INFORMATION NOTE [1]

 

1. Executive Summary

 

Last Friday, August 9^th, the decree (“Decree”) by which the new National Law of Extinction of Ownership (the “Law”) was issued, was published in the evening edition of the Official Gazette of the Federation (“DOF”).[2] The extinction of ownership is the loss of the rights that a person has, in favor of the State, regarding a good when it has been an instrument, object or product of illicit acts (organized crime, kidnapping, crimes related to hydrocarbons and oil, crimes against health, human trafficking, corruption, among others) and once the ownership extinction procedure established in the Law itself is carried out.

 

The Law has caused controversy in recent weeks as it establishes among its most relevant points: (i) a civil procedure but with the intervention of the Public Prosecutor (“MP” by its Spanish initials); (ii) the future creation of ownership extinction courts; (iii) the seize of assets as a precautionary measure; and, (iv) the anticipated sale of assets subject to the ownership termination procedure, even though the owner has not been convicted.

 

1. Description of the Law.[3]

 

The Law is formed by 251 articles and grouped into 8 titles. In addition, various provisions of federal laws are amended and added within the Decree.[4]

 

1. Preliminary Provisions.[5]
2. The Law is regulatory of article 22 of the CPEUM, in the matter of extinction of ownership [6] in its civil aspect (emphasis added) [7]. The provisions are of public order and social interest and regulates the extinction of ownership, the corresponding procedure and the mechanisms and criteria applicable to the authorities regarding the Assets[8].In accordance with article 22 of the CPEUM, the acts subject to the extinction of ownership are the ones contemplated in the following laws (see details of the articles and chapters applicable in the footnotes): 
   • Federal Law Against Organized Crime (“LFCDO”).[9]
   • General Law to Prevent and Sanction Crimes related to Abduction, Regulatory Section XXI of Article 73 of the CPEUM.[10]
   • Federal Law to Prevent and Punish Crimes Committed with respect to Hydrocarbons.[11]
   • General Health Law.[12]
   • General Law to Prevent, Punish and Eradicate Crimes of Human trafficking and for the Protection and Assistance to Victims of these Crimes.[13]
   • Federal Criminal Code, regarding the crimes of: (i) human trafficking; (ii) corruption; (iii) cover-up; (iv) those committed by public servants; (v) theft of vehicles; (vi) resources of illicit origin; and, (vii) extortion. [14]

 

The extinction of ownership consists of “the loss of the rights that a person has in relation to the Assets (…), declared by judgment of the judicial authority, without consideration, or compensation for their owner or for those who hold or behave as such, nor for those who, under any circumstances, own or hold the aforementioned Assets”.[15]

 

1. About Process before the Judicial Authority.

 

The action of extinction of ownership proceeds on the Assets whose Legitimate Provenance cannot be proved, particularly concerning those that are an instrument, object or product of illegal acts, without prejudice to the place of its realization.[16] Said action is exercised by the MP “through a judicial process of a civil nature, of a patrimonial nature and with a prevalence of orality, through a special process and will proceed over the Assets (…) regardless of who has it in their possession or has acquired”.[17]

 

The elements are as follows [18]: (i) The existence of an Illicit Act; (ii) The existence of any good of illicit origin or destination; (iii) The casual link of the two previous elements; and, (iv) The knowledge that the owner has or should have had, of the destiny of the Good to the Illicit Act, or that it is the product of the illicit. [19]

 

The process of extinction of ownership is autonomous, distinct and independent of that or those of criminal matters and shall be exercised even if the criminal responsibility has not been determined in the cases of the crimes described above, as long as there are solid and reasonable grounds to infer the existence of Assets (emphasis added). The MP may abandon the ownership extinction action at any time.[20]

 

The extinction of ownership action is: (i) imprescriptible, in the case of Assets that are of illicit origin (emphasis added); or (ii) in the case of Assets of illicit destination, the action shall prescribe in twenty years. The legal capacities of the MP to demand ownership extinction expire within ten years. The foregoing, subject to the particularities for this purpose indicated in the Law.

 

The competent authority to know about the procedures for extinction of ownership shall be the holder of the court competent in matters of extinction of ownership, whether federal or local, in accordance with the rules set forth in the Law (emphasis added). [21]

In the Third, Fourth, Fifth, Sixth, Seventh and Eighth Chapters of the Second Title of the Law, the provisions applicable to the litigation, to the general formalities of the process, to the time and place in which the judicial acts are to be carried out, are detailed, formalities in hearings, notifications, evidence, allegations, judicial decisions, means of challenge and legal expenses and costs, respectively.

 

1. About Special Ownership Extinction Process (the “Process”).

 

There are two stages that conforms the Process: (i) the preparatory stage, which is in charge of the MP for the investigation and accreditation of the elements of the action; and, (ii) the judicial stage, which includes the stages of admission, notification, answer to the complaint, initial hearing, main hearing, appeals and execution of the sentence. The detail of the Process is regulated under articles 172 to 221, specifying what is applicable to precautionary measures, the preparation of the ownership extinction action and the procedural phases.

 

 

The Process shall expire when no procedural act or promotion has been carried out for a term greater than one year; nevertheless, with the expiration of the instance neither the actions nor the exceptions of the parties are extinguished, so they could initiate another trial.[22] The foregoing, in accordance with the provisions established in this regard in article 222 of the Law.

 

1. About Transfer, Administration and Destination of Assets.

 

The Assets shall be transferred to the Institute for the Administration of Property and Assets (“IABA” for its initials in Spanish) and the competent authorities of the corresponding Federal Entities (the “Administrative Authority”).[23]

 

Regarding the Assets, the Administrative Authority may proceed to the Advanced Elimination[24]; Advanced Sale [25]; give them in use, deposit or bailment; alienate them; destroy them “The disposal procedures shall be of public order and shall have the purpose of disposing in an economic, effective, impartial and transparent way the Assets that are transferred, ensuring the best conditions in the disposal of the Assets (…)” [26]. The value of realization of the Assets shall be destined (once covered the administrative expenses): (i) to the payment of the repair of the damage caused to the victims; (ii) in the case of resources that have become part of the patrimony of the Federation, to the payment of the expenses derived from the execution of social programs; and (iii) in the case of the Federative Entities, they must use them for the purposes indicated above, as determined by their legislation.[27] The foregoing, in accordance with the terms and conditions established for that purpose in the Law.

 

1. About Units.

 

To achieve greater efficiency in the Processes, the prosecutors shall have specialized units in the matter, which, in turn, shall have MP agents who shall investigate, exercise the ownership extinction action and intervene in the Process, with the capacities for this purpose established in the Law.

 

On October 1, 2019, the Office of the Attorney General of the Republic published in the DOF the Agreement A/016/19, which establishes the organization and operation of the Specialized Unit for Ownership Extinction.[28]

 

1. From the National Ownership Extinction Record (the “ED Registry”).

 

The ED Registry is created, administered by the Technical Secretariat of the National Justice Procuration Conference[29], in which the prosecutors shall record the ownership extinction claims and the sentences, as well as the Assets these comprise, where the Assets can be consulted, the judgments and their compliance.[30]

 

1. Of the International Cooperation.

 

With regard to civil or non-criminal forfeiture, the Law regulates articles 12 of the United Nations Convention against Transnational Organized Crime in the Mexican State [31]; 31 of the United Nations Convention Against Corruption [32]; and 5 of the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances[33].

The Title Eighth, Single Chapter indicates the rules applicable to assets that are abroad, precautionary measures and enforcement of judgments, in terms of international treaties and instruments to which Mexico is a party or by international reciprocity.

 

1. Legal Procedures Around the Law.

 

1. Unconstitutionality action promoted by the National Human Rights Commission (“CNDH”) and admitted for processing by the Supreme Court of Justice of the Nation (“SCJN”).

 

On September 12, 2019, the CNDH challenged the Law on several points through an unconstitutionality action [34], including: (i) the Advance Sale of Good (to be carried out before there is a judgment on the alleged crimes committed); (ii) the retroactivity of the Law; (iii) that the extinction action never prescribes, even though it is a civil law figure and that the non-prescription only applies to serious crimes against humanity; and, (iv) that several crimes that were included, for which the ownership can be extinguished with the fact that a criminal investigation is undergoing, are not provided for in the CPEUM. [35]

 

The SCJN admitted the action of unconstitutionality, so the case shall be referred to one of the ministers for analysis and resolution.

 

1. Amparo

 

According to the newspaper Reforma last Friday, September 27, companies, citizens and civil organizations have filed more than three hundred claims for protection (amparo) against the Law. [36]

[1] We express no opinion regarding laws other than the federal laws of the United Mexican States (“Mexico”). This informative note should not be distributed, cited or referred by any person, without the prior written consent of Mier Esparza Abogados, S.C.

[2] Published in the Official Gazette of the Federation on August 9^th, 2019, available at http://www.diputados.gob.mx/LeyesBiblio/votos/20181218_art22_73/04_dof_14mar19.pdf. The Law entered into force on August 10^th, 2019 and the Federal Law of Extinction of Ownership, Regulatory of Article 22 of the Political Constitution of the United Mexican States (“CPEUM”), as well as the laws on the extinction of ownership of the Federal Entities, repealing all legal, regulatory and administrative provisions opposed to the provisions of the Decree.

[3] The initial capitalized terms that are not defined in this document shall have the meaning attributed to them in the Law.

[4] Specifically, the National Code of Criminal Procedures, the Federal Law for the Administration and Disposal of Public Sector Assets, the Law on Commercial Tenders and the Organic Law on Federal Public Administration.

[5] Articles 1 to 6 of the Law.

1. [6] It should be noted that article 22 of the CPEUM was amended together with section XXX of article 73 of the same order, by decree published on March 14, 2019 in the DOF. Available at: http://www.diputados.gob.mx/LeyesBiblio/votos/20181218_art22_73/04_dof_14mar19.pdf[7] In numeral II. h) of this Note we refer to the international regulations related to the Law.[8] “Assets” are all “the things identified as such in the Federal Civil Code and in the civil codes of the corresponding Federal Entities, which are in commerce, that are in the cases indicated in Article 7 of this Law ” Article 7 of the Law states in general terms that “[l] the action of extinction of ownership shall proceed over those Assets of a patrimonial nature whose Legitimate Provenance cannot be accredited, in particular, Assets that are instrument, object or product of the illegal acts, subject to the place of its realization, (…) [including those] that correspond to the ejido or communal property regime”. On the other hand, the Law defines the Legitimate Provenance as “the origin or lawful obtaining of the Assets, or the lawful use or destination of the Assets linked to the Illicit Act”, which must be understood as “those referred to in the fourth paragraph of article 22 of the Constitution and are specified in article 1 of this Law”. – Article 2, sections II, XII and XIV and article 7 of the Law.[9] Those referred to in Title One, General Provisions, Single Chapter, Nature, Object and Application of the LFCDO in its article 2. Available at: http://www.diputados.gob.mx/LeyesBiblio/ref/lfcdo.htm

   [10] Those contemplated in Chapter II, Of Kidnaping Crimes. Available at: http://www.diputados.gob.mx/LeyesBiblio/ref/lgpsdms.htm

   [11] Those contemplated in Title Two, Of Crimes Committed in the Matter of Hydrocarbons, Petroleum or Petrochemicals and other Assets. Available at: http://www.diputados.gob.mx/LeyesBiblio/ref/lfpsdmh.htm

   [12] Those contemplated in Title Eighteenth, Security Measures, Sanctions and Crimes, Chapter VII. Available at: http://www.diputados.gob.mx/LeyesBiblio/ref/lgs.htm

   [13] Those referred to in Title Two, of Crimes in Human trafficking, Chapters I, II and III. Available at: http://www.diputados.gob.mx/LeyesBiblio/ref/lgpsedmtp.htm

   [14] Those referred to in: (i) article 205 Bis; (ii) Title Tenth, Crimes for acts of corruption, Chapter I; (iii) article 400; (iv) Title Tenth, Crimes for acts of corruption, Chapter II, Illicit exercise of public service and the Title Eleventh, Crimes committed against the administration of justice; (v) article 376 bis; (vi) articles 400 Bis and 400 Bis 1; and (vii) article 390 and its equivalents in the penal codes or special laws of the Federal Entities. Available at: http://www.diputados.gob.mx/LeyesBiblio/ref/cpf.htm

[15] Article 3 of the Law.

[16] Article 7 of the Law.

[17] Article 8 of the Law.

[18] Article 9

[19] The fourth element shall not be considered complete when it is proved that the holder was prevented from knowing it.

[20] Articles 8, 10 and 14 of the Law.

[21] Second Chapter of the Law.

[22] Article 222 of the Law.

[23] Although it was originally proposed that the previous Service of Administration and Disposal of Assets be renamed the “Chucho el Roto” Institute, the banks agreed to call it the IABA. Available at: https://www.eluniversal.com.mx/nacion/politica/senado-aprueba-extincion-de-dominio-desechan-nombre-de-instituto-chucho-el-roto

[24] The “Advance Disposal” consists of the assignment of the Assets during the process of termination of ownership prior to the issuance of the final resolution for its use, usufruct, assignment or use, for social programs or priority public policies, as indicated in section VI of article 2 of the Law.

[25] The “Advance Sale” consists of the alienation of Assets prior to the issuance of the final ruling on the termination of ownership, as indicated in section XXI of Article 2 of the Law.

[26] Article 230 of the Law.

[27] Article 234 of the Law.

[28] Available at: https://www.dof.gob.mx/nota_detalle.php?codigo=5573945&fecha=01/10/2019

[29] Collegiate body, member of the National Public Security System; responsible for generating and following up on the strategies, actions and policies necessary for the fight against crime, crime investigation and legal certainty. Available at: http://www.cnpj.gob.mx/paginas/cnpj.aspx

[30] Article 243 of the Law.

[31] Available at: https://www.unodc.org/documents/treaties/UNTOC/Publications/TOC%20Convention/TOCebook-s.pdf

[32] Available at: https://www.unodc.org/documents/mexicoandcentralamerica/publications/Corrupcion/Convencion_de_las_NU_contra_la_Corrupcion.pdf

[33] Available at: https://www.unodc.org/pdf/convention_1988_es.pdf

[34] Available at: https://www.cndh.org.mx/sites/all/doc/Acciones/Acc_Inc_2015_3.pdf

[35] El Sol de la Laguna. Available at: https://www.noticiasdelsoldelalaguna.com.mx/mexico/politica/necesaria-impugnacion-de-la-cndh-sobre-ley-de-extincion-de-dominio-4214458.html

[36] El Heraldo de México. Available at: https://heraldodemexico.com.mx/pais/nueva-ley-de-extincion-de-dominio-ochoa-reza-llamado-corregir-abusos-scjn/