Doing Business in Mexico: Compliance Implications of the Pact for Mexico

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Doing Business in Mexico: Compliance Implications of the Pact for Mexico

February 11, 2015


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SPEAKING TODAY

Mark JaffeCounsel, AT&T

Mauricio AlmarLatin America Regional Compliance Counsel, Halliburton (Houston)

Jesse HeathSenior Associate, Baker & McKenzie (Mexico City and Washington, DC)

Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.© 2015 Baker & McKenzie LLP

Doing Business in Mexico: Compliance Implications of the Pact for Mexico

February 11, 2015

Mark Jaffe: AT&TMauricio Almar: HalliburtonJesse Heath: Baker & McKenzie

© 2015 Baker & McKenzie LLP 6

Mexico – Land of Contradictions

‒ ‘Mexico Moment’ vs. Ayotzinapa, Casa Blanca

‒ ‘Two Mexicos’ – formal vs. informal

‒ Sound fiscal management vs. anemic institutions

‒ Aggressive openness to trade vs. economic dependence on USA


Reforms Overview

‒ Anticorruption Reform raises possibility of increased enforcement, but legislation is stalled in the Mexican Congress

‒ Energy Reform opens entire sectors to foreign participation, but inherently involves high-stakes interactions with government entities

‒ Telecom Reform makes Mexican market more attractive to foreign providers, but M&A entry point poses unique challenges

Anticorruption Reform


Anticorruption Reform Timeline

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National Anticorruption System

‒ Enforcement Entities Create new vs. refine old Independence Overlap

‒ Anticorruption Promotion National Council on Public Ethics Citizen participation Effectiveness of actions?


February 3 Executive Actions‒ Apparent response to recent scandals‒ Seven measures

Declaration of Possible Conflicts of Interest Specialized unit on conflicts of interest in SFP Integrity rules for public servants Contact Protocols for interactions between officials and

private parties, and identify responsible officials Expedite ‘One Window’ portal Expanded list of sanctioned providers Expand cooperation with private sector on anticorruption

measures


Implications of the [Stalled] Reform‒ Political reality

President needs PAN support for other reforms Risk in pursuing cases against PAN officials Precedent from Fox administration

‒ Underlying issues Debate over minutiae of reform masks fundamental defects in

Mexico’s institutions Impunity and absence of rule of law have corrosive effect Scandals implicating President exemplify problem

‒ Bottom line Corruption will remain pervasive for foreseeable future Risk of local enforcement low, unless popular demands force

federal government to act

Energy Reform


Energy Reform Elements‒ Goal is to increase lagging oil production‒ Opening up oil and gas sector to foreign companies for

first time since 1938 Mostly via joint ventures with government

‒ Modernizing PEMEX and CFE “State-owned productive enterprises” More independence Lower tax burden for PEMEX

‒ Strengthening regulatory framework Negotiate contracts with government, not PEMEX

(SENER sets terms, CNH administers auctions)

‒ Round 1 bidding currently underway


Energy Reform Compliance Elements‒ Reform adopted various anticorruption elements,

including transparency requirements, whistleblower system for PEMEX/CFE, and procurement guidelines

‒ Recently-published Round 1 model contracts contain compliance provisions Broad representations and warranties Internal controls obligations Disclosure requirement for potential violations and

government investigations


Energy Reform Risks‒ Government bidding process

Development vs. services Use of third parties

‒ Regulatory oversight‒ Local authorities and populations‒ Organized criminal groups


Risk Mitigation Strategies & Issues‒ Avoiding risks in government interactions

Training. Training. Training. Financial controls Culture of compliance Planning, preparation, and communication


Risk Mitigation Strategies & Issues‒ Energy Reform impact on anticorruption efforts

More global players = higher standards Greater attention from Mexican and international

authorities alike Opportunity for private enterprise to lead the way by

promoting standards of ethical business


Risk Mitigation Strategies & Issues‒ Organized crime – how serious is the threat?

Can be a real challenge, especially in Northern Mexico Protocols need to be in place to minimize interactions

with organized crime as close to zero as possible

Telecom Reform


Telecom Reform Elements

‒ Allows 100% foreign investment in telecom; 49% in broadcasting‒ New regulator will promote competition in notoriously monopolistic

sector (i.e., America Movil, Televisa) Early impact: Dish and Telmex fined for undisclosed agreement

‒ New rules on ‘dominance’ across sector (not by service) Telecom (telephone, internet, pay TV) vs. broadcasting (free TV and

radio) Infrastructure-sharing requirements Early impact: AmericaMovil announced divestiture

‒ Promotes infrastructure development‒ Other provisions on increasing access, reducing certain fees, data

retention, free speech, etc.


Telecom Reform Risks‒ M&A as likely market entry approach‒ Regulatory oversight‒ Public procurement‒ Local authorities and populations‒ Organized criminal groups


Risk Mitigation Strategies & Issues

‒ Acquisition scenario Due diligence Integration


Risk Mitigation Strategies & Issues‒ Cultural considerations

Reporting structures Location of leadership Language fluency Training re culture Timing of messages to acquired personnel Inclusiveness


Risk Mitigation Strategies & Issues‒ Balancing acquired company’s strengths vs. need for

adherence to AT&T policies/standards Emphasize the positive Listen and learn Have a plan re new policies and procedures Local buy-in Explain changes to local personnel

Thank you!Any questions?


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