Mexican legislators and other legal commentators who view certain aspects of the law as ambiguous.
Critics of the new law, among them former Mexico Attorney General Ignacio Morales Lechuga, and other commentators expect the law to face continued public scrutiny, as well as constitutional and other legal challenges, now that it has taken effect. The extent to which those challenges will be successful in overturning the new law remains to be seen. Regardless, though, there are legal procedures in place, such as an amparo proceeding (a constitutional appeal that may be invoked by any person believing that any of his/her rights are being violated by an act or omission committed by a public authority), that can protect companies and individuals facing an action pursuant to the new law.
Companies operating or doing business in Mexico should be aware that the Mexican government now has broad civil asset forfeiture powers that it may wield in prosecuting corruption. The potential impact of the new law on companies accused of corruption is significant – and the possible consequences severe.
- Both tangible and intangible assets are at risk of forfeiture under the new law, potentially placing at risk a company's current and future sources of revenue.
- If the Mexican government decides to pursue a civil forfeiture action as part of a corruption investigation, the company whose assets are seized will have the burden of proving beyond a reasonable doubt the legality of its assets.Meeting this burden will likely require significant investigation and documentation on the part of the company.Even in the absence of pursuit of civil forfeiture, the mere fact that this action now exists will likely strengthen the position of the Mexican authorities in any negotiations to resolve corruption investigations.
- Absent a statute of limitations for assets determined to have an illegal origin, companies remain at risk of asset forfeiture in Mexico for extended periods of time.
Given the government's broad new asset forfeiture powers, companies should consider familiarizing themselves with the processes that could protect them from claims under the law and work with counsel to protect their assets in the event of corruption claims.
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