This document summarizes a webcast on business compliance implications of reforms in Mexico. It discusses reforms in anticorruption, energy, and telecommunications. For anticorruption, it notes stalled legislation and risks of low enforcement. For energy, it outlines the opening of the oil sector to foreign firms and compliance provisions in contracts. For telecommunications, it discusses allowing foreign investment and risks of mergers and acquisitions. Throughout, it provides strategies for companies to mitigate compliance risks like training and cultural considerations for acquired firms. Speakers from AT&T, Halliburton and Baker & McKenzie address these topics.

1. © 2015 Baker & McKenzie LLP
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2. © 2015 Baker & McKenzie LLP
Doing Business in Mexico: Compliance
Implications of the Pact for Mexico
February 11, 2015

3. © 2015 Baker & McKenzie LLP
Chelsie Chmela
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SPEAKING TODAY
Mark Jaffe
Counsel, AT&T
Mauricio Almar
Latin America Regional Compliance Counsel, Halliburton
(Houston)
Jesse Heath
Senior Associate, Baker & McKenzie (Mexico City and
Washington, DC)

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© 2015 Baker & McKenzie LLP
Doing Business in Mexico: Compliance
Implications of the Pact for Mexico
February 11, 2015
Mark Jaffe: AT&T
Mauricio Almar: Halliburton
Jesse Heath: Baker & McKenzie

6. © 2015 Baker & McKenzie LLP 6
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

8. Anticorruption Reform

9. © 2015 Baker & McKenzie LLP
Anticorruption Reform Timeline
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[ November 2012 ]
[ December 2013 ]
[ February 2014 ]
[ October 2014 ]
[ December 2014 ]
[ 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

13. 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

20. 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

26. Thank you!
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