Part 3: Fraud Under NAFTA

Halliburton is a +$15 billion dollar per year multinational corporation with operations in more than 120 countries. By its very nature and commitment to its shareholders, Halliburton must be knowledgeable about the laws of the many countries they operate in.

However, the Mexican judicial system has ruled that Halliburton has violated exceedingly fundamental sections of the Mexican Constitution, Labor Law, Social Security Law and Occupational Health and Safety Laws.

If the sections that were violated were an untested novel legal precept without any litigation history under the Mexican judicial system I would begrudgingly agree that unwary companies could innocently run afoul of the above cited Mexican Laws. But since the 1920’s, the Mexican Supreme Court has numerous times interpreted the Constitution of 1917 regarding the issue of the rights and guarantees to be accorded to foreigners working in Mexico. The statutes and case law are fundamental to Mexican college and university business, accounting and law courses .

Each time, the Mexican Supreme Court has been consistent. Per Article 1 of the Constitution, all persons - national or foreign - are to be equally accorded all of the rights, protections and guarantees enumerated in the Mexican Constitution. Per Article 123, a framework for a labor law is provided with a central principle the labor law shall apply equally to all workers regardless of sex or nationality.

Corporations such as Halliburton have induced Americans to accept work in Mexico without informing the American workers of their labor and civil rights in Mexico. The result in the case of the following Americans working for Halliburton in Mexico, was their workplace safety rights were violated, their rights to medical services for workplace injuries were denied, their termination rights were breached and their rights to mandated compensation were contravened. This is a bold statement, but the ensuing facts will bear me out.

Even though court records are sealed in Mexico, reasonable conclusions can be reached by analyzing the written decisions. In the matter of Halliburton, in 2003, a Federal Magistrate issued a Constitutional Amparo (Federal Court issued injunctive order) directing a lower court to “abide by the rights and guarantees accorded by the Mexican Constitution…..and…..the International Labor Organization Convention of 1935.…..to all foreign workers…..in Mexico.”
The Amparo further instructs the lower court to assure that the “rightful claimant foreign workers who were victims of a workplace accident,” receive “equal treatment without any condition.”

The synopsis of the decision does not state that Halliburton denied company sponsored medical treatment to the foreign victims. It seems only logical the only reason foreign workers (Americans) would seek redress in a Mexican Tribunal would be if they were denied medical treatment because Halliburton refused to authorize the medical services for its foreign (American) employees injured while working in Mexico.

On the same day, the same Federal Magistrate issued another Constitutional Amparo directing the same lower court to protect the rights and guarantees of foreign workers who were unjustifiably terminated by Halliburton. The Amparo further states the foreign workers are “mandated indemnification for unjustified termination, withheld salaries, seventh day pay, holiday pay, vacation pay, vacation premium, obligatory Christmas bonus, etc.”

In 2007, the Mexican Supreme Court reviewed and upheld the two Constitutional Amparos issued by the Federal Magistrate.

The compensation referred to by the Mexican Federal Magistrate are Mexican payroll benefits and perquisites. The list is incomplete and the abbreviation etc. is used to indicate there is a logical continuation of other applicable benefits and perquisites under Mexican Law.

The synopsis of the decision does not state that Halliburton unjustifiably terminated (fired) the injured foreign (American) workers. But, it seems reasonable to infer that the same Magistrate, issued two Amparos to the same lower court where injured foreign workers were pursuing legal action against Halliburton. It also seems reasonable to infer that both Amparos relate to the same action wherein the foreign workers were injured on the job and Halliburton refused to authorize company paid medical treatment. When the foreign workers complained they were fired.

The Federal Court instructed the lower court to acknowledge that foreign workers have the same occupational health and safety protections as Mexican workers. When those rights are infringed the foreign workers have the same rights to redress as Mexican workers. If a company takes a rash action such as firing “rightful claimants,” the Mexican Labor Law provides onerous punitive termination compensation to the unjustifiably terminated workers.

In my instance, the court ruled I was defrauded 70% of my base pay. The court also ruled that after seven years I was awarded almost $1.5 million dollars in withheld pay, profit sharing, fines, interest and penalties. The court also ruled that unpaid mandated compensation also resulted in unpaid corporate payroll and social security taxes owing to the Federal Government.

Herein lies the problems for corporations such as Halliburton. Most Americans working in Mexico are listed as exempt workers and are paid for a forty hour week. Standard work weeks for exempt employees can be as high as fifty five to sixty hours per week. One of the etc’s not listed above is overtime.

Overtime in Mexico is very burdensome to employers. The first nine hours are paid at double time and all subsequent hours are paid at triple time. When an American worker is transferred to Mexico, he has under Mexican Law a forty hour per week labor contract. Thusly, if sixty hours were incurred, the first nine hours would tally to eighteen hours and the subsequent eleven hours would tally to thirty three hours for a grand total of forty one hours of overtime.

That’s more than 100% of the Americans base pay. But this isn’t the end. To the overtime hours must be added the mandated benefits and perquisites applicable to the hours. Thereby driving the cost of the overtime hours much higher. Potentially as great as 35% more.

Herein lies the rub. As long as the American workers don’t know their labor and civil rights in Mexico, the weekly cost to corporations such as Halliburton are usually less than for comparable Mexican workers who must be paid the incurred overtime and added benefits and perquisites. This proviso usually causes comparable Mexican workers to be more expensive than American workers. Who would’ve thought.

But, there is a more insidious reason to keep foreign workers in the dark regarding their labor and civil rights. I referred to this above - 10% annual profit sharing. Mexican Law mandates that all workers in Mexico must be paid by their employers an annual 10% profit sharing. Most Mexican subsidiaries of U.S. NAFTA companies operate on a break even basis. Most compute a transfer price which includes a minimal profit. From this profit all Mexican employees receive a nominal share of the profits.

However, the lower the stated costs in Mexico, the greater the profits for the parent corporation. When Americans are transferred to work in Mexico, they apply for and are given a Work Permit (FM3) which claims they are an employee of the U.S. parent. Therefore, under Mexican Law, the Americans working in Mexico should divide 10% of the U.S. parents stated annual profit. Halliburton declared a c.$3.5 billion dollar net income. Ten percent would amount to $350 million. If Halliburton were to have 500 foreigners working in Mexico, they’d each receive a profit sharing check for c.$700,000 dollars.

This is a fact most shareholders lack knowledge of. If this were to ever surface, the shareholders would rise up, grab their pitchforks and torches and storm the corporate headquarters.

I have reviewed available Halliburton annual reports and I cannot find any reference to the two significant court rulings. Nor can I find any disclosure to the shareholders that annual dividends may be diluted by mandated Mexican 10% profit sharing owing to Halliburton employees working in Mexico.

My next posting will bring to light the fiscal implications to the United States and Mexican Governments.