Anti-Corruption Strategies Still Key to Navigating Mexican Energy Sector

“Corruption risk is not associated with one particular sector of energy more than another,” Fox noted. “It comes down to wherever a payment would be made, such as acquiring a lease or moving extracted minerals out.”

Using a third party representative on the sales side – a requirement in some countries, but done in other countries to navigate the local business environment – is another area where Fox has seen bribes paid.

PwC’s analysis of 12 corruption-settlement cases under the FCPA over the past 15 years involved Mexico found some common government bribery schemes. These analysis of corruption schemes found that:

  • 67 percent of these schemes were payments through business partners
  • 25 percent were fictitious vendors/invoices
  • 25 percent were payroll corruption schemes
  • 25 percent were schemes involving gifts, travel and entertainment
  • 17 percent schemes involving overpricing/kickbacks
  • 17 percent were treasury control deficiencies

The presence of so many energy companies has transformed Houston into an epicenter of FCPA enforcement. Many oil and gas companies have worked to ensure their compliance programs meet FCPA standards, with majors such as Exxon Mobil Corp. and oilfield service companies such as Schlumberger Ltd. having compliance program to cover business deals down to the $15 million software company deal, said Fox. But smaller, foreign energy companies that may partner with U.S. companies could still present corruption risks.

Fox couldn’t comment on whether any corruption associated with Mexico’s bidding rounds this year had occurred. Typically, news of corruption doesn’t surface until several years later. But Fox said it was less likely corruption had taken place, given that bidding under Mexico’s reformed energy sector was high-profile and Mexico was careful to ensure it got things right.

What Steps Should Companies Take?

To succeed in this new business environment, U.S. and other foreign energy companies should strengthen their compliance programs before entering Mexico, PwC said in its report. While no one-size-fits-all approach to preventing corruption in Mexico’s energy sector exists, PwC outlined some elements to be considered when designing a strategy for Mexico’s risks. 

For example, the fact that Mexico’s culture is driven by the role and guidance of local bosses means it’s important to ensure that an anticorruption programs have clear support and supervision from the highest levels within a company. The proper tone and guidance is needed to communicate anti-corruption programs not only at the local management level, but also in communications from the corporate office or parent company.

Companies entering Mexico also need to conduct and document periodic risk assessments to identify bribery risks and focus compliance resources. Compliance programs should be based on risk assessment, and should consider external risks such as country or location, sector, transaction, opportunity and partnership risks.

The analysis found that about 92 percent of the corruption-settlement cases involved payments to real or fictitious business partners, while 72 percent of those cases involved real business partners representing companies in front of Mexican authorities. Because of these findings, PwC recommends companies also conduct due diligence and monitoring of business partners.

“Companies should use a risk-based methodology when considering the inherent risks to the initial and continuous engagement of business partners,” said PwC in the report.

Typical factors that should be involved in assessing overall risk of Mexico business partners include the nature of the business partner, industry, transparency of ownership structure, and part of Mexico in which business partner operates. PwC did note that companies wanting to conduct a more in-depth assessment may face challenges due to lack of well-developed infrastructure of electronic public databases.

“The fact that a good amount of government records and other information has not yet been digitized, meaning it’s only physically accessible at various governmental agencies and offices throughout Mexico.”

Ensuring proper monitoring controls and procedures are in place is the next step. These procedures and controls include, but is not limited to, obtaining periodic certifications of compliance, periodic training, updating periodic due diligence, proper accounting controls and review of invoices before making payments; and anticorruption audit rights clauses in business partner contracts. Pre-approval of subcontractors also is advised.

Lastly, proper training and communication in Spanish to address misconceptions that corruption is a normal way to do business is needed. PwC recommends that whistleblower mechanisms be established to help people safely report corrupt business practices or to seek advice.


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