Mexico: Corporate Compliance In Mexico's Convulsed Energy Market

With more and more companies interacting in a globalized market, organizations are facing complex business challenges created by the ever-changing governmental energy regulation. This is well illustrated by recent convulsions in the Mexican energy sector.

Only a few years after Mexico's energy reform in 2014, which many experts saw as potentially irreversible,¹ recent government policies are de facto rolling back key tenets of the operation of its newly developed competitive markets across the entire energy value chain. This troublesome context in Mexico has put at risk over USD 45 billion in national and international private investment.² In addition, energy companies are facing additional obstacles as the lack or renewal of permits from the Mexican regulator Comisión Reguladora de Energía ("CRE"),³ or attempts by the state-owned company Comisión Federal de Electricidad ("CFE") to displace them from the national market. Several of these cases have achieved positive resolutions from Mexican courts, providing full legal relief.⁴ But media reports suggest that those resolutions are not always respected by the CFE or regulators.⁵

The issues have attracted attention from other national governments. On July 20, 2022, the Office of the United States Trade Representative ("USTR") announced that it would seek dispute settlement consultations with Mexico under the United States-Mexico-Canada Agreement ("USMCA"), citing actions taken by President Andrés Manuel López Obrador's ("AMLO") Administration to favor Mexico's oil state-owned company Petróleos Mexicanos ("PEMEX") and utility companies at the expense of American businesses.⁶ However, this is not a new situation in the Mexican energy context. Since President AMLO's Administration promoted and reformed the Electricity Industry Law on March 9, 2021, more than 250 amparo⁷ (petitions to invalidate an act or decision issued by a government agency) proceedings have been promoted in Mexican courts to invalidate the law and defend private companies' investments.

One of the main changes of the Electricity Industry Law is that it prioritizes fossil fuel plants over renewable energy production.⁸ This puts millionaire investments of international companies at risk, which could lead to a payment of USD 60 billion in compensation by the Mexican government.⁹ Among several entities that could face investment losses are international energy companies from Italy, Japan, Spain, and the United Kingdom.¹⁰ Nevertheless, amparo proceedings are complicated, time-consuming and costly processes that can lead companies to look for alternatives outside the law to secure their investments.¹¹ It is precisely in this scenario where corporate compliance policies become relevant.

For example, according to the Mexican National Organization of Petroleum Sellers ("Onexpo"), during 2022, private companies have suspended the operation of 150 gas stations due to lack of permits. Meanwhile, PEMEX has opened 44 new gas stations.¹² Most of the affected companies have promoted amparo actions to continue operating their gas stations, however, due to the slow legal process, some of them have been forced to suspend operations.¹³ In this context of uncertainty and judicial slowness, the compliance policies of hundreds of companies in the Mexican energy sector become important.

Besides the regulatory challenges for business continuity, this introduces incentives that, in other geographic locations and contexts, have resulted in potential risks and compliance issues. Therefore, companies are looking for critical information, skills and support to fulfill their corporate goals while complying with the Mexican General Law of Administrative Responsibility, the U.S. Foreign Corrupt Practices Act ("FCPA"), and the U.K. Bribery Act ("UKBA").

Today, compliance policies are not limited to a corporate code-of-conduct. During the past 15 years, the U.S. Department of Justice ("DOJ") and the U.S. Securities and Exchange Commission ("SEC") have increased their compliance expectations for corporations on designing and maintaining effective policies.¹⁴ Such policies usually require enhanced guidance in the implementation of background checks on employees and vendors, ethics and anti-fraud programs, documented policy that outlines the ethical standards, investigations of suspected and reported incidents, or performing trend analysis of anti-money laundering.¹⁵ This scenario occurs at the same time that cyber and financial crimes have increased in Mexico.¹⁶ According to the National Commission for the Protection and Defense of Users of Financial Services ("Condusef"), during the first semester of 2022, financial frauds have represented losses of approximately USD 462 million (MXN 9,231 million).¹⁷

The above could have prevented the corruption case of international companies of paying bribes to retain business in Mexico with the state-owned oil company PEMEX. This type of scandal has allowed President AMLO to justify the need to maintain energy control in the hands of the state, affecting renewable energy companies, such as the ones involved in the dispute settlement consultations under the USMCA.¹⁸

Further to this, legal problems in the Mexican energy context have become more complex because the CFE has reserved data on international arbitrations by classifying them as confidential for the next five years. These international arbitrations are currently held between CFE and private international energy companies at international arbitration courts and in the International Chamber of Commerce.¹⁹ This matter represents a lack of transparency in Mexico, which contributes to generating risks and uncertainty among foreign investors.

According to the 2020 National Survey of Regulatory Quality and Government Impact on Companies ("ENCRIGE") conducted by the Mexican National Institute of Statistics and Geography ("INEGI"), 71.5% of the economic units (small, medium and large companies) in Mexico considered that corruption is frequent within the government. Furthermore, 72.6% of these cases considered that the main cause of acts of corruption was to expedite government procedures.²⁰ This data, applied to the Mexican energy context of judicial uncertainty, highlights the importance of compliance and antibribery policies in Mexico.

Furthermore, 4 out of 10 Mexican pesos given by government agencies to private contractors in 2021 were awarded without a competition process or an open bid, while approximately U.S. $450 million (MXN 9 billion) were awarded to risky companies such as ghost firms or entities that had been penalized by the Mexican tax authority. ²¹

FTI Consulting's Global Risk and Investigations Practice ("GRIP") in Mexico offers a unique team of multilingual professionals that bring a multidisciplinary approach to critical investigations, combining functional expertise with a deep understanding of compliance policies and investigative processes. FTI Consulting's team combines the skills and experiences of lawyers, forensic accountants, former government officials and regulators, anti-corruption investigators, computer forensic, and enterprise data specialists. In this Mexican energy context, compliance policies have become more important than ever, and FTI Consulting has the professionals to assist key stakeholders within the region.

Footnotes:

1: Susana Chacón & Gerardo Gil Valdivia (coords.). "La Reforma Energética 2013". Foro Consultivo, Científico y Tecnológico, A.C.; Sección Mexicana, Club de Roma; EGADE, ITESM. October 2013. http://www.foroconsultivo.org.mx/libros_editados/reforma_energetica.pdf Ana Isabel Martínez. "Mexico energy minister says election no obstacle to 2018 oil auctions." Reuters. February 9, 2018. Duncan Wood. "La nueva reforma energética de México." Wilson Center. October 2018. https://www.wilsoncenter.org/sites/default/files/media/documents/publication/la_nueva_reforma_energetica_de_mexico.pdf

2: Isabella Cotta. "La reforma eléctrica pone en riesgo millones de dólares en pensiones en México." El País. October 12, 2021. https://elpais.com/mexico/2021-10-13/la-reforma-electrica-pone-en-riesgo-6000-millones-de-dolares-de-las-pensiones-en-mexico.html.

3: Hector Usla. "CRE retira permisos para generar energía eléctrica." El Financiero. March 29, 2022. https://www.elfinanciero.com.mx/economia/2022/03/29/ganchos-a-iberdrola-cre-le-retirara-permisos-para-generar-energia-electrica/.

4: David Vela. "Juez otorga suspensión definitiva a reforma eléctrica de AMLO." El Financiero. March 19, 2021. https://www.elfinanciero.com.mx/nacional/juez-dicta-suspension-definitiva-a-reforma-electrica-de-amlo/

5: Diana Gante. "Apuntalan a la CFE. pero castigan a Iberdrola." Reforma. September 2, 2022. https://www.reforma.com/aplicacioneslibre/preacceso/articulo/default.aspx?__rval=1&urlredirect=https://www.reforma.com/apuntalan-a-cfe-pero-castigan-a-iberdrola/ar2463540?referer=--7d616165662f3a3a6262623b6770737a6778743b767a783a--

6: "United States Requests Consultations Under the USMCA Over Mexico's Energy Policies." Office of the United States Trade Representative. July 20, 2022. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/july/united-states-requests-consultations-under-usmca-over-mexicos-energy-policies-0

7: Diego Badillo. "Litigios e incertidumbre generan alta tensión en el sector eléctrico." El Economista. April 24, 2022. https://www.eleconomista.com.mx/politica/Litigios-e-incertidumbre-generan-alta-tension-en-el-sector-electrico-20220422-0060.html

8: Jon Martin Cullel. "Las claves de la ley eléctrica de López Obrador: un golpe a las renovables sin efectos inmediatos." El País. April 8, 2022. https://elpais.com/mexico/2022-04-08/las-claves-de-la-ley-electrica-de-lopez-obrador-un-golpe-a-las-renovables-sin-efectos-inmediatos.html#:~:text=Las%20modificaciones%20a%20la%20LIE,la%20paraestatal%20a%20la%20desaparici%C3%B3n

9: Jon Martin Cullell. "Las empresas energéticas prevén meses de litigios pese al rechazo de la reforma eléctrica." El País. April 24, 2022. https://elpais.com/mexico/2022-04-25/las-empresas-preven-meses-de-litigios-pese-al-rechazo-de-la-reforma-electrica.html

10: "Las 5 empresas de energías renovables que tienen inversión directa en México." Business Insider México. June 19, 2020. https://businessinsider.mx/5-empresas-energias-renovables-que-tienen-inversion-directa-en-mexico/.

11: Nayeli Meza. "Mexicanos gastan 32,000 mdp en sobornos al año." Forbes México. November 9, 2015. https://www.forbes.com.mx/mexicanos-gastan-32000-mdp-en-sobornos-al-ano/

12:Karol Garcia. "Falta de permisos perfila reconfiguración en mercado gasolinero." Onexpo Nacional. September 1, 2022. https://www.onexpo.com.mx/NOTICIAS/FALTA-DE-PERMISOS-PERFILA-RECONFIGURACION-EN-MERCA_IAYBI/.

13: Idem.

14: Alejandra Montenegro Almonte, Ann K. Sultan, and FeiFei (Andrea) Ren. "US Compliance Requirements." Global Investigations Review. September 2, 2022. https://globalinvestigationsreview.com/guide/the-guide-compliance/first-edition/article/us-compliance-requirements.

15: Idem.

16: Surya Palacios. "¡Cuidado! Fraudes financieros aumentan 10.4% en el primer semestre de 2022." Alto Nivel. August 15, 2022. https://www.altonivel.com.mx/finanzas-personales/cuidado-fraudes-financieros-aumentan-10-4-en-el-primer-semestre-de-2022/.

17: Idem.

18: "AMLO acusa a Iberdrola de corrupta por contratos con CFE." Forbes México. February 12, 2021. https://www.forbes.com.mx/politica-amlo-iberdrola-corrupta-contratos-cfe/.

19:Diana Gante. "Reserva CFE datos de arbitrajes internacionales por 5 años." Reforma. August 7, 2022. https://www.reforma.com/aplicacioneslibre/preacceso/articulo/default.aspx?__rval=1&urlredirect=https://www.reforma.com/reserva-cfe-datos-de-arbitrajes-internacionales-por-5-anos/ar2449246?referer=--7d616165662f3a3a6262623b6770737a6778743b767a783a--

20: "Encuesta Nacional de Calidad Regulatoria e Impacto Gubernamental en Empresas (ENCRIGE)." INEGI. 2020. https://www.inegi.org.mx/contenidos/programas/encrige/2020/doc/encrige2020_presentacion.pdf. Pages 62 and 65..

21: "Índica de riesgos de corrupción 2022." IMCO. June 21, 2022. https://imco.org.mx/indice-de-riesgos-de-corrupcion-2022/.

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