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Mexico City Streets
10 October 20235 minute read

SEGALMEX: the most significant corruption scheme facing Mexico’s federal government

SEGALMEX, also known as Seguridad Alimentaria Mexicana, is a government agency in Mexico that focuses on ensuring food security and improving the welfare of small-scale farmers. It was formed by merging two agencies, DICONSA and LICONSA, in early 2019. 

SEGALMEX will continue to occupy the public agenda in Mexico in the next administration and could even draw the interest of the US DOJ due to implications of the Foreign Corrupt Practices Act.

One of SEGALMEX's main objectives is to ensure fair prices and provide market access for agricultural products produced by small-scale farmers. It does this through various programs, including creating strategic reserves of staple crops, establishing price stabilization mechanisms, and promoting direct sales channels to eliminate intermediaries and increase farmers' profits. SEGALMEX also works to improve the nutritional status of marginalized communities by distributing affordable and fortified food products through its "La Canasta Básica" Program, which aims to ensure that low-income families can access essential food items at subsidized prices. Another important initiative led by SEGALMEX is the promotion of agroecology and sustainable farming practices. The agency encourages small-scale farmers to adopt environmentally friendly techniques, prioritizing soil health, biodiversity conservation, and water and energy efficiency.

The allegations

Former functionaries of SEGALMEX are alleged to have embezzled public funds through rigged bids and direct awards to several companies, which were colluded. Between 2021 and 2022, around 69 complaints were filed with the Fiscalía General de la República (FGR, Mexico’s Prosecutor General’s Office, the equivalent of the US Department of Justice) for acts of corruption and diversion of between MXN9.500 and 15 billion (USD560 - 850 million) involving 87 people, 41 of them former public servants and 46 linked to companies. [1]

According to public information, SEGALMEX awarded hundreds of millions of pesos in no-bid contracts and granted MXN797 million to a network of front companies that failed to deliver tools such as pesticides, sacks, and tarps that were intended to protect and store such agricultural products as corn and beans.

The investigation

The federal government is currently investigating through the Controllership Secretariat (Secretaría de la Función Pública) to determine the administrative liability of the public functionaries and private persons involved.

Parallel to the administrative investigation, the FGR is determining and investigating the persons who would be criminally liable for the corruption scheme. To this date, two former high functionaries have been charged and are awaiting a criminal process; one is in prison, awaiting trial, and the other is on the run.

The investigation continues, and it is foreseeable that new revelations will emerge involving private companies and public officials, who may face sanctions.

The implications

These allegations of fraud and the subsequent investigations have tested the existing legal framework in Mexico for the fight against corruption, as well as the will of the present federal administration, where the evident lack of coordination between agencies, as established by law, and the lack of political will to promote the investigation, have greatly delayed the proceedings. In this sense, as I have argued before, it is not that there is a lack of a correct legal framework in Mexico for the effective fight against acts of corruption. The problem is the excessive centralization of the functions for combating corruption in the federal executive power. The consequent lack of political will to promote an adequate fight against corruption systematically affects the outcome of investigations.

Another agency involved in the fight against corruption is the Superior Audit Office of the Federation (Auditoría Superior de la Federación), an agency dependent on the legislative power, whose purpose is to review the public account and make observations regarding the correct use of public resources.  It even has the power to impose sanctions on individuals. The Superior Audit of the Federation already issued an opinion earlier this year, pointing out various irregularities in the operation of SEGALMEX. The impact of the statement of the Superior Audit Office of the Federation on the investigation being carried out by the Ministry of Public Function or the Office of the Attorney General of the Republic in the investigation, as well as the criminal trials that are being carried out against public officials, is not known at the moment.

In conclusion, the case of SEGALMEX will undoubtedly continue to occupy an essential place in the public agenda in Mexico in the next administration. Its ramifications mean it will certainly trigger parallel investigations and could even interest the US Department of Justice as a result of potential violations by US companies of the US Foreign Corrupt Practices Act.

Going forward

In short, the SEGALMEX case may well be Mexico’s Car Wash Operation (Operação Lava Jato) due to its size and the array of implications it has for the federal public administration. Companies that may have been or are planning to be involved in SEGALMEX tenders should consider carrying out internal investigations and a review of their compliance functions to avoid the exposures that this case could have and thus avoid potential sanctions.

Find out more about the implications of the SEGALMEX case for your business by Contacting the author.

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