The Whole World Is Watching Mexico In the Fight Against Corruption

by Thomas Fox

Don PardoDon Pardo died this week. While perhaps not of the public stature of Robin Williams or Lauren Bacall, whom we lost last week, his passing nonetheless was well noted in the national media. Pardo lived to the ripe old age of 96 and got his start in the public eye through the medium of radio. While perhaps not quite the Voice of God (John Facenda of NFL Films) he nevertheless had a booming voice, which was all the more recognizable from his incredible modulation. Most folks will recognize him from the following, “Live from New York – it’s Saturday Night Live!” I remember Pardo from an earlier era where he introduced the game shows Jeopardy and The Price is Right! But, wherever you might remember Pardo from, he was a true original.

All of which brings me to today’s topic of business solutions to legal issues such as the Foreign Corrupt Practices Act (FCPA) and other anti-corruption statues such as the UK Bribery Act. I have written about business solutions to legal problems, such as the FCPA, in the energy industry here in Houston. Noted compliance practitioner Scott Killingsworth made similar observations on compliance covenants in commercial transactions, which he labeled private-to-private or “P2P” solutions.

However, now we may be seeing a business solution to bribery and corruption played out on the national stage in Mexico. In an article in, by Deon Daugherty, entitled “Corrupción”, which she led with the sentence, “Leave it to the free market to solve a legal conundrum.” She went on to explain that it was the Mexican national energy company Pemex that had initially detected the fraud allegedly perpetrated by the entity Oceanografía and which has led to an investigation of the US banking giant Citigroup. She wrote, “Petróleos Mexicanos, the state-owned entity known as Pemex, had questioned the billing practices of the contractor, which has performed offshore work for Pemex for several years. Mexican officials subsequently placed Oceanografía executive Amado Yáñez under house arrest while they investigate. Pemex was quick to react. The company suspended all new contracts with Oceanografía pending its own investigation and the Mexican government has taken control of Oceanografía, Attorney General Jesús Murillo Karam said in a statement in Mexico City. An unidentified Pemex official told Bloomberg that Oceanografía’s assets have been impounded and the investigation will cover more than contracts with Pemex.”

Now, in Mexico, these stakes have been raised even higher by the country’s need for energy reform of and around Pemex. The Financial Times (FT), in an article entitled “Mexico’s historic reform drive”, noted the current Mexico President, Enrique Peña Nieto, has led a wide-ranging group of government reforms including a new energy law to make Pemex more efficient and to bring foreign investment into Pemex for the first time in its history. It all started with revising the Mexican constitution and has led to the enactment of nine implementing laws.

In an article in the Houston Chronicle, entitled “One key to Mexico’s energy reforms: corporate responsibility”, Chris Tomlinson wrote that President Nieto “wants to accelerate the timeline for allowing foreign companies into Mexico, clearly hoping their investment will invigorate Mexico’s economy and help his political standing.” Clearly it is designed to increase production from Mexico’s oil fields, which had dropped from 3.4 million barrels per day in 2004 to only 2.4 million barrels per day in the last reported year. Additionally, Tomlinson noted, “Mexico’s offshore Perdido oil field and the shale gas formations along the Texas border represent a huge opportunity to boost North American energy production.”

All of the above represents a huge opportunity for US companies to do more business in Mexico. Daugherty cited to Jose Valera, a partner in the law firm of MayerBrown, who said, “just laying the pipeline and other midstream infrastructure needed to deliver and store the hydrocarbons that Mexico stands to produce will be worth tens of billions of dollars’ worth of investment. And FCPA concerns exist globally.” Valera added that “We need to keep in mind how little infrastructure there is in Mexico today—how little midstream infrastructure there is—by some accounts, Mexico has a total of about 12,000 miles of pipelines,” Valera explained. “Whereas if you look only at the state of Texas, we have more than 250,000 miles of pipelines. That gives you an idea of the scale in what Texas has, what Mexico has and what Mexico could have.”

Clearly companies in the energy space should be well aware of the FCPA. Indeed Houston is recognized as the city that is the world’s epicenter of FCPA enforcement because so many Houston based companies have been involved in FCPA investigations or enforcement actions. Indeed Daugherty cited to former US ambassador to Mexico and now counsel in the Mexico City office of White & Case LLP, Antonio Garza, for the following, “U.S. companies that operate abroad know the rules, and they will likely work to ensure they don’t put themselves in a position of exposure to FCPA sanctions.”

This is where Pemex is part of the business solution. Daugherty wrote, “Pemex has said corruption has no place in its business.” Indeed “newest director general of Pemex, Emilio Lozoya Austin, has “emphasized that there will be zero tolerance for any act of corruption in the business and general disregard for the law, so that in this, as in other cases, there will be no impunity.”” Former Ambassador Garza added, ““I’ll tell you another reason why I think you won’t be hearing too many corruption-related horror stories. That’s because this government knows the whole world is going to be watching this transition play out,” he said. “And it better look, smell and be transparent and competitive or the bloom will be off this rose pretty quick.” Indeed, Mexico has made inroads toward luring foreign investment to its markets. The nation’s public-private partnership (PPP) law was designed specifically to attract investors and give contractors a more certain environment.””

There has generally been much applause for Mexico amending its constitution and reforming its laws to allow foreign entities to invest in the Mexican energy industry for the first time since 1938. There are many questions that are still left to be answered but if Pemex can help to become part of the solution in the international fight against bribery and corruption, think what an example that might set for other countries across the globe. All I can say that this point (and in the most booming Don Pardo voice I could ever muster) The Whole World is Watching!

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox, Compliance Evangelist | Attorney Advertising

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