Avoid losing high stakes of cross-border business

Investigations Insider | Take a proactive approach to anti-corruption initiatives in trade with Mexico

Travis Canova

Travis Canova

Advisory Managing Director, Forensic, KPMG US

+1 713-319-2731

Jose Claudio Treviño

Jose Claudio Treviño

Advisory Managing Director, Forensic, KPMG LLP

+1 346-786-4571

The United States and Mexico have long enjoyed a close — although complex — business relationship. The two countries have been active trading partners since the 1800s. In 1993, the ratification of the North American Free Trade Agreement (NAFTA) encouraged an exponential increase in trade and investment between the two countries. Today, Mexico is one of the US’s top trading partners, with a large number of US companies operating south of the border through branch offices, subsidiaries, or joint ventures with Mexican companies. 

Growth is expected to continue in these cross-border business relationships, but recent events have caused significant changes in the business and regulatory landscape that will affect trade and investment in the years ahead.

Risk factors, such as pressure, lead to bad behavior

Fraud, corruption, bribery, and related issues are often accompanied by economic stress, and the Covid-19 pandemic placed significant financial pressure and risks on companies from both sides of the border.

When a company is in survival mode, ethical or regulatory concerns may be pushed aside or reprioritized. For instance, a manufacturer in Mexico might lose a supplier in Asia and have to find a replacement immediately, leaving insufficient time to conduct appropriate due diligence on the replacement supplier. Sudden market contractions might cause a United States parent company to rationalize a more lenient attitude towards bribery and corruption risk in favor of business expediency and the desire to “close the deal.” Pandemic-related travel restrictions, coupled with budget cuts, have made it difficult to perform otherwise routine physical inspections or trainings. And employees facing layoffs have been known to relax their monitoring of local business dealings and even rationalize inappropriate or illegal behavior.

The use of third parties, such as suppliers, partners, lobbyists, marketing and sales agents, contractors, and service providers, is a high-risk area for corruption. Third parties and intermediaries are a significant area of bribery risk for companies. These risks are growing as companies move into new markets and transfer more of their operations into the hands of third parties, particularly when subject to the pressures described above. Management may not have a complete picture of the company’s activities for countering third-party risks. Enforcement risks related to third parties can also originate from within the company, such as in instances in which company employees engage with third parties to make bribes or overpayments or receive kickbacks, or when the company does not appropriately respond to allegations that have been lodged via helpline channels.

Changes in the regulatory landscape

The Biden administration is expected to increase Foreign Corrupt Practices Act (FCPA) enforcement settlement values, while also increasing the pace of initiating new FCPA investigations. Penalties for violations of the FCPA include fines of up to $2,000,000 for corporations and other business entities.1 Individuals, including officers, directors, stockholders, and agents of companies, are subject to a fine of up to $250,000.2

Mexico’s regulatory landscape is also changing. As part of the 2015 reform to the Mexican Constitution on anti-corruption matters, the National Anti-corruption System Executive Office was created to support a national anti-corruption system, criminal procedures, general laws on administrative responsibilities, laws against organized crime, and prohibitions against money laundering.

Despite these regulations and initiatives, corruption in Mexico continues to represent a challenge to political stability, economic development, the rule of law, efforts to combat organized crime, and the effectiveness of public services. In 2020, Mexico ranked 124 out of 180 countries by scoring 31 (on a scale of zero to 100, where zero is highly corrupt), moving backward six places in the Transparency International Corruption Perception index. More recently, in 2021, when compared to the 2020 World Justice Project Rule of Law Index, Mexico worsened its ranking by positioning number 113 out of 139 and performed poorly on several factors, including “absence of corruption,” finishing just ahead of Honduras, Bolivia, Nicaragua, Haiti, and Venezuela in the rankings for the Latin America and Caribbean region.

Regulatory enforcement for both United States and Mexican companies remains a complex issue. In some cases, a United States-based company might implement rigorous anti-corruption policies in a Mexican subsidiary but the initiative might fail because the local company does not fully embed these policies into its daily operations.

In other cases, a United States parent company might acquire an existing Mexican company where bribes have been an accepted way of doing business for years. In such a business environment, “paper policies” at the Mexican subsidiary that are formally adopted but not actually followed might do little to change how business is conducted locally.

Action items

Despite the challenges of cross-border enforcement, companies can take a proactive approach to mitigating compliance risks, helping to address compliance-related events before they occur. Actions can include:

  • Assess the suitability and strength of your compliance program. Regulations in the United States and Mexico are quite stringent in their expectations, and compliance programs must reflect these laws or face the possibility of severe penalties. A full review of policies will be in order, especially those related to third parties. At the same time, companies need to understand regulator expectations and enforcement sensitivity in both countries.
  • Verify that proper oversight of compliance is taking place. This includes periodic visits to foreign subsidiaries as well as surprise audits. Compliance programs also need to be tightly integrated, supporting a consistent level of enforcement and a single view of activities across multiple divisions, subsidiaries, and supply chains.
  • Carefully recruit, monitor, and manage third parties across the entire vendor management lifecycle. This includes a review of the initial business justification for third-party use, due diligence in examining suppliers and their executives, detailed contracts designed to limit the risk of third-party non-compliance, well-documented onboarding procedures, ongoing monitoring, and proper exiting at the end of the third-party relationship.
  • Closely supervise workers in remote locations to help ensure that compliance risks and issues are adequately identified. This involves a regular reassessment of risks due to the pandemic, internal audits, continued training, and ongoing communications about compliance requirements.
  • Consider data analytics tools and established methodologies to help limit exposure to bribery and corruption. The use of data presents an opportunity to proactively understand, investigate, and manage these risks, as well as to provide a record of personal and corporate activities that can be presented for audits and compliance reports.

Experience shows that investments in managing compliance risks and adopting a preventive approach toward fraud and corruption will often be far less costly and more beneficial than facing a fraud or corruption case. Proactive enforcement can help companies in the United States and Mexico strengthen their mutual relationships while supporting continued growth and success.


  1. 15 USC §§ 78dd-2(g)(1)(A), 78dd-3(e)(1)(A), 78ff(c)(1)(A).
  2. 15 USC §§ 78dd-2(g)(2)(A), 78dd-3(e)(2)(A), 78ff(c)(2)(A); 18 USC § 3571(b).




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