The COVID-19 pandemic has already affected millions of people. (As of the time this piece was initially drafted, around 2 million people had been infected; the exponential spread of the virus means that by the time this piece is published, that number is likely to be much higher.) And while Mexico has not yet been as severely impacted as other countries, official statistics (which likely understate the true prevalence) already report thousands of infections and hundreds of deaths. To confront this problem, Mexico, like other countries, will need to marshal its resources effectively. Unfortunately, though, Mexico’s ability to manage the COVID-19 epidemic is threatened by Mexico’s epidemic of embezzlement in the health sector, much of it facilitated by anonymous shell companies. This widespread corruption drains away vital public resources needed to combat public health emergencies like the COVID-19 pandemic.
In March 2020, two civil society organizations (Justicia Justa (Just Justice) and Impunidad Cero (Zero Impunity)), documented the extent of the problem in a research report entitled Fake Invoices: The Health Sector Epidemic. The research found that between 2014 and 2019, 837 shell companies issued 22,933 fake invoices to 90 health institutions across the country (in 30 of Mexico’s 32 states, as well as the federal government), ultimately embezzling a total of over 4 billion pesos (roughly $176 million US dollars) from the health sector—an amount that could have paid for around 80,000 hospital beds or between 3,400 and 6,900 ventilators. (To put this in context, Mexico currently has 5,000 ventilators in the whole country, and the government is looking to acquire 5,000 more.) And the problem is only getting bigger: According to Mexico’s Tax Administration authority (the SAT), the number of anonymous shell companies in the country has increased from 111 in 2014 to over 9,000 in 2020.
To crack down on the abuse of shell companies to embezzle public funds from the health sector (as well as other sectors), the authors of the Fake Invoices report propose three responses:
- First, the SAT already publishes a monthly list of companies confirmed to be nonexistent and with no capacity to deliver what they offer, yet some shell companies continue to collect public resources from health institutions because their contracts are still valid, even though the SAT has declared these companies nonexistent. Health institutions should immediately cancel contracts with entities the SAT has declared nonexistent, and should refuse to enter into new contracts before verifying that their contractual partners are not on that list.
- Second, the people who operate these embezzlement schemes—the beneficial owners of these shell companies as well as the corrupt public servants and anyone else who was complicit—must be identified and sanctioned. Effective accountability will entail, among other things, greater supervision and stricter sanctions. Closer scrutiny of contracting practices, such as direct awards or closed invitations (as opposed to open, competitive bidding), is also important.
- Third, greater attention must be paid to other actors, such as the public notaries that facilitate the creation of anonymous shell companies, as well as the banks in which these companies have their accounts. The notaries should be held accountable when they are complicit in the creation of anonymous shell companies that defraud government agencies. And banks should be required to report to the authorities when the bank accounts of companies that have been officially declared as nonexistent are still receiving money from government institutions.
The use of shell companies to embezzle public funds in the health sector is a big and worrying problem for Mexico, and the problem is even more pressing in light of the COVID-19 crisis. The misuse of billions of pesos will not cease until all actors involved in the corruption networks are sanctioned, and the public authorities adopt safeguards to ensure that public health resources are used to protect the public health, not to line the pockets of criminals.