North America Overview

In late 2018, Canada, Mexico and the United States entered into the aptly named United States-Mexico-Canada Agreement. This Agreement, which imposes obligations on signatory countries to enforce anti-corruption laws, signalled the beginning of a renewed effort to coordinate prosecution efforts across North American borders. The winter of 2018 also saw a convergence at the doorstep of the United States District Court for the Eastern District of New York of investigative matters spanning the United States, Canada and Mexico. As federal prosecutors were preparing for trial against the famed Mexican drug cartel leader Joaquín Archivaldo Guzmán Loera, also known as El Chapo, other prosecutors in the District were preparing for an extradition battle relating to Meng Wanzhou, a Chinese national and Huawei executive arrested in Canada on a US federal warrant seeking her extradition to the United States on charges of bank fraud, theft of trade secrets and sanctions evasion. These two matters, among others discussed below, reflect the expanding multilateral nature of enforcement actions in North America, and shed further light on authorities’ ability to gather evidence, seek extradition and otherwise coordinate with authorities around the world. A nuanced understanding of the progress and playbook on North American corporate enforcement continues to be critical.

The United States-Mexico-Canada Agreement

In late 2018, each country in North America agreed to abide by the United States-Mexico-Canada Agreement, a tripartite treaty that contains an entire chapter on anti-corruption enforcement and compliance.^[2] Subsequently, there was a multi-step domestic ratification process, in which each country considered any necessary changes to domestic laws and made any required amendments through implementing legislation.^[3] The Agreement officially entered into force on 1 July 2020.^[4] It imposes a range of obligations on signatory countries, effectively to enforce anti-corruption laws and to enact legislation in support of anti-corruption efforts.^[5] The Agreement obliges each country to enforce its anti-corruption laws adequately through active prosecution, and provides clear, uniform definitions for terms, such as illicit enrichment and embezzlement.^[6] Importantly, it also requires co-operation between the United States, Mexico and Canada, both in sharing resources and experience and in the exchange of information to prevent, detect and deter bribery and corruption.^[7] The Agreement further extends to the promotion of integrity, honesty and responsibility among public officials of the signatory nations.

Co-operation between the United States and Mexico

Recent cross-border interactions

Conviction of Joaquín Archivaldo Guzmán Loera

In perhaps the most high-profile conviction of a Mexican citizen by the United States in recent memory, in February 2019, Joaquín Archivaldo Guzmán Loera (known as El Chapo) was convicted by a federal jury in Brooklyn of being a principal leader of a continuing criminal enterprise – the Mexican organised crime syndicate known as the Sinaloa cartel – on charges that included 26 drug-related violations and one of conspiracy to commit murder.^[8] The case of El Chapo was investigated by the US Drug Enforcement Agency (DEA), the US Immigration and Customs Enforcement (ICE) and the Federal Bureau of Investigation, working in close consultation with their counterpart authorities in Mexico.^[9]

Building the case against El Chapo necessarily required extensive co-operation between authorities in the United States and Mexico. The Sinaloa cartel was built on border crossings – cartel members smuggled narcotics from Mexico to wholesale distributors in the United States, then transported billions of illicit dollars back across the border to the Sinaloa area of Mexico – so marshalling evidence required monitoring activity and gathering evidence that spanned a significant geographical range.^[10] Throughout the 2000s, officials from both countries worked to build a case against El Chapo, from money laundering to murder charges, and worked for years to pinpoint his exact location.^[11] On 22 February 2014, Mexican Marines, with co-operation from US government agencies, arrested El Chapo in Mazatlán, Mexico.^[12]

Following the second of El Chapo’s two escapes from prison, Mexican officials, sharing intelligence with their US counterparts, together engaged in a manhunt and recaptured him.^[13] Despite a history of publicly stating that El Chapo would serve out his sentence in Mexico, the Mexican government subsequently agreed to extradite the cartel leader to the United States to face charges in the Eastern District of New York.^[14] The extradition process was not without conflict, however. Mexico outlawed capital punishment in 1975 and has remained steadfast in its refusal to extradite suspects who face the death penalty in the United States.^[15] US officials agreed to take the death penalty off the table.^[16]

Following his extradition on 19 January 2017, El Chapo was due to stand trial in the United States, which would prove to be another testament to the advanced co-operation between Mexican and US authorities.^[17] The evidence presented at El Chapo’s trial included testimony from 14 co-operating witnesses, narcotics seizures, weapons, ledgers, text messages, videos, photographs and intercepted phone recordings.^[18] The co-operation of witnesses was crucial to building the case against El Chapo. This was particularly true of Vicente Zambada-Niebla, a high-ranking member of the cartel and the son of El Chapo’s cartel partner, who was extradited from Mexico to the United States and provided critical testimony about the inner workings of the criminal enterprise.^[19]

Following El Chapo’s conviction, DEA Acting Administrator Uttam Dhillon stated that the ‘success of [the] case is a testament to the strength of [the United States’] relationship with Mexican counterparts’.^[20] The strength of this relationship was tested at each stage of the enforcement action, from building the case until conviction at trial.

Discovery of cross-border drug tunnel

Another example of bilateral co-operation and investigation is the discovery in March 2020 of an underground tunnel more than 2,000 feet in length and running from a warehouse in Tijuana, Mexico, to a warehouse in San Diego, California.^[21]

The tunnel was uncovered by federal agents on the San Diego Tunnel Task Force, an investigative team comprised of agents from ICE, DEA, the US Border Patrol and the US Attorney’s Office.^[22] After developing information about a transnational tunnel used for drug trafficking, the Task Force worked with Mexico’s Attorney General’s Office and Secretary of Defence to locate the tunnel entrance.^[23] To date, no arrests have been made in connection with the discovery, which authorities classify as part of an ongoing investigation, but agents did seize approximately US$26.9 million worth of illegal drugs from the tunnel.^[24]

Past cross-border investigations with Mexico

Although El Chapo’s trial and conviction may present the most high-profile example, sustained co-operation between US and Mexican authorities has been evident in corporate investigations during the past few years, and may well expand as Mexico enhances its enforcement tools and efforts.

In December 2016, the US Department of Justice (DOJ) secured guilty pleas from six individuals – four business­persons employed by Hunt Pan Am, a Houston-based company that provides aircraft maintenance and related services, and two former Mexican government officials – in a cross-border bribery scheme.^[25] The criminal proceeding, which was investigated by ICE and the Internal Revenue Service, involved corrupt payments paid to Mexican foreign officials who had responsibility for maintaining Mexico’s aircraft fleet, in violation of the US Foreign Corrupt Practices Act (FCPA). In exchange for the payments (which were made to and from bank accounts in Texas, owned by Hunt Pan Am and the government officials), the government officials awarded contracts for aircraft maintenance and parts to Hunt Pan Am.^[26]

The US Securities and Exchange Commission (SEC) has likewise pursued cross-border investigations with Mexico, including in a matter using satellite imagery of land in Mexico as evidence against a Mexican company and its employees. In March 2017, the SEC announced that Mexico’s largest homebuilder, Desarrolladora Homex SAB de CV (Homex), ‘had agreed to settle charges that it reported fake sales of more than 100,000 homes to boost revenues in its financial statements during a three-year period’.^[27] Later in 2017, the SEC announced related charges against four of the company’s former executives, all Mexican citizens residing in Mexico.^[28]

The SEC alleged that Homex improperly recognised billions of dollars of revenue by ‘systematically and fraudulently report[ing] revenue from the sale of tens of thousands of homes annually that it had neither built nor sold’.^[29] The SEC’s complaint contained satellite images of land in the Mexican state of Guanajuato showing ‘housing units which Homex claimed to have built or sold, and for which it had recorded sales and reported revenue’, but had clearly not been built.^[30] Melissa Hodgman, Associate Director of the SEC’s Enforcement Division, noted that the SEC ‘used high-resolution satellite imagery and other innovative investigative techniques to unearth that tens of thousands of purportedly built-and-sold homes were, in fact, nothing but bare soil’.^[31]

Although Homex is based in Mexico, the SEC claimed jurisdiction because the company’s stock had been listed on the New York Stock Exchange.^[32] In its announcement of the settlement, the SEC noted that it ‘appreciates the assistance of the Mexican Comisión Nacional Bancaria y de Valores’,^[33] a regulatory agency that supervises Mexican financial entities. The Mexican government announced that it carried out the investigation jointly with the SEC and imposed its own penalties against Homex and some of its officials in addition to the penalties imposed by the SEC.^[34] Mexico’s National Banking and Securities Commission fined the company US$1.2 million.^[35]

Mexico’s enhanced corruption enforcement

Mexico has made a concerted effort in recent years to enforce its existing criminal code to combat corruption. President López Obrador, who was elected in 2018, ran on a campaign of taking on the ‘mafias of power’ and shifting away from what has traditionally been viewed as relatively lax enforcement of Mexico’s anti-corruption laws.^[36] Following López Obrador’s election, the Senate enacted a new law that created a Chief Prosecutorial Office and appointed Alejandro Gertz Manero, a former attorney general of Mexico, to fill the role of chief prosecutor.^[37] Gertz Manero announced in May 2019 that his office would begin building criminal corruption cases that had sat dormant in the previous administration.^[38] At the time of López Obrador’s election, more than 300,000 investigations – a disproportionate number of which related to bribery and corruption of elected officials – had been backlogged.^[39]

Thus far, both López Obrador and Gertz Manero have made progress. In March 2019, López Obrador appointed Luz Mijangos Borja as Mexico’s first Chief Anticorruption Prosecutor.^[40] She opened 680 new investigations during her first eight months in office.^[41]

In June 2019, the López Obrador administration froze assets and issued arrest warrants in connection with the sale of a fertiliser plant from a state-owned Mexican oil and gas company (Pemex) to one of Mexico’s biggest multinational companies (AHMSA).^[42] In February 2019, Emilio Loyoza, Pemex’s former chief executive officer, was arrested in Spain on corruption charges relating to the sale.^[43] He finally agreed to drop his extradition challenge in June 2020 and will return to face charges in Mexico.^[44] Loyoza is accused of accepting millions of dollars in bribes and is reportedly co-operating with prosecutors and possibly turning over evidence implicating former president Enrique Peña Nieto in bribes paid for support of his energy reform plan.^[45]

Efforts like these may well expand as further progress is made. For instance, in May 2020, the López Obrador administration announced a probe into Leon Manuel Bartlett, son of the head of Mexico’s national electricity company, CFE.^[46] López Obrador has said that his government will investigate allegations that Manuel Bartlett sold overpriced ventilators to the state arm of Mexico’s social security institute during the covid-19 crisis.^[47]

Additionally, 18 anti-corruption magistrates are to be appointed to the Federal Tribunal for Administrative Justice, which has exclusive jurisdiction over grave administrative offences such as embezzlement and money laundering.^[48] As at April 2020, however, only three individuals had been nominated.^[49] Nonetheless, further implementation of Mexico’s National Anti-Corruption System – a framework for a tougher and more comprehensive approach to battling corruption – is also planned.^[50]

Expansion of Mexico’s anti-corruption laws

In August 2019, the Mexican government passed the National Law for Dominion Extinction, which will allow the federal government to transfer ownership of any type of property derived, or presumptively derived, from illegal activities without indemnity or payment to the owner.^[51] The country simultaneously expanded the definition of the type of conduct that could trigger asset forfeiture to include corruption, both by corporate entities and public servants as private persons.^[52] In March 2020, Mexico’s Specialist Bureau for Combating Corruption, part of the Chief Prosecutor’s Office, submitted its first annual report to the Senate.^[53] In it, the Bureau announced its intention to propose modifications to several anti-corruption laws to strengthen prosecutorial power, including amendments to the criminal code, the code of criminal procedure, anti-money laundering law and national asset forfeiture law.^[54]

In December 2018, the federal-level Citizen Participation Committee presented a proposal for a National Anti-Corruption Policy, with 60 priority strategies for combating corruption through investigations, awareness, civil involvement and access to public service.^[55] The Committee has also advocated for whistleblower protections and greater autonomy for institutions involved in identifying official misconduct.^[56]

With the renewed energy and focus on anti-corruption enforcement in Mexico, it is likely that corporations operating in Mexico will begin to face greater scrutiny from Mexican officials. If the current trajectory holds, corporations should expect Mexico to join the United States and Canada as a significant player in corporate anti-corruption efforts.

Co-operation between the United States and Canada

Recent cross-border interactions

Extradition of Meng Wanzhou

The arrest by Canadian authorities of a prominent Chinese national at the behest of the United States has garnered widespread media attention and continues to unfold. Meng Wanzhou, the chief financial officer of Chinese multinational technology company Huawei, deputy chairwoman of the Huawei board and daughter of Huawei’s chief executive officer and founder, was arrested at the request of the DOJ on 1 December 2018, at Vancouver International Airport, on multiple federal criminal charges,^[57] such as bank fraud, trade secrets theft and sanctions evasion.^[58] Meng has been fighting extradition from Canada to the United States since January 2020.^[59] A judge dispensed with Meng’s latest challenge to the United States’ extradition request on 27 May 2020.^[60] Meng and her attorneys had argued that she could not be extradited because the conduct alleged by the United States would not be a crime under Canadian law.^[61] A judge sitting on Vancouver’s Supreme Court, however, found that the key Canadian standard of double criminality, which considers whether the conduct at issue could be considered a crime under Canadian law, was, in fact, met.^[62] Nonetheless, the Canadian extradition process involves multiple phases of review and could take several years to complete.^[63]

Meng and her attorneys have vigorously disputed the charges, and have said her arrest was politically motivated. Lawyers for Meng also announced that they were suing the Royal Canadian Mounted Police (RCMP), the Canadian Border Services Agency and the Canadian federal government for breaching Meng’s constitutional rights during her detention but prior to her arrest.^[64] The Canadian court heard her claims over several weeks in autumn 2020 and the extradition hearings are due to be concluded in April 2021. However, a final decision may take longer to reach if appeals are filed.^[65]

Canada has faced significant backlash from China as a result of Meng’s arrest, including the detention of Michael Kovrig, a former Canadian diplomat, and Michael Spavor, a Canadian businessman, under suspicions of spying and stealing state secrets; Canadian shipments to China of goods worth billions of dollars have also been blocked.^[66] In addition, following Meng’s arrest, China quickly retried two Canadian citizens, who had been sentenced to jail for drug smuggling, and sentenced both to death. Both individuals are still currently detained in China.^[67]

Kinross Gold FCPA enforcement action

Co-operation between the United States and Canada on anti-corruption matters also continues. In March 2018, for example, the SEC announced a settled action against the Canadian corporation Kinross Gold Corporation for FCPA books and records, and internal controls violations ‘arising from the company’s repeated failure to implement adequate accounting controls of two African subsidiaries’.^[68] Kinross Gold had acquired a number of African subsidiaries in 2010 as part of a US$7.1 billion transaction and, according to the SEC, understood at the time that those subsidiaries ‘lacked anti-corruption compliance programs and internal accounting controls’. The SEC alleged that, despite this awareness, Kinross Gold failed to implement adequate controls for more than three years, even though multiple internal audits had alerted the company to the control deficiencies.^[69] Moreover, the SEC alleged that even after Kinross Gold implemented various internal controls, it failed to maintain them.^[70] Without admitting or denying the findings, Kinross agreed to a cease-and-desist order, a penalty of US$950,000 and undertakings to report on its remedial steps for one year.^[71] Kinross Gold stated that it received a declination from the DOJ.^[72]

Conviction of Robert Barra under the Corruption of Foreign Public Officials Act

Canada has recently enhanced enforcement of its own evolving anti-corruption laws. Prosecutions based on Canada’s Corruption of Foreign Public Officials Act (CFPOA), the equivalent of the US FCPA, had been rare historically. In 1998, 2004 and 2011, Canada was criticised by the Organization for Economic Co-operation and Development (OECD) for not meeting its OECD anti-corruption obligations.^[73] In 2013, the CFPOA was amended to add a books and records offence, expand jurisdiction based on nationality, and increase the maximum penalty for convicted individuals.^[74]

In January 2019, however, following only the second trial under the CFPOA, Robert Barra, a US citizen, was convicted in the Ontario Superior Court of Justice of agreeing to bribe a foreign public official.^[75] The convictions in R v. Barra and Govindia arose from the same facts as a 2014 case, R v. Karigar, the first case in which an individual – Nazir Karigar, a Canadian – was sentenced to imprisonment for an offence under the CFPOA (he was sentenced to three years in jail).^[76] Barra, a former executive of the biometrics company Cryptometrics US, was charged in a conspiracy involving bribing various Air India employees, and a number of Indian government officials, to ensure that Cryptometrics was awarded a contract with Air India to instal facial recognition software at airports.^[77] The complaint alleged that Barra ‘was a co-Chief Executive Officer of Cryptometrics US, which he controlled’ and that ‘Cryptometrics US provided the required funding for Cryptometrics Canada’s operations’.^[78]

Shailesh Govindia, an Indian citizen, was also convicted. Govindia argued that he was not subject to the jurisdiction of the Canadian courts because, at the time of his conduct, he was unaware that the Canadian laws would apply to him. The court rejected this argument, finding ‘that a Canadian court did have jurisdiction and that there was a substantial connection to Canada’ and that Govindia’s mistake of law was not a valid argument.^[79]

That Canada used the CFPOA to charge a US citizen who was the executive of a US company for offences that occurred at least in part in New York may represent the beginning of a new era for Canadian enforcement of its bribery laws. The DOJ had long been aware of the allegations regarding Cryptometrics – as early as 2007, ‘someone called Buddy sent an email to the fraud section of the US DOJ advising that he had information about US citizens paying bribes to foreign officers’.^[80] The DOJ assisted the RCMP in the investigative efforts that led to Govindia’s conviction in Canada.^[81]

Trends in cross-border investigations

Corporate frauds

On 19 September 2018, Canada’s Criminal Code was amended to establish a remediation agreement mechanism (the equivalent of a deferred prosecution agreement in the United States), which may signal an increased focus on enforcement of the CFPOA with regard to corporations. This new tool allows voluntary agreements between prosecutors and organisations accused of committing crimes, which the Canadian government hopes will provide an incentive for companies to rectify their wrongdoing, while avoiding some of the negative consequences of a criminal conviction.^[82] Canada’s Global Affairs department has described the new tool as ‘available for use by prosecutorial authorities – at their discretion, in the public interest and in appropriate circumstances’.^[83] In a surprise to some, however, the government declined to enter into a remediation agreement with SNC-Lavalin, the embattled engineering giant, over foreign bribery charges.^[84] The company instead entered a guilty plea in December 2019, agreeing to pay US$213 million in fines and to be subject to a probation period.^[85]

Competition protection enforcement in the digital economy

The co-operation between the United States and Canada is not limited to criminal actions and securities enforcement. Co-operation with regard to antitrust and consumer protection matters has evolved into a robust bilateral enforcement regime. Following the August 1995 Agreement between the Government of Canada and the Government of the United States of America Regarding the Application of Their Competition and Deceptive Marketing Practices Laws (the Agreement), the two nations have closely coordinated on common consumer protection matters.^[86] The Agreement sets forth seven obligations for each nation:

• notification about enforcement activities in the other’s interests;
• co-operation in enforcement and information exchange;
• coordination in enforcement initiatives;
• avoidance of conflicts;
• consultations to resolve concerns regarding the agreement;
• maintenance of confidentiality; and
• use of principles of comity.^[87]

Though these obligations had been in effect for more than 20 years, in 2017 both countries recommitted to strengthening North American co-operation in competition law enforcement in the digital economy.^[88] Since this agreement, both countries have made strides towards improving antitrust enforcement in the digital space. Canada unveiled a new Digital Charter, designed to maintain a competitive online marketplace, increased fines and penalties to encourage global digital leaders to promote compliance, increased global enforcement coordination, and hosted a global summit to discuss competition policy in the digital era.^[89]

The US Federal Trade Commission has likewise launched a Technology Task Force, which is dedicated to monitoring competition in US technology markets, and congressional leaders have taken an interest in understanding competition in the digital marketplace.^[90]

Given these trends, and the standing Agreement between the United States and Canada, it is likely that corporations will see increased co-operation between the two countries on digital antitrust enforcement in the coming years.

Footnotes