Insights & Reports > Kroll Global Fraud Report

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Sergio E. Díaz

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Mexico has received substantial foreign investment in recent years. It is an attractive market with a well-developed infrastructure, liberal regulatory regime, and political commitment to improve the business climate. Although investment flows continue, several deep-rooted problems impede the country’s ability to sustain high growth rates and foster economic and social development. High levels of government corruption stand out among these.

The Mexican government has therefore developed initiatives and policies to reduce corruption. Despite some success, scandals involving government officials at all levels – federal, state, and local – continue to arise, casting a shadow over anti-corruption efforts and fueling skepticism among Mexican citizens and companies doing business in the country. In particular, as several surveys have indicated, any official investigation of government corruption, whatever the outcome, provokes suspicion and distrust. The public tends to believe that these merely cover up complicity and protect special interests.

Independence and impartiality are key elements in the fight against corruption. Where the government is not trusted, these services can be provided by a legitimate third party. One state government in Mexico, considered among the country’s most corruption-plagued, understood this. It asked Kroll to:

• Conduct a thorough review of the procedures, mechanisms, and systems in place to award public work contracts to private companies;
• Monitor the tender processes related to the acquisition of telecommunication equipment and construction supplies and materials, and associated relationships with suppliers and subcontractors; and
• Review the processes and methodologies in place to initiate and carry out internal investigations of alleged corruption by state officials.

Kroll’s extensive review included collecting and analyzing masses of official papers, as well as interviewing all relevant parties – government officials, subcontractors, suppliers, journalists, official investigators, and citizens and companies who used public services. As a result, we made several preliminary observations and recommendations which the state government adopted right away. For example, we helped design a new system which: improved the transparency of information via resource flows, assessments, targeting criteria and recipient lists; strengthened downward accountability, enabling mid-and low-level officials to prevent and detect corruption; and deepened the scope of audits beyond the “paper trail” to include forensic objectives and practices.

Over time, the client has asked Kroll to extend its efforts to include following up implementation of our recommendations and helping to define and build mechanisms to make the results transparent. Our experience with corruption cases around the world has also let us assist the state government’s internal investigators. For example, we suggested the acquisition of specialized databases and the implementation of new methodologies that improved how these officials went about their work. As a result, the client is now better and quicker at identifying and documenting irregularities – either for legal action or to make decisions to terminate relationships with those parties involved.

Kroll has been working with this state government for three years. Indicators from both internal and external sources show a significant, steady improvement. In 2006, when we started, the state saw 17,436 cases in which public servants were accused of corruption. In 2007, the figure was 13,998, and last year 11,872. Moreover, a significant improvement has occurred in public perceptions. According to an annual survey by a local newspaper, 66 percent of residents considered the level of state government corruption high in 2006. The number fell to 61 percent in 2007 and just 53 percent in 2008.

Of course, as these figures show, corruption has not disappeared but progress has been substantial. A decisive victory will require ongoing vigorous effort.

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Sergio E. Díaz is managing director and head of Business Intelligence & Investigations at Kroll in Mexico. Prior to this he conducted market research with public opinion firms and worked at the Mexican Treasury Secretariat.

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