Mexico’s Box Office Corruption Trial
A plea bargain with Pemex’s former CEO will almost certainly shed light on high-level political corruption, but a wider probe is likely to face interference from a meddling president.
Mexico’s next corruption scandal is looming. Emilio Lozoya, the former head of the national oil company Pemex, was extradited to Mexico from Spain on 17 July. He is currently testifying to federal prosecutors who have accused Lozoya of accepting millions of dollars in bribes from local and foreign companies during his 2012-2016 tenure. In an attempt to avoid prison, Lozoya has promised to provide evidence of corruption involving dozens of politicians. Press reports suggest his testimony could implicate prominent officials who served under presidents Vicente Fox (2000-2006), Felipe Calderón (2006-2012), and particularly Enrique Peña Nieto (2012-2018), to whom Lozoya was a close aide. One senator has touted the proceedings against Lozoya as the “trial of the century”.
Notably, the case against Lozoya involves the illicit activities of Brazilian construction conglomerate Odebrecht in Mexico. In 2016, Odebrecht executives admitted to the US Department of Justice that the firm had paid USD 10.5 million in bribes to Mexican politicians, without identifying the recipients. As a result, by mid-2018 Mexican prosecutors had reportedly gathered enough evidence to charge several officials, including Lozoya, with receiving kickbacks from Odebrecht in exchange for construction contracts. However, the case stalled after the then government sacked the leading prosecutor, seemingly to protect its allies. Investigators have long believed that Lozoya also diverted some of this money to Peña Nieto’s 2012 presidential campaign. Following his extradition to Mexico last month, Lozoya has said that he only handled Odebrecht funds on direct orders from Peña Nieto. On 11 August, Mexico’s attorney general announced that he had opened a corruption investigation against the former president.
Lozoya’s testimony may also cast doubt on the legitimacy of Mexico’s historic 2013 energy reforms, which opened Mexico’s energy sector to private investment for the first time. Mexican media outlets have reported that Lozoya is willing to hand over videos of prominent opposition congresspeople accepting bribes to vote in favour of the legislation. Mexico’s current president, Andrés Manuel López Obrador (AMLO), led several protests against the reforms at the time and won the 2018 election promising to overturn them. Lozoya’s testimony seems to have provided ammunition for AMLO renew his attacks on the 2013 reforms: a recently-leaked memorandum showed that his office would consider a constitutional reform to allow Mexico to take back control of its oil and electrical industries.
Lozoya’s plea bargain could provide the basis for a wide-ranging corruption investigation into an extensive network of politicians, and the businesspeople and companies whose interests they have supported. The Mexican press has played up the potential for a “megatrial” involving multiple defendants, which would be a first for Mexico. Successful and meaningful prosecutions of high-ranking officials and the businesspeople who back them would give a much-needed boost to the country’s perennially weak rule of law.
Skimming the Surface
However, current political conditions in Mexico make a ground-breaking probe into political corruption unlikely. There are two reasons for this: firstly, Mexico’s anti-corruption institutions remain weak; second, AMLO is unlikely to allow investigators to operate without his oversight.
As it stands, several key leadership positions at Mexico’s National Anti-corruption System, a government agency, remain vacant. Many state-level units lack the funding to operate properly – if at all – while multiple government bodies tasked with countering corruption and money laundering also suffer from undue political influence. In January 2020 the Egmont Group, which facilitates cooperation among financial intelligence units globally, expressed concern about a lack of autonomy at its constituent body in Mexico.
Since taking office in December 2018, AMLO has tried to lead anti-corruption efforts from his executive office, rather than allowing institutions to act on their own initiative. In January 2020, he told a press conference that the head of Mexico’s financial intelligence unit “does nothing without consulting him”. AMLO also has shown a willingness to protect his allies from corruption investigation. Most notably, the president publicly defended the head of the national utility company following accusations that the official had built up a real-estate portfolio that is worth more than his publicly-declared wealth.
This context suggests that investigators are unlikely to be free to probe all political parties or businesses. The president’s critics claim that he only wants to use the Lozoya trial to discredit the opposition National Action Party (PAN) and the Institutional Revolutionary Party (PRI) ahead of midterm elections scheduled for July 2021. High-profile accusations of corruption against AMLO’s rivals will also allow him to distract voters from his poor performance in office, particularly regarding the economy, criminal violence and the government’s response to the Coronavirus pandemic.
The probable impact for investors in Mexico is twofold. An investigation will undoubtedly expose foreign companies that have partnered with Mexican firms and businessmen implicated in the corruption scandal. This would have both regulatory and reputational costs; AMLO is likely to try to make an example of any alleged misconduct by foreign corporations to bolster support for his repeal of the 2013 energy sector reforms. Additionally, prosecutors will probably concentrate their efforts on former officials linked to opposition parties rather than probing deeper corruption networks within the Mexican traditional political and business elite. This means that the already difficult task of assessing the integrity of potential Mexican partners is unlikely to get easier anytime soon.