Common Corrupt Practices in Public Procurement in Mexico, and best ...

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Oct 4, 2013 - Where is Mexico in the TICPI? Mexico is not improving… 34 30 31 33 36 35 33 35 36 36 36. 105. 100 9889.
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Common Corrupt Practices in Public Procurement in  Mexico, and best practices. Javier López de Obeso. SCCE’s 12th Annual Compliance & Ethics Institute Washington, D.C. October 7, 2013

The ideas and concepts expressed in this presentation are made from the personal point of view and for Javier Lopez de Obeso. Energy, ethics &  academic porpuses, and do not represent the policies of any company. compliance. [email protected]

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Mexico is not improving… Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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Fuente: http://www.reforma.com/edicionimpresa/paginas/20130826/pdfs/rNAC20130826‐004.pdf. Monday, August 26, 2013 Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

Introduction.

− What is causing corruption in Mexico? − In highly regulated industries, like energy, mining, pharmaceutics among others, and when procurement is involved, Mexico has an abundant regulatory framework.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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Introduction.

− For example, according to the World Bank, the overregulation in Pemex, has caused that suppliers, to accomplish the payment of one invoice, it is necessary to pass more than 17 different steps.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

1. Legislative Landscape in Mexico. Actually, the legislative is working on amending the Constitution, that in the Energy sector, super protects the oil and electricity from private investments, leaving to the State all its operation. Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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1. Legislative Landscape in Mexico.

Restrictions detailed in article 27 mention: “the Nation has direct ownership of all natural resources of the continental shelf, … oil and all solid, liquid and gaseous carbides.”

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

1. Legislative Landscape in Mexico. Article 28 of the Constitution, among with art. 25, defines the role of the state, determining strategic areas, including oil and other hydrocarbons as well as the basic petrochemicals.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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1. Legislative Landscape in Mexico.

Therefore, it can be said that oil and hydrocarbons are equipped with a dual constitutional protection: - As a natural resource and national property under direct control of the Government. (Article 27) and - As a strategic area whose development is the exclusive responsibility of the State (Articles 25 and 28). Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

1. Legislative Landscape in Mexico.

These constitutional protections have make the State to create an extensive and complicated legal framework for the exploitation of the natural resources in the energy sector. Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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1. Legislative Landscape in Mexico.

These are the most relevant regulations of the Energy Sector.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

Regulation of the Law for Sustainable 63 Energy 64 Regulation of the Federal Tax Code Guidelines for the Preparation of Public versions, by the departments and entities 65 of Federal Public Administration. Guidelines to be followed by agencies of the Federal Public Administration in Shipping, Receiving and Processing of Queries, Reports, Resolutions, Criteria, and any other notifications Establish Communication with the Federal Institute 66 for Access to Public Information. 67 Rules of the Industrial Property Law Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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1. Legislative Landscape in Mexico.

All this regulation, so extensive, complex, erratic, with large brushes with the bureaucracy, creates an environment that facilitates corruption and makes that only a few can meet the demands of the procurements.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

2. Reliable Local Partner. 

- It is important to have solid companies as your local partner. - Larger or famous companies are not the unique solid companies. Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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2. Reliable Local Partner. 

Foreign companies or strangers to the procurement process who want to carry out projects in Mexico, must have appropriate procedures to select a partner or supplier.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

2. Reliable Local Partner. 

- It is really important to perform your due diligence not only on the desk or in paper. - For example, the following enterprise won in a three year period more than US $6’000,000.00 in Pemex’s Contracts…

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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2. Reliable Local Partner. 

Fiscal Address of the enterprise

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

2. Reliable Local Partner. 

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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2. Reliable Local Partner. 

With your reliable local partner, you must sign an agreement (can be Joint Venture, consortium, or create your own enterprise in Mexico) always taking in consideration the importance of comply with all the local laws, US laws and internationals treaties.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

3. Best Practices.

Behave with ethical principles.  Is it the right thing for my enterprise?  Is it consistent with the values of my enterprise and mine?  Is it legal?  Is this something that I’m willing to respond? Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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3. Best Practices.

Behave with ethical principles. For example, in a contract Pemex and the bidder established the possibility of renting vehicles, but…

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

3. Best Practices. Pemex rented to the contractor 27 pick ups for 10 months, spending aprox. $1’400,000.00 US. … The price of 66 new vehicles Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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3. Best Practices. a) Compliance with local and international regulation. b) Promote a compliance program. • Tone at the top. • Chief Compliance Officer. • Code of conduct. • Continuing monitoring • Training • Hot line • Strict sanction procedures. Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

4. Corruption Risks. 

Because of the audits performed by PEMEX, now we can be aware of the following corruption risks:

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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4. Corruption Risks. 

Manipulate project design to benefit particular suppliers, contractors, and other private parties.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

4. Corruption Risks. 

• Excessively short/long bidding time. • Inappropriate bidding procedures Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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4. Corruption Risks. 

• Unjustified Complaints.

• Abuse of the legal framework.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

4. Corruption Risks. 

• Collusion schemes with other bidders. • Some of the collusive practices used include: • Pre-bidding understandings among bidders. • Lowest bidder quits Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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5. Conclusions.  

The regulation and winning bidding process in a honest way, it’s complicated. But it is not impossible.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

5. Conclusions.   Lot of companies are now affirming that since the implementation of an Ethics and Compliance Program, they haven't lost any business.

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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5. Conclusions.  

• Find a Reliable local partner. • Avoid the “Tree house enterprise.”

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

5. Conclusions.  

If you suspect corruption, Complaint! Hotline to report acts of corruption in Mexico 1800-FUNCION. (01800-3862466). www.funcionpublica.gob.mx In Pemex: www.alertline.pemex.com To the prosecutor: PGR. http://www.pgr.gob.mx/denuncia/denuncia.asp Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

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5. Conclusions.   In Mexico and around the world, the effects of corruption can be devastating.

• And the reason this…

… can coexist whit this

Javier Lopez de Obeso. Energy, ethics & compliance. [email protected]

Thank you! ¡Gracias!

LL.M. Javier López de Obeso www.ocalawfirm.com [email protected] Cel. +52-1-3314779616

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