doing business in mexico: compliance implications of the pact for mexico
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© 2015 Baker & McKenzie LLP
GOOD. SMART. BUSINESS. PROFIT.TM
© 2015 Baker & McKenzie LLP
Doing Business in Mexico: Compliance Implications of the Pact for Mexico
February 11, 2015
© 2015 Baker & McKenzie LLP
Chelsie Chmela
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© 2015 Baker & McKenzie LLP
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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
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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
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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
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Anticorruption Reform Timeline
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Pre
side
nt s
ubm
its
prop
osed
refo
rm
to S
enat
e
PAN
unv
eils
pr
opos
ed re
form
Pro
pose
d
reco
ncili
atio
n of
S
enat
e/PA
N
prop
osal
s
[ November 2012 ]
Sen
ate
pass
es
refo
rm w
ith n
o
maj
or c
hang
es
[ December 2013 ]
Ref
orm
su
bmitt
ed to
C
ham
ber o
f D
eput
ies
[ February 2014 ]
[ October 2014 ]
[ December 2014 ]
Cha
mbe
r of
Dep
utie
s re
new
s w
ork
[ February 2015 ]
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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?
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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
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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
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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
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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
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Energy Reform Risks‒ Government bidding process
Development vs. services Use of third parties
‒ Regulatory oversight‒ Local authorities and populations‒ Organized criminal groups
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Risk Mitigation Strategies & Issues‒ Avoiding risks in government interactions
Training. Training. Training. Financial controls Culture of compliance Planning, preparation, and communication
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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
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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
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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.
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Telecom Reform Risks‒ M&A as likely market entry approach‒ Regulatory oversight‒ Public procurement‒ Local authorities and populations‒ Organized criminal groups
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Risk Mitigation Strategies & Issues
‒ Acquisition scenario Due diligence Integration
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Risk Mitigation Strategies & Issues‒ Cultural considerations
Reporting structures Location of leadership Language fluency Training re culture Timing of messages to acquired personnel Inclusiveness
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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?
© 2015 Baker & McKenzie LLP
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