ON MEXICAN LEGAL TOPICS AND CIRCUMSTANCES,
2015. Enrique Benet-Gregg
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| Enrique Benet-Gregg, Esq. |
Introduction
Mexico
has the second-largest economy in Latin America and enjoys a number of
inimitable financial instruments. These include AFORES (pension funds for
Mexico), CKD issuances (security instruments for structured equity), and FIBRAs
(an investment fund for real estate).
The
restructuring and bankruptcy sector witnessed a couple of major cases
originating from the construction/real estate industry. The close of the PEMEX
monopoly has raised expectations among many stakeholders, and in the subsequent
years Mexico is expecting massive advances in energy and hydrocarbon sectors. Thus,
many firms are currently attempting to move towards the electricity, oil, and
gas markets; and are anticipating a growth in the sector’s activity.
Mexico
is witnessing an upsurge in the space of renewable projects, too. Recent
alternations in legislation led to a consolidated Mexican labour market, where an
employee right is an increasingly vital issue. In the telecommunications
industry, presently dominated by the owner of America Móvil, Carlos Slim, the
government is trying to encourage and promote competition through grander
regulation.
In
litigation, the most common legal cause or source, is the breach of contract on
a commercial lawsuit. Usually, foreign entities execute contracts with small Mexican
companies, and problems arise pertaining to the untimely fulfilment of
obligations. This leads to litigation before Mexican courts, with the most
common type being commercial disputes specifically related to collection
matters. It is known, however, that there is no right to a trial by jury in a
commercial dispute.
Energy Reforms
Though
the Mexican government has monopolized oil and gas exploration for the past 75
years, the country is in the midst of transforming the energy and hydrocarbons
sector: as of December 2013, Congress has approved amendments that seek to open
the sector to foreign investment. This amendment will undoubtedly lead to great
opportunities for investors and unprecedented growth of business in the
country.
The
decline in oil and gas exploration over recent decades has contributed to the
energy reforms. Private investment is believed to boost the sector and assist
the state-owned company PEMEX in the oil and gas exploration, especially in
lucrative assets like shale oil and deep-water oil resources. This reform will
yield great and long-term opportunities for investors in the sector.
According
to secondary legislation, PEMEX will be independent of the government. The
government, however, is allowed to take part in choosing its top officials, dividing
the dividends, and selecting the companies with which PEMEX can work. The
selection of companies is done through a bidding process. The bidding process used
to be in the selection of companies to which the hydrocarbons were reallocated.
The reallocation of hydrocarbons was done to end a monopoly by PEMEX, and a
process known as “round zero” was conducted to aid the reallocation. In the
“round zero”, PEMEX was to prove that it was capable of production in certain
areas and was allowed to keep a percentage of the country’s oil reserve. The
private investors were then to bid for contracts in the round one process. During
this first round, the license contract, the profit sharing or product sharing
contract, and the service contract were available. These contracts, however,
are awarded to Mexican companies only. Interested foreign investors are
therefore supposed to include Mexican entities for them to qualify.
For
the midstream and downstream:
· Private
companies will operate under permits issued by the Energy Secretariat.
· Oil
transportation and storage infrastructures will be owned by Mexican investors
but available to everyone.
· The
marketing sector will grow and change over a period of years. For instance,
other companies will be able to sell fuel and freely import oil products into
Mexico. Price control will be eliminated as well.
In
the gas sector, PEMEX and CFE previously handled transport and storage
infrastructure. . In the energy reform, to improve competition, a third party,
CENAGAS, has been created to handle transport and storage infrastructure. The
other two companies will, therefore, transfer the contracts and resources to
CENAGAS, which in turn will tender the project to interested private and
state-owned companies.
Consequently,
thanks to myriad energy reforms, it is projected that the energy sector in
Mexico will grow tremendously by 2040, despite the decline experienced over the
past decade.
Lawyers in Mexico
The
Mexican legal market boasts a wide range of talented lawyers with international
work experience and LL.M.’s from prestigious Ivy League universities.
Large
domestic and international full-service firms dominate Mexico’s legal market,
though the Mexican definition of large is around 40-100 lawyers per firm. As
such, the Mexican legal profession is highly competitive. Staff turnover is
high and seldom do Mexican lawyers forfeit their career independence. Thus,
legal firms rarely merge. .
Instead,
to avoid long waits to make partner, lawyers become partner by splitting or
crafting ‘spin-off’ boutique law firms. In the recent years, the Mexican market
has inclined towards institutionalization rather than the outmoded family-based
approach.
Mexican Legal System
Mexico,
being a federal state, has a court system organized into local and federal
courts. Commercial matters are differentiated and administrated separately from
matters that are strictly civil. The Constitution has instituted that both procedural
and substantive matters of civil law be of a local jurisdiction, while federal
law administrates commercial matters. Now, being federal, commercial matters
are standardized in the Commerce Code, which is apposite and pertinent to the
whole country. On the flip side, civil matters are local—every state, with the
federal district, has its particular civil code and their (civil code)
procedures. However, there is also a Federal Code of Civil Procedures that
applies to resolving civil and federal administrative conflicts. Though
commercial matters are federal, local judges may resolve commercial disputes. Civil
judges can also resolve commercial disputes; both federal and local There are
no commercial judges.
Mexico’s
court system, besides being a federal system, divided into criminal, civil,
antitrust, labour, commercial, agricultural and administrative matters as well,
each of which entails a unique set of procedural and substantive rules, with
the criminal, labour, agricultural, and administrative matters having their own
judges and courts.
There
are four levels of federal courts: the Supreme Court of Justice, which has
eleven ministers; college circuit courts, which have three magistrates; unitary
circuit courts, which have one magistrate; and the district courts, which have
one judge. Every state has specific courts grouped by subject matter such as
family, commercial, civil, labour, leasing and criminal, and a state high
court.
The
Supreme Court serves as either a complete court or in two chambers, each with
five ministers. It resolves inter-state conflicts and those between a state and
the federal government as well as conflicting decisions among circuit courts.
The Supreme Court remains the last resort of appeal for particular cases that
involve constitutional matters. The Supreme Court also addresses challenges to
the constitutionality of laws.
Collegiate
circuit courts were created to resolve Amparo
proceedings involving legally questionable decisions handed out by the unitary
circuit courts--powers originally delegated to the Supreme Court. The unitary
circuit courts, sequentially, resolve appeals from district courts that are the
first instance of federal courts.
The
Federal Judicial Board is the judicial power’s administrative body. It
establishes, territorially, the number of circuits of both the district courts
and of the collegiate and unitary courts.
The
civil courts, which act as first instance courts, and the civil chambers, with
three magistrates, are both under the Federal District’s Superior Court of
Justice. Separate courts deal with leasing, bankruptcy, labour and family matters;
this is applicable at the federal level, too. In the Federal District’s civil
sphere sit the Justice of Peace judges. These judges settle claims concerning
very minimal amounts.
Judicial and Administrative Corruption in Mexico
Corruption
expedites the operation of Mexico’s powerful and vast criminal business
enterprises, while simultaneously incapacitating the efforts of the state to
confront them. Corruption, at times, makes it difficult to distinguish
enforcers from violators. But the structural weaknesses and corruption
typifying the institutions of justice in Mexico are barely new, which has, over
the years, shaped politics in Mexico. In recent years, never have these factors
conspired to generate such an escalating degree of instability, brutality, and
violence. This historical paradox has raised questions about the unstable
patterns of corruption and the dynamics of “war of choice” on organized crime,
unleashed by EX-President Felipe Calderon
A
record of members of the general public, public officials, and scholars consent
to the fact that organizations providing illegal imports of services and goods
cannot operate without corruption.
The
illegal payoffs to police and other local officials play a major role in
allowing the operation of gambling and prostitution rings in major towns, activities
developed within certain geographic and political boundaries.
Thus,
doing business in Mexico can easily entail bribing and intimidating public
officials, law enforcement, and judicial agents. organized crime cannot survive without
corruption.
More
often than not, headlines feature detentions of top officials within agencies
who spearhead the fights against drugs and organized crimes.
Criminal Procedure in Mexico
One
should always be familiar with the criminal system of the country one is in. Selection
of legal representation should be done critically and carefully. Failure to
adhere to a country’s law is not excusable by ignorance, even if that country
is not one’s own. Criminal systems differ from one country to another, and
one’s own judicial system cannot protect one in a foreign country; the
authorities can only ensure such a person is given a fair treatment.
Arrests
and detentions in Mexico are determined by the crime committed, and the
evidence acquired. The offenses are either state or federal. Federal offenses include
drug trafficking, organized crime, and custom and tax operations. Once caught
in a federal crime, if there is enough evidence, a suspect is arrested and
detained until a verdict is issued. If the suspect does not understand Spanish,
he or she is entitled to an interpreter, who will also read any written
documents the suspect is supposed to sign. The suspect also has a right not to
say anything incriminating until he or she has legal representation.
According
to the 'Vienna Convention on Consular Relations,' (VCCR), a suspected criminal
has the right to request the Mexican authorities to notify consular officials
and get representation. If a suspect would like to pass any message to the
consular officials, he or she can also do so through a letter or direct communication,
which is usually confidential. That conversation can only be disclosed if the
suspect gives permission or if it is beneficial to him or her. It is important
that a foreign suspect informs his or her consular if they are denied or not
informed of their right to the consular during their detention.
After
arrest, a suspect is taken to the government agency known as the Ministerio Público to determine the
veracity of the accusation. The process takes 48 hours, after which the suspect
is either taken to trial or released due to lack of sufficient evidence. A
suspect should monitor the timeframe, because if 48 hours end before the Ministerio Público makes a decision, the
suspect is supposed to be released. The 48 hours can, however, be extended in
special cases such as organized crimes and a suspicion that a suspect could
disappear. In such cases, a suspect is put in preventive detention, which takes
the form of either a house arrest or at a detention centre.
If
the Ministerio Público decides on a
trial, the suspect will be prosecuted. He or she will then be taken before a
judge, who will have 72 hours to determine whether the suspect will be released
or have a trial. If the judge issues a detention order, the trials begin. If
the suspect was not in detention, the judge issues an arrest warrant. Bail is
not issued in the Mexican judicial system. For a foreigner, however, it is
sometimes issued for a very high amount. A suspect’s lawyer can advise him or
her on how to apply for bail.
The
adversarial criminal procedure system has replaced the inquisitorial criminal
procedure system as per the June 2008 amendments. The adversarial system
includes proceedings in which evidence is presented before a court orally. This
procedure is transparent and saves time, as witnesses and the evidence is present
in court, and the judge makes a judgment according to what has been presented
directly in court.
The
inquisitorial criminal procedure, on the other hand, is time consuming, as it
requires many sessions, it has no witnesses, there are no oral arguments (the
lawyers present their argument in written form), the judge is the sole decision
maker (there is no jury), and there is
no court room. There are states that still carry out a inquisitorial criminal
procedure system. It is important for a suspect to know the system in which his
or her trial will be done. Their lawyer may advise them on that.
It
is important for a suspect to file for an Amparo
to protect their rights. An Amparo
is similar to an objection or Habeas Corpus. There are two types of Amparo a suspect can file. The first one
is in the first instance after arrest, if a suspect’s lawyer feels like his or
her client’s rights were not respected; it is often filed because of a technicality.
The second one is filed based on a suspect’s sentence during their first
appeal. It could lead to the case being dismissed or a a sentence reduction. A
different federal judge decides on whether to uphold or rule against the Amparo. A suspect should get good legal
advice from their lawyer on whether to file for an Amparo and whether it will be beneficial to their case.
After
a suspect is brought to a judge for the final time, the judge can reach a
verdict as quickly as 15 working days. In most cases, however, if the sentence
is less than two years, the judge reaches a verdict within four months. If the
sentence is longer the judge is given up to a year. The verdict can also be
delayed if witnesses disappear, there is a change in legal representation, or
if an Amparo was filed. After the
sentence has been read, a suspect is allowed to appeal it within five working
days.
The
Mexican judicial system underwent various reforms in 2008, which are expected
to be fully implemented by 2016.
Negotiation in the Mexican CultureThe business climate in Mexico is quite different from the USA. This is mainly due to the different laws and regulations governing each country. The Mexican culture plays a major role in the business sector, as it has a great influence on how a business is run and can contribute to its success or failure. It is, therefore, important to note that when doing business in Mexico, a company should consider the culture, the business relationship, the governing structure and hierarchy, and the manner in which transactions are conducted.
A good relationship between business partners is fundamental
to a successful business. During the first business meeting, partners talk
about themselves rather than the business. This is to cultivate a good
relationship and to get to know one another better.
The governing structure should be functional, and the
hierarchy should be considered. Mexicans value titles for prestige, even for
the smallest achievement. Undergraduate degree holders, for example, often
refer to themselves as licensed. It is important to respect the titles and
positions held by each. For the governing structure, the senior team member is
the outspoken one while the other members stay silent. If the other members
have issues to discuss, they do it in a written form, giving the senior member discretion
on whether to raise the issue or not.
Another point to note in the Mexican culture is the
dominance of the male gender in the high ranks. It is often assumed that the head
of any organization is male.
In Mexico, every business transaction is done with the
utmost formality. Although they do business with those whom they are most
comfortable with, they ensure that they document each transaction precisely,
especially if government agencies are involved. As an experienced counsel in
Mexican business negotiation, I assure you that these parameters will help you
handle negotiations appropriately.
Investing in Mexico is easy and lucrative for a person
who has a long-term investment in any given industry or sector. Mexican
citizens will gravitate to someone who invests in them and offers them a good
deal, such as multiple job opportunities and a good pay. They are careful when
dealing with foreigners due to the perceived historical exploitations by the
USA, and one’s choice of words during negotiation should be sensitive to this. One
should not be egotistical, but ensure one compromises where needed and
incorporates their ideas when in agreement.
Before the negotiations, a savvy businessman will be familiar with a Mexican company’s policies
on the following:
·
Foreign Investment Act
Restrictions. One should know what the Act entails and be familiar with the
major impositions, such as when a businessman can get a waiver and when he or
she can get minority ownership.
·
Labour. Mexican policy on
labour is that, once employed, one cannot lose their job economically. It is
easier for foreigners to let the Mexican business partner take care of labour.
·
Language. Obviously, it is
easier for a Mexican citizen to carry out business negotiations in Spanish. Hence,
an interpreter is always a good investment.
·
Time-frame. One should always
be prepared to conduct negotiations at a slower pace than in the USA.
Doing business in a foreign country is not as
easy as in a local setting. One has to possess
the appropriate knowledge, attitude, and skills. From personal experience, these guidelines will
aid the prospective investor’s negotiations and contribute to a successful
business investment.
As a lawyer in Mexico, my role has been to protect my clients from such unscrupulous agents
who put their interest first in the line of duty. Due to my strong record of
negotiation and my excellent understanding of the Mexican law, I will continue helping
my clients on pursuing the best and fairest judgment.
[1] Enrique Benet Gregg graduated
Law School from the ITAM and has studied at the graduate level at the
University of Paris I (Sorbonne). He also holds an LL.M. from Cornell
University. He has participated in organizing various symposia on philosophy of
law between the USA and Mexico. His major area of development focuses on the
legal services industry.
He is a founding partner
of Ferráez,
Benet, Segovia & Igartúa, Abogados (FBSI Abogados) and CEO of Isla Business Group (IBG).
His extensive experience has always been related to litigation and negotiation,
and his areas of expertise are Civil and Criminal Litigation, Negotiation and
Energy Law. He has participated in many international corporate transactions
between Mexico, USA, Asia and Europe; as well as Legislative issues at the
Federal level in Mexico. In 2014 he was appointed Dean to the European Law
Program at ITAM. He is a Member of the Mexican Bar Association.
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