August 2018, Vol. 245, No. 7

Editor's Notebook

A New Mexican Administration: Taking Action

By Armando Cuevas Brun, Reed Smith LLP

Recently, the peso had its best week in the last nine years, posting one of the biggest gains among the world’s most traded currencies. This, so-called, “relief rally” started just after the preliminary official results of the Mexican presidential election were made public, which was no coincidence.

Andrés Manuel López Obrador won the Mexican presidential election with an impressive 53% of the total vote, and he will take office as Mexico’s new president on Dec. 1. Surprisingly, for some, many indicators, such as the currency exchange, the stock market and public statements made by business organizations once opposed to López Obrador’s campaign, seem to signal that the market has reacted positively to his victory.

As the new administration continues to offer additional insight into its policies, it appears that Mexico will continue to offer a business-friendly environment.

Specifically, regarding the energy sector, López Obrador’s main promises during his campaign were that Mexico would try to become self-sufficient, taxes would remain stable, new refineries would be built, and any abrupt changes in the prices of fuels would be mitigated.

Beyond what some will argue are contradictions (and others, clarifications) between statements made during his campaign and those made now by the president-elect – such as, that perhaps only one refinery will be built – the one theme that has not changed is related to his most significant promise: to end corruption.

Policies stemming from the Mexican energy reform will likely remain in place, because of the need for revenue, among other reasons. However, the incoming administration has made clear that contracts awarded during the previous administration will be analyzed for signs of corruption.

Although López Obrador noted that no condemnation of property for public use will take place, even in cases of corruption, and further detailed that irregularities will be solved by Congress and domestic and international courts, the heavy focus on anti-corruption as a campaign theme makes it critical for companies to not only plan, but start taking action.

There is an established anti-corruption system already in place in Mexico. Mexican law, including the General Law of Administrative Responsibility and Federal Criminal Code, imposes penalties on individuals and legal entities found liable for misconduct, including for the bribery of government officials at various federal and governmental levels, whether in the realm of government procurement or otherwise. The new administration’s self-stated goal is to strengthen the degree of enforcement of current and new regulations. In order to further address corruption allegations, it is widely suspected that even Mexico’s Criminal Code may be amended.

As a first step, major company risk areas should be screened, including those departments that have direct interaction with government officials. Conducting an exhaustive investigation and review of energy-related and other contracts with the government is of the utmost importance to ensure that everything from permitting and authorizations, to the exchange of information and flow of cash, are in compliance.

In general, regular training of all personnel are recommended and encouraged. Officer duties and responsibilities must be clearly defined and monitored. Scrutiny is likewise expected to exist, and not only for companies that are prospectively awarded public contracts or who have been previously been awarded government contracts. P&GJ

Author: Armando Brun, a native of Mexico, is a Houston-based lawyer in Reed Smith’s global Energy & Natural Resources Group. As a member of the firm’s Latin American Business Team, he handles a broad range of Mexican and Latin American cross-border M&A, foreign investment, secured transactions, anti-trust, banking, and finance matters.

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