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 Business News | April 2005 
Mexico Calls For More Checks On Big Businesses
 El Universal
| | The Mexican Senate begins debating this week a proposal to protect consumers from corporate malpractice. |
Banking and business scandals in recent years are prompting Mexico to seek ways of modernizing corporate regulation so that deceptive or corrupt executives can be punished, but without a prosecution frenzy that might harm capitalist enterprise here.
Mexico wants to enact legislation to prevent losses associated with accounting shenanigans and damage to the business community's image due to less-than-transparent dealings, while strengthening the rights of minority shareholders and punishing those responsible for violations of the law.
"We want to go through with it all the way," Finance Secretariat Insurance and Securities Chief José Antonio González Anaya told EFE.
But the idea is not to create a Mexican version of the SarbanesOxley Act of 2002, which was enacted in the United States in the wake of the financial scandals that brought down Enron, WorldCom and several other companies.
Officials did not even attempt to emulate the U.S. legislation, González said, because its implementation has proven "brutally expensive," especially for midsized firms, some of which have been forced to delist from stock exchanges while others have been dissuaded from listing.
"It's a different focus, legislating on the principles of corporate governance and not on procedures. That's inefficient," the official said.
Senate Debate
The government, in a proposal that the Senate began debating in committee this week, focused on crimes, listing nine specific offenses, and the determination of liability, and avoided laying out financial-reporting guidelines, which are at the heart of Sarbanes-Oxley.
The goal is to prevent a repeat of the scandals surrounding the banking industry bailout after the 1995 crisis sparked by the questionable transfer of liabilities to the government, and the current allegations of fraud leveled against TV Azteca.
Details about the alleged irregularities at TV Azteca became known after the U.S. Securities and Exchange Commission (SEC) filed a complaint against the Mexican media company.
On Jan. 4, the SEC filed civil fraud charges against TV Azteca, its parent company, Azteca Holdings, and three current and former TV Azteca officers and directors.
The nation's current securities laws are antiquated, dating back to 1974.
Structural Reform
Although a structural reform was carried out in 2001 that changed 60 percent of the text and improved corporate-governance regulations, officials now want to more clearly identify violations and liability to "improve transparency and judicial certainty," thereby leading to increased confidence and investment in the securities markets.
"In 2001, the castle walls were changed but not the foundations, now we want to go through with it all the way," González said.
The basic problem is that businesses are regulated under the outdated Mercantile Corporations Law of 1934, which in light of the current composition of Congress (with an opposition majority) will be extremely difficult to modify.
For that reason, González said, officials opted to take a shortcut by creating a middle structure between mercantile corporations and listed corporations: Investment Promotion Corporations, or SAPIs, in which only institutional and qualified investors can participate.
The objective is to increase the flow to the country of risk capital, of which Mexico only receives 0.10 percent of the world's total, some 80 percent of which goes to the United States and only 1 percent to Latin America.
The proposed legislation, however, emphasizes protection of minority shareholders and specifies crimes, including two new ones: fraudulent management and violation of the rules of a public tender offer by paying a premium to gain control.
In the case of minority shareholders, their rights would be protected by establishing that for SAPIs the holders of only 10 percent of shares would be needed to name a director and call a meeting of shareholders, 5 percent to take action against the board of directors and 20 percent to take legal action against a resolution passed at a shareholders meeting.
The percentages are much lower than those needed by minority shareholders in a regular corporation.
With regard to identifying and monitoring liability, all subsidiaries of a corporation would be covered, as well as the holding company, and responsibility for what happens at a company would rest with individual directors and not the entire board.
Under the proposed legislation, auditing standards would be tightened and the period in which the main securities regulatory body, the National Banking and Securities Commission, could impose administrative penalties would be extended from the current three years to five. |
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