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Mexico's Voters Have Bigger Problems Than Trump

They have plenty of homegrown reasons to throw the bums out, beginning with impunity over corruption.

The man to beat?

Photographer: Scott Olson/Getty Images

To hear some U.S. politicians tell it, President Donald Trump's threats to withdraw from Nafta, build a wall, and kick out the Dreamers may cast a decisive shadow over Mexico's upcoming presidential election. Yet if Mexicans do vote for change, it will more likely be because they are fed up by homegrown woes, beginning with the blatant impunity that has fueled criminal violence and rampant corruption.

While Mexico's surging homicide rate understandably draws top media billing, widespread corporate malfeasance has cut investment, innovation and growth. Even as the administration of President Enrique Pena Nieto has championed structural reforms, it has undermined their benefits by affirming the status quo enshrined in the common saying, "el que no transa no avanza" -- he who doesn't cheat doesn't get ahead.

QuickTake Mexico

In this particular area, the U.S. has actually been a force for good. Unlike their mostly quiescent Mexican counterparts, the U.S. Department of Justice and Securities and Exchange Commission have launched high-profile prosecutions of insider trading, bribery, market manipulation and outright fraud.

The most recent example of the U.S. stepping up, and Mexican justice stepping away, involves the real estate company Desarrolladora Homex SAB. Once touted as Mexico's largest, fastest-growing homebuilder, it promised to help solve a huge housing deficit by bringing affordable homes to a growing middle class -- and a tidy return to local and international investors. The pitch enticed Pimco, Bank of America, Equity International, the World Bank and other blue-chip investors to fund more than $1 billion in bonds and credit lines.

A March 2017 SEC filing lays out the $3 billion fraud it all was. Gerardo de Nicolas -- whose brother was Pena Nieto’s college house mate -- worked with a small internal team to cook the books, claiming to build and sell more than 100,000 phantom houses. Those that were built were often shoddy and uninhabitable, even as their purchase indebted thousands of poor and working-class families. To cover their tracks, Homex's leaders borrowed billions from local banks under false pretenses.

Despite the thorough case built in the U.S., including satellite photos of empty lots where the company claimed it had constructed thousands of houses, the Mexican legal system has so far done little, fining the company just over $1 million. And instead of bringing criminal charges against Homex's leadership, it threw the most prominent whistleblower in jail.

This follows the New York Times's Pulitzer prize-winning investigation of Wal-Mart's systematic bribery of dozens of Mexican state and local officials to speed permits, change zoning laws, and erase legal obstacles as it built new stores across the country. The U.S. Department of Justice is finalizing a settlement that will reportedly force a guilty plea in Mexico and a $300 million dollar fine from headquarters. Mexican courts have largely remained silent.

The SEC also went after Mexico's third wealthiest man, Ricardo Salinas, for fraud and insider trading. He later settled for more than $7 million dollars. Mexico's Securities and Exchange Commission in the end did follow suit, sort of: It fined the billionaire 300,000 pesos -- roughly $28,000 -- a paltry penalty later annulled by Mexican courts.

And even as the U.S. worked with Brazil and Switzerland to win a $2.6 billion verdict against Brazilian construction behemoth Odebrecht SA for kickbacks and bribery, Mexico's legal authorities share with their Venezuelan counterparts the regional distinction of sitting on their hands. In fact, Mexico sacked the prosecutor probing the issue.

Mexican civil society, businesses, and average citizens have pushed back against this official apathy. They reject their president's assessment that corruption is cultural and have focused their ire and energy on strengthening Mexico's pliant institutions. A 2016 campaign collected more than 600,000 signatures to force politicians to disclose their tax returns, assets and conflicts of interest. Societal pressure led to the creation of a new National Anti-Corruption System, making many forms of undue influence an explicit crime and creating better tools and more independent prosecutors to go after perpetrators. And some have followed the evidence, painstakingly helping to build cases for possible prosecution.

Yet the government has also slowed and weakened these laudable initiatives. Nearly half of Mexico's states have yet to pass the legislation needed to set up local anti-corruption systems. The federal government has yet to appoint a lead anti-corruption prosecutor (its first choice seen as too chummy with the president), an attorney general, a senior auditor and numerous judges. And it has eviscerated civil society's oversight role in the new system by denying nearly every request by the citizen commission to delve into potential corruption cases.

Outsourcing corporate justice to the U.S. is no solution. Although Mexican civil society has welcomed U.S. prosecutions -- which the country's officialdom has greeted through gritted teeth -- U.S. institutions will never have the reach, nor make it their priority, to systematically change the underlying rules of the game next door. Instead, as an untold number of cases go uncontested, impunity will remain the status quo.

Sadly, so far the three main presidential contenders -- Andres Manuel Lopez Obrador, Jose Antonio Meade and Ricardo Anaya -- have laid out more platitudes than programs for how to deal with this fundamental challenge. For all the strides Mexico has made in opening up its economy and reforming its labor, anti-trust, finance, telecommunications, education and energy laws, faster and more inclusive economic growth will remain out of reach until the nation can enforce basic legal rules. You can't blame that on Donald Trump.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Shannon O'Neil at soneil@cfr.org

    To contact the editor responsible for this story:
    James Gibney at jgibney5@bloomberg.net

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