Author picture

Corruption Scandals from an IR Perspective

Corruption in Mexico is back in the headlines, after the testimony of former Pemex boss last week Emilio Lozoya implicated ex-Presidents, legislators, and other senior politicians of the past (without much new proof being offered). And it’s not just a government problem. At the corporate level, earlier this month the SEC fined the USA consumer loan company World Acceptance US$21.7mn for paying bribes in Mexico. https://www.reuters.com/article/us-usa-sec-worldacceptance/u-s-sec-fines-world-acceptance-corp-21-7-million-for-mexican-bribes-idUSKCN25224M. And earlier in the decade Wal-Mart paid over US$280mn in fines for bribing Mexican local government officials. Even the esteemed Goldman Sachs has recently had to pay the SEC US$1bn in fines for its role in a recent Malaysian corruption scheme. Both Citigroup and HSBC have been mired in Mexican corruption and/or fraud and/or compliance scandals over the past decade that have caused US$billions of fines and losses.

What should Mexican companies do to avoid corruption scandals, or mitigate the impact if in one? Each case is different, but clearly, they need to follow the advice of their lawyers, come clean as early as possible, identify those responsible, and take remedial action. In the end having anti-corruption policies in place, and rules for disclosure and action should there be violations, is simply another example of following best practices in Corporate Governance, the “G” in ESG. Combatting corruption may not be as high profile as saving the planet from climate change, but arguably is more relevant to the day to day operating procedures of a typical Mexican company. And the damage done to reputation (and in fines) can be incalculable.

The Background 

Mexico’s war on corruption an uphill battle for compliance officers


The recently published 2020 Capacity to Combat Corruption Index (CCC Index) evaluated and ranked 15 of the largest Latin American countries. Mexico scored just 4.55 out of 10 and fared particularly poorly (4.15) in the “legal capacity” category, which includes critical anti-corruption elements, like judicial independence and the independence of anti-corruption agencies.

Engaging on Anti-Bribery and Corruption


Corruption remains one of the world’s greatest challenges. It has a disproportionate impact on poor communities and is a major hindrance to sustainable development. For companies, corruption impedes economic growth, distorts competition and represents serious legal and reputational risk.

  • This is why a growing number of investors are looking into companies’ anti-bribery and corruption systems. They are also using anti-bribery and corruption engagement as a litmus test for the overall quality of companies’ business practices and management.
  • The UN Global Compact and the Principles for Responsible Investment (PRI) have joined forces to produce an evidence-based guide on company investor engagement on anti-bribery and corruption.
  • Every year, losses due to corruption represent over 5% of global GDP (US$2.6 trillion) and bribes exceed US$1 trillion. This leads to damage to brand, reputation and share price; exclusion from potential business opportunities; liability to pay hefty fines; and the diversion of significant senior management time away from running the business to manage investigations and prosecutions.


Steps to Take

Business Approaches to Combating Corrupt Practices


  • How do companies manage the fight against corruption?
    • Heavy reliance on a well-defined set of management tools.
    • 77% (of the top 100 non-financial multinational enterprises in the study) mentioned whistleblowing facilities.
    • 72% mentioned accurate record keeping.
    • 63% contained threats of disciplinary action.
    • Other techniques included hierarchical controls, the creation of a compliance office, and clearly establishing a role for the Board of Directors.

This study found that 43 of the top 100 non-financial multinational enterprises publish material that deals explicitly with corrupt business practices.

  • Anti-corruption management tools used by these enterprises include:
    • Whistleblowing facility and whistle-blower protection.
    • Accurate financial records.
    • Clear role of the Board of Directors.
    • Management responsibility.
    • External audits and internal audit committee.
    • Compliance/ethics office.
    • Threat of disciplinary action and criminal sanctions.


PWC – Confronting corruption – The business case for an effective anti-corruption programme


  • “A successful anti-corruption programme must begin with a clear commitment from senior management.”
  • Five steps to a better anti-corruption program:
    • Risk analysis – identify the possibility of corruption in all aspects of the business (countries of operation and type of business being conducted).
    • Implementation – careful and continuous communication program, training and adjustment of internal processes.
    • Sanctions – everyone in the company must know that there is a sanction system in place.
    • Help lines – companies should have open or anonymous help lines.
    • Monitoring – analyze strengths and weaknesses continually.


Other Case Studies

ORBIA’S Integrity & Anti-Corruption Handbook


Walmart Will Cough Up $282 Million To Put Years-Long Bribery Investigation Behind It


How Wal-Mart Used Payoffs to Get Its Way in Mexico


Goldman Sachs settles 1MDB scandal with Malaysia for $3.9bn