2nd Annual Anti-Corruption in Oil & Gas for the Americas Mitigating Third Party Risk in New Frontiers – Mexico MAURICIO ALMAR Latin America Regional Compliance Counsel 24 March 2015 Mitigating Third Party Risk in New Frontiers – Mexico ▌ Advanced Local Partner Issues What additional compliance measures do you need in order to operate effectively in Mexico? ▌ Performing Due Diligence in High Risk Regions How can you ensure that the information you receive is accurate and reliable? ▌ Engaging with Third Party Employees Should you incorporate specialized training of third party employees as part of your compliance program in Mexico? © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 2 Advanced Local Partner Issues Are enhanced compliance measures needed in Mexico? ▌ Internal Factors Individualized risk assessment Large footprint and operations or smaller organization Interactions with government officials (as clients and regulators) Internal resources versus reliance on third parties, particularly local companies and individuals Location of operations © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 4 Are enhanced compliance measures needed in Mexico? ▌ External Factors Transparency International Corruption Perceptions Index Gift and entertainment expectations and practices Overburdened and inefficient bureaucracies Significant enforcement focus from the DOJ and SEC (ex. Key Energy Services, Banamex, Wal-Mart, Biomet) Lack of local enforcement of existing anti-corruption laws New anti-corruption legislation in Mexico Impact of the Energy Reform on your organization (ex. JVs) Communities Cartel activity © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 5 Are enhanced compliance measures needed in Mexico? ▌ Many organizations will reach the conclusion that their corruption risk exposure in Mexico is heightened. ▌ Enhanced compliance measures Dedicated compliance resource that understands local customs Limit reliance on third parties Partner with established companies, and limit use of gestores Procurement processes Financial controls: importance of detailed invoicing Due diligence does not eliminate risk; ongoing monitoring Local personnel must be equipped to recognize warning signs © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 6 Performing Due Diligence in High Risk Regions Accuracy and Reliability of Due Diligence Information ▌ The quality of a due diligence exercise can only be as good as the quality of the public information available during the process. ▌ Access to reliable information in Mexico, as in other Latin America countries, is varied. ▌ Due diligence is not part of the business culture in all of Mexico, and sometimes there is resistance. ▌ Information is invariably more accurate and reliable when it comes from more developed areas and cities, as opposed to local, rural communities. © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 8 Accuracy and Reliability of Due Diligence Information ▌ How can you be sure that your information is reliable? Collect information from both internal and external resources, including company employees proposing the engagement and from the third party itself Compare that data with public records, social media sources, and other online resources Seek information in major Mexican cities rather than local, rural areas as much as possible; know that ownership data found even in major city records may not be up to date Consider hiring high-quality investigators with local contacts and experience for certain business relationships Request certifications from the third party being reviewed © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 9 Specialized Compliance Training Specialized Compliance Training ▌ Third party employees can present significant risks Legal Reputational Financial ▌ Critical that they be well-versed and trained on your company’s ethics and compliance expectations ▌ Do not leave it to chance © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 11 Considerations for an Effective Third Party Training Program ▌ Who should deliver the training? Your company, third party company, or an independent instructor Legal, business, or a combination ▌ What are the critical compliance topics? Corruption Fraud & Kickbacks Gifts & entertainment ▌ What are the cultural sensitivities? Imposition of foreign laws and expectations on a Mexican entity Perception of U.S.-centric policies and expectations Language barriers © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 12 Considerations for an Effective Third Party Training Program ▌ What kind of training is necessary? Online In-Person Policy and legal focused Red flag training ▌ What should be the tone of the training? Coercive view of compliance Culture of empowerment © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 13 © 2014 HALLIBURTON. ALL RIGHTS RESERVED. 14
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