Leave it to the free market to solve a legal conundrum.

Although the U.S. Foreign Corrupt Practices Act (FCPA) was passed by Congress and signed into law in 1977, it hasn’t stopped some companies from allegedly engaging in illegal acts to further their economic interests abroad. Recent history is rife with cases of companies paying off government officials for preferential treatment.

And with Mexico tantalizingly close to engaging in significant foreign investment in its burgeoning energy industry, corruption within the high-dollar business of extracting and moving hydrocarbons is a concern, experts say.

But it just may be Mexico’s desire to participate in energy on a global scale that curbs corruption.

Recently, a Citigroup subsidiary became the subject of a U.S. Securities and Exchange Commission (SEC) investigation in a case of making allegedly fraudulent loans from its Mexican unit. New York-based Citigroup’s Mexican subsidiary, Banamex, made a short-term loan of $585 million to a Mexican oil services firm, Oceanografía, during 2013.

Petróleos Mexicanos, the state-owned entity known as Pemex, had questioned the billing practices of the contractor, which has performed offshore work for Pemex for several years. Mexican officials subsequently placed Oceanografía executive Amado Yáñez under house arrest while they investigate.

Pemex was quick to react. The company suspended all new contracts with Oceanografía pending its own investigation and the Mexican government has taken control of Oceanografía, Attorney General Jesús Murillo Karam said in a statement in Mexico City. An unidentified Pemex official told Bloomberg that Oceanografía’s assets have been impounded and the investigation will cover more than 40 contracts with Pemex.

The National Action Party, known as “PAN” for Partido de Acción Nacional, responded to reports of abuse by reportedly refusing key discussion and voting on the energy reform bill, which is needed to pass the enabling legislation that was approved last year.

But those murmurings appear to have subsided, said Antonio Garza, former U.S. ambassador to Mexico and now counsel in the Mexico City office of White & Case LLP.

“The stakes are too high for the PAN to try and hold this one hostage, particularly after they’ve been so much a part of the reform,” he told Midstream Business. “A fair amount of the political goodwill around this issue is theirs. [It] would be senseless to squander that on what would essentially be a tactical gambit.”

As for the Oceanografía case itself, Garza said officials and all parties are moving to swiftly get to the truth and “isolating this case in a way that it’s not allowed to contaminate the broader environment.”

Thomas Fox, a Houston legal specialist in FCPA issues, said he doesn’t believe the Oceanografía case will slow down Mexico’s energy reforms.

“I think it will help to accelerate the reforms because all of that [case] is public and coming out through the reporting,” he told Midstream Business. “I think it’s going to embarrass Pemex.”

What’s more, Fox said he believes the notoriety of the case will push Pemex to highlight the importance of keeping business in Mexico clean.

The power of perception

“I think they’ve driven compliance down into companies that are doing business with Pemex,” Fox said. “It’s a marketplace solution to a legal problem.”

According to Transparency International’s Corruption Perception Index, a metric used by many in the field, Mexico rated in 2013 and 2012 with a score of 34 out of 100, with 100 indicating the least perception of corruption. The United States scored 73 in 2013 and Canada rated 81.

Fox said recent cases such as the 2012 allegations that a subsidiary of U.S.-based Wal-Mart had bribed Mexican officials put additional scrutiny on any international work in the country.

“That really crystallized people’s thinking about the country being corrupt, and politicians and those in government-owned industries, such as Pemex, such as the utilities and telecom industries, all being corrupt,” Fox said. “People consider it as one of the risks of doing business in Mexico.”

For its part, Pemex has said corruption has no place in its business.

The company said in a recent statement regarding new SEC and U.S. Department of Justice allegations of bribes paid in 2008 and 2009 that the newest director general of Pemex, Emilio Lozoya Austin, has “emphasized that there will be zero tolerance for any act of corruption in the business and general disregard for the law, so that in this, as in other cases, there will be no impunity.”

Former Ambassador Garza said U.S. companies that operate abroad know the rules, and they will likely work to ensure they don’t put themselves in a position of exposure to FCPA sanctions.

“I’ll tell you another reason why I think you won’t be hearing too many corruption-related horror stories. That’s because this government knows the whole world is going to be watching this transition play out,” he said. “And it better look, smell and be transparent and competitive or the bloom will be off this rose pretty quick.”

Indeed, Mexico has made inroads toward luring foreign investment to its markets. The nation’s public-private partnership (PPP) law was designed specifically to attract investors and give contractors a more certain environment.

Midstream needs

Jose Valera, a partner in the Houston office of Mayer Brown, said that just laying the pipeline and other midstream infrastructure needed to deliver and store the hydrocarbons that Mexico stands to produce will be worth tens of billions of dollars’ worth of investment. And FCPA concerns exist globally, he told Midstream Business.

“We need to keep in mind how little infrastructure there is in Mexico today—how little midstream infrastructure there is—by some accounts, Mexico has a total of about 12,000 miles of pipelines,” Valera explained. “Whereas if you look only at the state of Texas, we have more than 250,000 miles of pipelines. That gives you an idea of the scale in what Texas has, what Mexico has and what Mexico could have.”

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