After almost 80 years of state monopoly, Mexico has this year opened the door to private investment in its energy industries. Mexico's state-owned industries, Petroleos Mexicanos (Pemex) and the Federal Electrical Commission (CFE), are now being forced to compete with Mexican and foreign companies for access to resources and licences to distribute energy in Mexico. For companies looking to enter the market, there are significant opportunities, but directors should bear in mind the corresponding risks of such a move.
In the past, certain employees of Pemex and CFE have been accused of improper conduct with third party contractors. With the opening of the energy sector to private investment, new entrants to the sector will need to be vigilant to ensure that these practices do not infiltrate their organisations.
Mexico introduced new anti-corruption and transparency legislation in 2012 ("Anti-Corruption Law"). This legislation followed in the footsteps of the UK Bribery Act and US Foreign Corrupt Practices Act and was designed to address the perceived systemic corruption within Mexico and to bring the country's anti-corruption laws into line with its international trading partners and competitors. The law applies to companies and individuals that participate in federal public contracts in Mexico. It prohibits the bribery of procurement officials and evasion of the rules of the tender process, and penalises both the person paying the bribe and the government official who receives or solicits the bribe payment. Violation of the law by companies or individuals can result in substantial monetary penalties. Fines are calculated relative to the daily minimum wage for Mexico City but range from roughly US$5,000 to US$250,000 for individuals and US$50,000 to US$10 million for companies.
Whilst the Anti-Corruption Law is undoubtedly a significant step forward, news stories about alleged conflicts of interest and improper conduct in Mexico remain commonplace. Recent scandals include the news that the Mexican President’s wife had a house built and financed by one of the companies in the winning consortium for a new high-speed rail link. Similarly, Citigroup alleged in February 2014 that it was defrauded of more than $400 million by a major Pemex contractor that used fake Pemex invoices as loan collateral. Within this environment, companies (and their directors) operating in Mexico may be at risk of becoming embroiled in corruption scandals, and public perception of dubious dealings may cause significant damage to a company's reputation.
Companies thinking of entering the Mexican market in the wake of the recent energy reforms should be mindful of the Anti-Corruption Law and should ensure that their anti-corruption compliance programmes are comprehensive and effective. Boards of directors of such companies should ensure anti-corruption and anti-bribery are high on the corporate agenda, and they should interpret the provisions of the Anti Corruption Law as broadly as possible to protect against possible allegations of bribery and corruption in the future.