Does the growth of audit and regulatory mechanisms in public

policy improve the accountability of public services? The

‘Oceanografía’ corruption scandal in Mexico.

Neither self-regulations nor instruments put in place will

ensure that service delivers contracted by government will

work correctly if there is not any sort of social control

managed by civil society that guarantee the transparency and

accountability of public resources. This is why the widening

of civil society participation is crucial to enhance the

policy instruments of transparency and accountability

The case of ‘Oceanografía’ corruption scandal in Mexico is

significant in explanatory terms since it shows how the lack

of accountability in institutions and controls for autonomous

organisms encourage corruption and influence’s traffic in

administration highest levels.

In order to elucidate the need of civil society participation

enlargement, this essay will present a current case of

corruption in Mexico. Throughout the essay it will be

remarked the policy failures in transparency due to the

political corruption, arguing that the inclusion of civil

society in the accountability process could have prevented or

stopped the corruption cycle.

The growth of audit and regulatory mechanisms in public

policy improves the accountability of public services just in

the cases when the state can guarantee the transparency of

information and the free access for public. This is why it is

necessary the growing participation of civil society in

accountability organisms (in every stage of government), in

order to prevent corruption.

Conclusion

It is necessary to have autonomous organisms to permit either

civil society or any citizen to have access to information of

how the government expend the public budget. In the

democratic governments where the participation of civil

society in politics is not still quite significant, the

access to governmental accountability information is a strong

way to empower citizens in front of political and economic

establishment, seeking in this way to guarantee the optimal

distribution of resources and to avoid frauds and corruption.

In a state with weak accountability systems and poor civil

society participation levels, the privatization and

contracting of public services (as the ‘oceanografía’ case

shows) does not increase the efficiency of delivered

services, instead incrementing the losses of public

resources, in detriment of other more capable private

enterprises, creating a “corruption cycle’. This occurs due

to a ‘public participation’ deficit in the accountability and

transparency governmental systems, fostered by main political

actors implicated, whom tries to block public access to

budgetary information.

The enterprise has been also related to fraud against Banamex (400million USD), Banorte, Mexican Social Security Institute (IMSS),

National Dwelling Found for Workers Institute (INFONAVIT), Tax Administration Service (SAT), PEMEX and Rabobank1

The participation of economic actors, as Banorte, which lent 40 million of dolars to oceanografía, makes one think that the collusion networks were even bigger than expected2

The risk of politization is inherent in those sort of cases where political actors are deep implicated to public service deliverers.

National Action Party’s (PAN, Partido Acción Nacional) president, Cecilia Romero demanded the authorities to clarifythe ‘Oceanografía’ case, in order to avoid impunity and not politizice the issue3. However, whereas PAN presidency made this declaration, the investigations indicated that the two PANist former Mexico’s presidents, Felipe Calderón Hinojosa and Vicente Fox Quesada, were involved in this corruption gate for influences peddling. National Action Party has denied these accusations, but at the same time, has stopped and conditioned its support to PRI energetic reform proposals, what have been interpreted by politics analysers, as Ackerman and Dresser, as an attempt to protect them of any possible judicial charge.

Even though the public function secretary has been investigating the issue there is yet nothing conclusive regarding the stakeholders and politicians involved in the corruption scandals.

1 http://www.informador.com.mx/economia/2014/518789/6/revelan-prestamo-bancario-de-40-mdd-a-oceanografia.htm2http://www.cnnexpansion.com/negocios/2014/03/19/banorte- presto-40-mdd-a-oceanografia 3 http://www.elfinanciero.com.mx/economia/aclarar-el-caso-oceanografia-combatira-impunidad.html

In order to prevent the ‘politization’ of government accountability, it is necessary to involve more the civil society in actions of controlling the pubic budget.

This case has put in doubt the so claimed advantages of energetic reform supporte by PRI and PAN which permits the entrance of foreign investment. Now, considering the politic personal corruption involved in the contracting process, the society critiques severely the interests behind the quicknessof reform’s approval in legislative bodies, demanding the inclusion of measures for public control.

Oceanografía is property of Amado Yañez Osuna.

The Secretary of Public Function analyses to present a penal denounce to the General Attorney against ‘Oceanografía’ for offenses for an alleged property damage, to the detriment of Pemex(Petróleos Mexicanos). This denounce is based on the irregularities discovered in several payments. Martín Díaz Álvarez, shareholder of ‘Oceanografía’ is also investigated for money laundering offenses. 4 To date, The General Attorney has impounded the gods of Oceanografía with a value of 400 million USD.5

According to the newspaper ‘El Universal’, Oceanografía had received public contracts for 45,986 million MXN during the administrations of Vicente Fox and Felipe Calderón. Among other important politicians implicated we found Jesús Reyes Heroles Gonzáles and Juan José Suárez Coppel, former PEMEX directors and Gustavo Madero, forme PAN President, whose picture on board of an ‘Oceanografía’ private airplane has been publicly published.6

4 http://noticieros.televisa.com/mexico/1402/investigan-accionista-oceanografia-lavado-dinero/5 6 http://www.informador.com.mx/mexico/2014/516315/6/politicos-senalados-por-fraude-de-oceanografia.htm

The former presidential candidate Andrés Manuel López Obrador publicly declared that the actual government will not take any judicial action against the major politicians implicate in the case, adding that the administration was forced to investigate the fraud due to the implications it had to Citigroup.

The General attorney had already released of responsibilities to Fox, Calderon and current president Peña Nieto.

The former leftist presidential candidate said that ‘corruption has todo with the PRI and the National Action Party, to put it more clearly,it is the corruption of PRIAN because companies like Oceanography operate with the support of PRI and PAN politicians, obtaining lucrative contracts because they acquire many utilities and at the endthey count with impunity.’7

According to Flor Unda Carbot, ‘the investigations show that the doubtious practices of ‘Oceanografía’ commenced more than one decade ago with warnings of the Ministry of Public Service, the Superior Audit of the Federation and the Chamber of Deputies itself, all flagrantly circumvented by Pemex. At the same time, the credit bureau must show the credit history of oceanography, with missed payments to Bancomext.’8

She insinuates that the Banamex governing board was also implicated with ‘Oceanografía’, since ‘For the amount of fraud, ‘Oceanografía’ must rank as a major credited to the bank's portfolio, its credit applications should follow the processes and be examined in internal committees and by the Board itself, nourished by analysis and recommendations on the appropriateness of the funding. On the facts, it seems obvious that for Oceanografía, these reports were omitted or manipulated’9

7 http://www.elfinanciero.com.mx/politica/fox-y-calderon-deben-decir-lo-que-saben-en-el-caso-oceanografia-amlo.html8 http://www.elfinanciero.com.mx/opinion/en-el-caso-oceanografia-y-donde-esta-el-consejo.html9 http://www.elfinanciero.com.mx/opinion/en-el-caso-oceanografia-y-donde-esta-el-consejo.html

In accordance to ‘Proceso’, Martín Díaz Álvarez and Gonzalo Gil Whiteshould be considered as main actors in the ‘Oceanografía’ corruption network, including the former treasure Secretaries Francisco Gil Díaz and Pedro Aspe, the son of former president Ernesto Zedillo and many shareholders involved with ‘Oceanografía’ competing companies10

Among the involved companies, there could be mentionedCaja Libertad Financial Group, Queretaro Gallos Blancos and Ciudad del Carmen Dolphins football clubs,Grupo Gasolinero México, Latin Financial Services, Latin America Money Services, MD Financial Services, Tequilera Bre, Golden Boy Enterprise, FSMD Spirits, AMDI AIR Services, FSMD Legacy Holding, Grupo Modelo, Grupo Herdez, Cemex, TMM, Bimbo, Intercam Casa de Bolsa; Panalpina Servicios; Corporativo Galsa, Jugomex, Televisa, Grupo Aknuk. All of them were suspect of influence peddling and bribe payments, which were received via a ‘civil’ organisation called Business Anti-smuggling Coalition, founded in 2010. Arguably, with the money of bribing, Global Axis, Oro Negro and México Navix were funded, which are now competing against ‘Oceanografía’

Oro Negro is planning to rent 10 jackup rigs. Nevertheless, the renting scheme is the same of ‘Oceanografía’: acting as intermediary and pay for therent of those jackup rigs to the Singapore’s enterprise Keppel Fels, funding by Temasek, which acquired 40% of Oro Negro stocks.As well as Oro Negro, Grupo Baz, other oil industry services company, has ties with oceanografía since its shareholders are also having stocks in Oceanografía. It is outstanding the case of 10

Martín Díaz Álvarez and Javier Rodríguez Borgio, who are accused of money laundering.11

PAN coordinator in Senate, Jorge Luis Preciado, announced that his party will not negotiate the secondary laws of energetic reform until the responsibilities for ‘Oceanografía’ scandal were clarified.

There are evidence, according to ‘El siglo de torreon’12 that three of the four PAN’s senators in theEnergy commission are implicated somehow in the corruption network, all having ties with Pemex and theMouriño family, of which comes the former passed away gobernation secretary Juan Camilo Mouriño. Moreover, the article (insert article’s title) mentions a complex network of corruption among those 3 senators with Pemex high bureaucrats.13

Following the reasoning of (write author’s name), the‘Oceanografía’ scandal represents ‘the way in which theconsortia are strengthened in the shade of neoliberal statefrom putting together a web of interests and collusion, allunder the sign of corruption’14. The corruption networkincludes operators of the company, politicians, high

11 http://diario.mx/Nacional/2014-03-16_faec2416/empresarios-y-politicos-en-la-marana-de-oceanografia/12 http://www.elsiglodetorreon.com.mx/noticia/973110.oceanografia-y-la-impunidad-panista.html

13 Lavalle Maury, Salvador Vega Casillas and García Cabeza de Vaca14 http://www.sdpnoticias.com/columnas/2014/03/15/a-fuego-lento-la-oceanografia-de-vicente-felipe-y-enrique

bureaucrats and businessmen of financial andentrepreneur elite.

Oceanografía is a shipowner company devoted to deliverservices to Pemex. Its fleet is composed by 38 ships andother 8 in construction process.15

Corruption in government has been an endemic problemin Mexican politics. The ‘Oceanografía’ scandal is notan isolated case, so that in the last days thecorruption scandals of subway line #12 and monexgatehave been occupying also the principal headlines inmain newspapers and been discussed by many politicsanalysers. The three cases have in common themanipulation of governmental agencies information andprocesses in order to hidden either influencepeddling, diversion of public resources or illegalfunding for political campaigns.

Other journalists assure that Oceanografía owners, AmadoYañez Correa and his son, Omar Yañez Osuna, managedadministrative mechanisms to obtain fraudulently publicresources of Bancomext and Pemex, based on fabricatedinvoices.16

The PAN coordinator in the Senate has also exposed that ‘The government seeks a hyperconcentration on energy issues. So we left thenegotiating table on energy, until the government ensures that constitutional reform maintains its spirit’17

15 http://www.sdpnoticias.com/columnas/2014/03/15/a-fuego-lento-la-oceanografia-de-vicente-felipe-y-enrique16 http://www.elsiglodetorreon.com.mx/noticia/972619.la-cloaca-de-oceanografia-2.html

Additionally to the debate on transparency, it could be usedthe Advocacy coalition framework method of analysis to studythe relation between political forces in Mexico regarding theenergy reform legislative process.

‘Oceanografìa’ scandal face PRI and PAN in Senate about thenew tenders and contracts scheme, in which PAN defends theidea to delegate the responsibility to the HydrocarbonsNational Comision, meanwhile PRI wants the Executive to bethe one which grant them.18

According to ‘Some of the contracts signed between Oceanografía and Pemex were based in the Gulf of Mexico, and included the installation of oil extraction structures and maintenance of equipment, which netted the company $380 million. Another key project was the installation and maintenance of an off-shore site in 2009, which grossed $173 million.’19

17 http://www.elfinanciero.com.mx/economia/pan-deja-negociacion-de-reforma-energetica-por-caso-de-oceanografia.html18 http://www.elfinanciero.com.mx/economia/pan-deja-negociacion-de-reforma-energetica-por-caso-de-oceanografia.html19 http://www.ibtimes.com/oceanografia-mexican-company-behind-citigroup-banamex-fraud-scandal-1559713

INSTITUTIONAL CORRUPTION

In his "� Short, Inglorious History "� of regulatory capture, Richard A. Posner defines it as the �"subversion"� of agencies by regulated firms,�"turning the agency into their vassal."� Posner maintains that capture differs from regulation intended by a legislative body to serve the private interests of firms, a distinction that I will argue would be dealt with more effectively if capture theory were to draw on IC theory, because ruling out legislative intent rules out the core contribution of Thompson and Lessig on ways in which industry captures or corrupts Congress and the legislative process. If capture theory confines itself to forms of subversion or control that occur only after a group of firms oran industry uses millions of dollars and hundreds of lobbyists to create an economy of influence that helps legislators to "�see"� things their way and set up regulations to enhance their wealth or power, then capture theory misses the main act of how a set of concentrated stakeholders frame regulation. Further, capture alone is value neutral —��� it may be good or bad from a given stakeholder'�s point of view. Corruption clearly indicates that something worthy or good has become "�tainted"� or "�morally debased,"� to use words in the dictionary, or made to no longer function properly, as when a file is corrupted.

Further on, Posner writes about George Stigler and economists'� view that regulation is something that an industry purchases. By "�purchases,"� they must mean through institutional practices that corrupt the democratic process, such as those described by Larry Lessig and by Mal Salter in hisbook on Enron. Once again, IC theory has a breadth and normative base that capture theory lacks, though this economic view implies that captureincludes the legislative framework as well. IC theory also applies to many institutions that are not involved in regulation. For these reasons,IC theory is more comprehensive and inclusive than capture theory. If IC research and analysis were to include the historically dynamic account ofcountervailing powers, it would address Posner'�s complaints that capture theory is rather static in its outlook. Posner concludes glumly that �"theterm �'regulatory capture'� should be retired."� Here we have reasons for why it should be subsumed and revitalized, rather than retired.

http://www.ethics.harvard.edu/lab/blog/309-institutional-corruption

Corruption risks are substantial and getting worse.  Mexico is ranked 100 out of 182 countries by the Transparency International’s Corruption Perceptions Index.  It has been moving down the list in thelast five years.

Corruption in Mexico exists in many areas of the government.  Local police and government officials, as well as managers and executives atstate-owned enterprises, all have a reputation for corrupt practices. When it comes to business activities and regulation, Mexico’s public hospitals, health and food safety inspectors have been identified in enforcement actions.  In recent enforcement actions, Mexican officialsin the customs, veterinary, public hospitals, and zoning areas have been identified as demanding and receiving bribes.

Basic public services are typically coupled with demands for payments.  Local police often block roads and require payments for transport vehicles to pass through the blockade.  Beyond the local level, corruption permeates other sectors of the economy, including customs regulation, motor vehicle and transportation, and basic business licenses and permits.

The oil and electricity industries are subject to even higher risks through bribery demands by state-owned enterprises – Petroleos Mexicanos and Comision Federal de Electricidad.  Both of these state-owned enterprises have been identified as involved in FCPA prosecutions of companies for foreign bribery.  The recent BizJet enforcement action involved bribery payments to the Mexican Federal Police and fleet officials associated with the Mexican President. 

Mexico prohibits bribery – under local and federal laws.  Mexico’s government and law enforcement officials have identified the level of corruption as a priority for reduction.  The OECD has recommended thatMexico initiate a larger number of criminal bribery prosecutions. 

http://corruptioncrimecompliance.com/2012/09/corruption-in-mexico/

In the meantime, the Mexican Congress is making progress toward the passage of a new anti-corruption law that would open the doors for the creation of an autonomous agency that would replace the current federal anti-corruption ministry(Secretaría de la Función Pública, SFP). The bill now passes to the chamber of deputies. The anti-corruption agency will also be replicated in each of the Mexican states and the Federal District, and will have similar autonomy there to address corruption on the state and municipal levels. Along with the recently passed transparency law, the creation of a special prosecutor for political corruption as part of the recent political reform, and limits placed on debts that state governments can amass, Mexican lawmakers hope that this bill will represent a substantial step forward in ensuring that official business is carried out with propriety and accountability.

http://justiceinmexico.org/2013/12/30/perceptions-of-corruption-in-mexico-remain-high-as-congress-debates-proposed-anti-corruption-law/

a) Democracy not modernization is the key to combat corruption

b) Corruption is rooted in the dynamics of state-society relations

c) The privatization of public functions creates new accountability challenges

According to (write authors name), from a structural approach, corruption is equal to the abuse of power plus impunity less citizen participation

Bribes vs. capture of the state /conflicts

of interest

Street-level bureaucrats vs. top officials

Individual incentives vs. pyramidal

structure of institutionalized

corruption

Synergy between economic and political

“liberalization”?

Privatization as transfer of rents from public to

private sector

Bailouts as distribution of private losses to

public hands

Increased concentration of wealth

Increased vote buying/electoral fraud

Economic liberalization=>Corruption &

electoral fraud?

1) Disappearance of SSPpoliticization of public security

under Secretary of the Interior

2) Disappearance of SFPpoliticization of civil service

and internal audits

3) Creation of a new “autonomous” agency

-Centralized and politicized appointments of

agency heads

-Limited powers and definition of “corruption”

-Political control by a National Integrity Council

4) New controls on “autonomous” transparency agency

(govt. appeals to supreme court)

http://www.ned.org/docs/Transparency-and-the-Struggle-for-Accountability-in-Mexico.pdf

Accountability has long been both a key theme and a key problem in

constitutional scholarship. The centrality of the accountability debates

in contemporary political and legal discourse is a product ofthe diffi-

culty of balancing the autonomy given to those exercising public power

with appropriate control. The traditional mechanisms of accountability

to Parliament and to the courts are problematic because in a complex

administrative state, characterized by widespread delegation of discre-

tion to actors locatedfar from the centre of government, the conception

of centralized responsibility upon which traditional accountability mech-

anisms are based is often fictional. The problems of accountability have

been made manifest by the transformations wrought on public adminis-

tration by the new public management (NPM) revolution which have

further fragmented the public sector. In this article it is argued that if

public lawyers are to be reconciled to these changes then it will be

through recognizing the potential for additional or extended mecha-

nisms of accountability in supplementing or displacing traditional

accountability functions. The article identifies and developstwo such

extended accountability models: interdependence and redundancy.

The central problem of accountability arises from the delegation of author-

ity to a wide range of public and some private actors, through legislation,

contracts or other mechanisms. Debates over accountability have to grap-

ple with the uncomfortable dilemma of how to give sufficient autonomy to

these actors for them to be able to achieve their tasks, while at the same

time ensuring an adequate degree of control.' Trust in mechanisms of

accountability is thus a central precondition for the legitimate delegation of

authority. In light of this analysis the distinction sometimes drawn between

accountability and control - control implying ex ante involvement in a

decision, while accountability is restricted to ex post oversight2 - is not par-

ticularly helpful. This distinction, often found in public law accounts,3

appears to neglect the observation that there is implicit in the capacity to

call to account some element of control capacity.4 It seems better to see

control and accountability as linked concepts,5 operating on a continuum.

If we were to redraw the distinction it might be in terms that managerial

control refers to the right to ex ante involvement in decision making, while

accountability-based control refers to ex post oversight

Accountability is the duty to give account for one's actions to some other per-

son or body. Normanton once offered a somewhat more expansivedefinition:

a liability to reveal, to explain, and to justify what one does; how one discharges

responsibilities, financial or other, whose several origins may be political, constitutional,

hierarchical or contractual."

The concept of accountability has traditionally been drawn somewhat

narrowly by public lawyers, to encompass the formal duties ofpublic

bodies to account for their actions to ministers, Parliament,and to courts.

Changes in accountability structures since the Second World War have

resulted in a recognition of some extended forms of accountability, as courts have been supplemented by a growing number of tribunals (for

example, in the immigration and social security domains) and new or

revamped administrative agencies such as grievance-handlers and public

audit institutions have played a greater role in calling public bodies to

account.12 Simultaneously Parliament has enhanced its capacity for holding

ministers and officials to account through the development ofselect com-

mittee structures,13 in some cases linked to new oversight bodies such as the

Parliamentary ombudsman and the National Audit Office.'4

It is helpful to keep distinct the three sets of accountability questions:

'who is accountable?'; 'to whom?'; and 'for what?'. With the 'who is

accountable?' question, the courts have been willing to review all decisions

involving the exercise of public power, even where exercised by bodies in

private ownership.15 In the utilities sectors the exercise ofpublic privileges,

such as monopoly rights, by private companies carry with themresponsi-

bilities to account for their activities, both in domestic fora and EC law.

In some instances, the receipt of public funds by private bodies renders

recipients liable to public accountability through audit mechanisms.16

Considerable attention has been paid to this issue in the literature, with a

consensus for the view that simple distinctions between private actors (not

publicly accountable) and public actors (subject to full public accounta-

bility) are thus not sustainable.17

http://www.jstor.org/stable/pdfplus/1410728.pdf?&acceptTC=true&jpdConfirm=true

http://www.tandfonline.com/doi/pdf/10.1111/1467-9302.00117

http://www.sdpnoticias.com/columnas/2014/03/15/a-fuego-lento-la-oceanografia-de-vicente-felipe-y-enrique

Conclusion

The ACF presents a novel discussion of at least four key aspects of the policy process. First, it goes beyond the irontriangle image of policy sub-systems in which a small number of groups and government actors control the process by excluding most participants. It identifies a wider variety ofplayers, including journalists and academics (to highlight their long term ‘enlightenment function’ and the importance of technical information or knowledge) and actors across various levels of government (to reflect the need to study policy change during a full policy cycle). In this sense, thefocus is less on competition and exclusion within insulated policy communities towards competition between different coalitions sharing different beliefs within a wider sub-system. Second, it pursues a distinctive approach to the policy cycle and implementation. It rejects the analytical distinctions between stages in the policy cycle and seeks to go beyond the implementation literature that became bogged down in an intractable debate between ‘top-down’ and ‘bottom-up’ approaches. Instead, it focuses on policy change ‘over a decade or more’ within sub-systems that include actors involved at all stages. Third, it builds on models that identify the importance of ‘external’ or ‘structural’ factors, such as socio-economics pressure, by exploring how they affect the beliefs and strategies of members of advocacycoalitions. For example, the values of the population are framed and exploited better by some coalitions than others, while the nature of the constitution and the basic rules of political systems provide opportunities for coalitions to protect existing policy positions or seek audiences sympathetic to change. Further, while external ‘shocks’ provide the impetus for major policy changes within sub-systems, they do not do so inevitably. Rather, tis also requires a major rethink by a dominant coalition suffering a crisis of confidence, or the skilful manipulation of the

situation by a minority coalition. Last, but not least, it outlines the importance of technical information (Weible et al., 2009: 122). Much of the ACF’s value comes from its ability to theorize convincingly the relationship betwwen power and he ideas

p. 218, Paul Cairney