27 August 2020

 

Full Report: Mexico

Predictions

  • Leaked testimony incriminating former senior politicians will increase government and media scrutiny of corporate behaviour
  • President will increase focus on corruption partly to divert attention from poor handling of pandemic and related recession
  • All parties likely to respond to high profile allegations through increasing promises to tackle corruption and tackle unethical and illegal corporate behaviour

 

Event

Plea-bargaining testimony by Emilio Lozoya, former head of state oil company Pemex (2012-2016), was leaked to the media on 19 August. This implicates three former presidents, two former presidential candidates, four former finance ministers, three state governors, and various Congress members in participating in a widespread corruption network. Lozoya was extradited from Spain to Mexico on 17 July, charged with accepting USD 10.5 million in bribes from Brazilian civil engineering company Odebrecht, and put under house arrest. His testimony, which may enable him to avoid a prison sentence, is politically explosive and could lead to the unprecedented prosecution of former presidents. The allegations, which have been denied by the politicians concerned, are potentially a major boost for president Andres Manuel Lopez Obrador (AMLO), who was partly elected on promises to tackle corruption. However, a leaked video has also appeared on social media showing the president’s brother, Pio Lopez Obrador, accepting suspicious and potentially illegal cash donations for the ruling party’s political campaigns.

Context

Lozoya testified he had been ordered by former centrist President Enrique Pena Nieto (2012-2018) and the then finance minister Luis Videgaray, to take bribes from Odebrecht and channel the money into party campaign funds as well as bribing members of Congress to support Pena Nieto’s liberalising energy reforms of 2013-2014. Lozoya claimed former president Felipe Calderon (2006-2012) of the right-wing National Action Party (PAN) also participated in a bribes-for-contracts scheme, whereby Odebrecht was contracted to build the Etileno XXI petrochemicals plant. He also said that former president Carlos Salinas de Gortari (1988-1994) had used his influence to win Pemex contracts for his son. All those implicated are political opponents of AMLO’s ruling left-wing National Renovation Movement (Morena). AMLO said the revelations proved that Mexico had been “plundered” for over 30 years by the “neoliberal” establishment. Separately AMLO downplayed a video showing his brother receiving cash in an envelope in 2015, saying it was a legal campaign contribution which would nonetheless be investigated.

Mexico: Senior politicians incriminated in leaked testimony by the former head of state oil company Pemex 

Analysis

The President is struggling to tackle the COVID-19 pandemic and the related recession, and he will therefore be keen to use the leaked testimony to gain political advantage, especially as he has long promised to tackle corruption. In particular, the president is eager to claim progress on corruption ahead of mid-term congressional elections due next year, and formal charges against former presidents would give him a major boost. However, the president will face two major risks. The first is that he could be accused of seeking to manipulate Mexico’s independent judiciary. Lozoya’s testimony was leaked only two days after AMLO urged for all information on the investigations to be made public. However, a 2016 Supreme Court ruling specifically prohibits government-sanctioned leaks and media campaigns intended to influence the outcome of court cases, which could pose a risk to AMLO if his government leaked the testimony. Secondly, there are significant allegations of corruption outstanding against members of AMLO’s government, and any new revelations about his own party could expose him to damaging accusations of double standards.

Outlook

Lozoya’s testimony and the associated media coverage and controversy has refocused public and political attention on corruption. Given the slow-moving nature of the court system and the high-profile nature of the accusations, the issue of improper payments by Pemex is likely to be in the news for at least the next nine months – the period running up to the mid-term elections – and most possibly beyond. This will have two major consequences for business. One is that all companies operating in Mexico, and particularly those involved in major public sector contracts and in the energy sector, will be subject to additional media, political and regulatory scrutiny over the coming year. The second is that next year’s government and opposition mid-term election campaigns will included increased proposals to tackle corruption-related issues, which could lead to an increased compliance burden for firms in coming years.

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