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Presenting a live 90-minute webinar with interactive Q&A

Anti-Corruption Reform in Mexico:

FCPA Compliance is No Longer Enough Understanding Key Provisions, Ensuring Compliance and Mitigating Legal Risks

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, DECEMBER 9, 2015

Matteson Ellis, Member, Miller & Chevalier, Washington, D.C.

Diego Sierra, Partner, Von Wobeser & Sierra, México City, México

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Anti-Corruption Reform in Mexico: FCPA Compliance is No Longer Enough

Diego Sierra Partner

Von Wobeser & Sierra dsierra@vwys.com.mx

Matteson Ellis Member

Miller & Chevalier Chartered mellis@milchev.com

Entry to Market in a High-Risk Country

UNITED STATES

RANK

22

COUNTRIES

175

SCORE

74

MEXICO

RANK

103

COUNTRIES

175

SCORE

35

6

Countries of Focus

23

14 13

8 8 7 7

6 6 6 6 6 6 5 5 5 5

3 3 3 3 3 3 3 3

Countries Implicated Most Frequently in

Corporate FCPA Enforcement Actions (combined)

2009-2015

7

Companies Subject to FCPA Actions based on Mexico Activities

8

Bribery Risks – Mexico

Statistics from PwC Latam 2000-2015 Anti-Corruption Enforcement Results in Latin America Report and 2015 Mexico Energy Reform Report

85% of cases in Latin America

involved third parties

25% of cases in Mexico involved payments through fictitious

vendors/invoices

28% of cases in Latin America involved the

oil & gas sector

67% of cases in Mexico involved payments through business partners

25% of cases in Mexico involved gifts, travel and entertainment

9

Mexico’s National Anti-Corruption System (SNA): Key Provisions

10

Coordinated System between Authorities

Established

New Functions Established for

Superior Auditor of the Federation

Federal Administrative

Court Jurisdiction Created for Anti-

Corruption Matters

New Rules for Public Official Violations

Creation of Local Administrative Justice Courts

Mexico’s SNA: Key Provisions

11

New Monetary Sanctions for Private

Parties

Corporate Intervention and

Dissolution Explicitly Established

Public Official Asset and Conflict of

Interest Declaration Requirements

New Federal Legislative Powers

Established

Statute of Limitations Extended

Mexico Public Procurement Regulation

Federal Anti-Corruption Law in Public Procurement (FALPP)

– Enacted in June 2012

– Responsibilities and sanctions for bribery acts committed in public procurement proceedings

– Applies to: • National and foreign individuals and corporations

• Third parties – agents

– Takes into consideration international standards for compliance best practices

12

Mexico Public Procurement Regulation

Federal Anti-Corruption Law in Public Procurement

– Anti-bribery provisions

– Fines • Individuals: up to USD $20,000

• Corporations: up to USD $12 million if serious violation or up to 35% of contract price

– Debarment • Individuals: up to eight years

• Corporations: up to ten years

– Disclosure benefits

13

SNA: Main Distinctions with FCPA

SNA FCPA

Subject persons Individuals and corporations

Individuals and corporations

Scope Foreign and local officials Only foreign officials

Prohibited acts Bribery of public officials, as defined by secondary legislation

Bribery of “foreign officials,” as defined by Act

Facilitation payments The proposed legislation does not make this distinction

Exception for facilitating payments

14

SNA: Main Distinctions with FCPA

SNA FCPA

Strict liability Unclear whether it will be contemplated by secondary legislation

Anti-Bribery provisions require corrupt intent; Accounting provisions approach strict liability

Books and records Unclear whether it will be contemplated by secondary legislation

Yes, Accounting provisions cover books and records

Corporate liability Yes, corporations can be held liable

Yes, corporations can be held liable under respondeat superior

Sanctions Established by secondary legislation; under FALPP, up to USD$12 million, up to 10 years debarment

Up to USD$2 million per violation (Anti-Bribery provisions); up to USD$25 million (Accounting provisions), plus possible disgorgement of profit

15

SNA: Main Distinctions with FCPA

SNA FCPA

Credit for compliance programs

May be established by secondary legislation; under FALPP, no explicit credit but possible benefit

Not statutorily, but U.S. Sentencing Guidelines provide credit for compliance programs

Credit for self-disclosure and cooperation

Proposed legislation provides mitigated economic sanctions

Not statutorily, but U.S. Sentencing Guidelines provide credit for self-disclosure

Indirect liability May be established by secondary legislation; already in FALPP

Permits indirect liability for acts of third parties

Statute of Limitations 7 years 5 years

16

Main Distinctions with FCPA

SNA FCPA

Jurisdiction Individuals and corporations acting in Mexico, including non-Mexican companies registered in Mexico

- U.S. individuals and corporations worldwide; - Foreign individuals and corporations acting within U.S.; - Companies listed on U.S. exchanges (U.S. issuers) and their employees acting worldwide; and - Agents acting on behalf of a covered individual / corporation

Enforcement Administrative and criminal Civil and criminal

Negotiated plea agreements

Proposed legislation provides that under certain conditions agreements can be entered

Corporate settlement agreements are negotiated and entered into regularly

17

Anti-Corruption Enforcement in Mexico: OECD Working Group

18

Findings of OECD Working Group: Follow-Up to Mexico Phase 3 Report & Recommendations (June 2014)

Has no foreign bribery prosecutions or convictions

Anti-corruption law does not create corporate liability for foreign bribery without identification or conviction of relevant individual and without proof that the bribery was commitment with the means of the corporate entity

Made meaningful updates to MLA procedures

Begun training prosecutors in anti-corruption techniques

Anti-Corruption Enforcement in Mexico: OECD Working Group

19

Findings of OECD Working Group: Follow-Up to Mexico Phase 3 Report & Recommendations (June 2014)

Efforts to use FALPP to implement OECD recommendations unsuccessful – Does not expressly address jurisdiction to prosecute legal

persons incorporated or headquartered in Mexico criminally for extraterritorial foreign bribery

– Does not cover some types of foreign bribery

– Parallel criminal and administrative enforcement regimes raise questions about coordination – multiple bodies could be involved in investigation of the same case

– Questions over whether administrative enforcement body has sufficient enforcement expertise

Enforcement of the SNA: Corporate Intervention

20

Oceanografía Case

PEMEX Off-shore Services

Provider

USD $585 million fraud

Intervened since 02/2014

Enforcement of the SNA: Politicized?

21

Coordination Committee: executive and judicial branches,

citizens

Investigation bodies balanced by

Administrative Justice Courts

Attorney General’s Office Anti-Corruption Division

balanced by Criminal Courts

Attorney General’s Office as independent and autonomous body

Checks and Balances

Enforcement of the SNA: International Cooperation

22

Not mentioned in Constitutional Amendment and proposed legislation

México’s international obligations to cooperate (e.g., OECD)

Basic rules for international cooperation expected in secondary legislation

Enforcement of the SNA: Whistleblower Provisions

23

Mexican Constitution: Recognizes that anyone can

report violations

Proposed legislation: Protections and benefits for

whistleblowers

FALPP: Benefits but no protections

FCPA Compliance Programs: Basic Elements

Chief Compliance Officer

Tone at the top/commitment

Risk assessment

Anti-corruption policies and procedures

Communication/trainings

Internal controls

Specific procedures for gifts, travel, hospitality, charitable contributions

Third party due diligence

Discipline/incentives

Hotlines/internal investigations

Internal investigations

Compliance audits

24

Compliance in Mexico: Public Official Guidelines for Public Procurement

Guidelines for dealing with private parties in public procurement meetings

Meetings and telephone conversations recorded

Contacts made in writing

Meeting in public offices

Meeting minutes

25

Best Practices for Compliance: Compliance Programs under the SNA

26

FCPA training not enough

Explicit credit for compliance

programs not expected

Compliance programs could be

used as to argue for mitigated treatment

Compliance programs should

meet international standards

FALPP contemplates compliance

programs – no express benefit

Modification of FCPA Compliance Programs in Consideration of SNA

27

Modifications to consider: Understand new legal requirements places on local

Mexican officials (conflict of interest, disclosure, etc.) and structure compliance analyses accordingly

Extended statute of limitations modifies recordkeeping requirements

Compliance trainings focused on FCPA and Mexican laws Internal investigations considering conduct that violates

new Mexican laws New voluntary disclosure considerations, given multiple

authorities with jurisdiction and interest New whistleblower considerations