As Persian Gulf oil becomes less attractive, some American oil companies are thinking about Mexico as a friendlier supplier. But those oil companies had better think twice, if the experience of two Texas oil men is any indicator.
Bill Flanigan and David Black of Houston have spent the last five years tied up in lawsuits because they tried to buy oil from Mexico for their oil company, Arriba Ltd. The lesson learned from the experience, according to Black, is that if the United States wants a free trade relationship with Mexico, "There's got to be a serious housecleaning first."
Flanigan and Black's ordeal is summed up in a racketeering lawsuit they filed this year in Houston against oil men in Mexico. It is a bill of particulars against the state-owned Mexican oil industry and a warning to anyone who wants to deal with Mexico.
In 1984, the two men signed a contract with the Commission of Contracts of the Mexican Petroleum Workers' Union to buy 6 million barrels of Mexican oil. The Texans say they were led to believe that the agents for the union also represented Petroleos Mexicanos, or Pemex, the government-owned oil monopoly.
Black and Flanigan put up a $2.5 million letter of credit that the Mexicans could draw on if they delivered the oil. But the oil never came. Arriba's lawsuit says the union began demanding money in advance before Pemex would deliver, but Arriba refused.
Arriba finally sued the union, in a Texas court, for breach of contract, but the Mexicans never showed up. When the judge awarded Arriba $92 million by default, the union finally agreed to deal. Union representatives offered a better contract than the first one -- a 10-year joint venture involving Pemex oil rigs. And Arriba waived the $92 million settlement.
But by 1989, when Pemex still had not delivered any oil, Arriba went back to court in Houston and got the judgment reinstated, this time for $273 million total. The union has not paid, claiming the Texas court has no jurisdiction over it.
Not willing to roll over and play dead, Arriba has filed the comprehensive racketeering suit against Pemex, the union and the union's Commission of Contracts claiming that the three perpetrated fraud by having the union act as an agent for Pemex to sign deals that Pemex later disavowed.
An attorney for Pemex told our associate, Dean Boyd, that Pemex is not accountable for the actions of the union or the commission. Pemex has filed a motion to have the racketeering suit dismissed.
Flanigan and Black are still proponents of a free-trade pact between the United States and Mexico, but they think American businesses should be warned about the downside of dealing with Mexican businesses, especially those owned by the government. And, Flanigan said, American businesses need a "legal framework" where they can go for recourse if they are cheated.
Carlos Gil, a Mexican history professor at the University of Washington, told us that most U.S. business people "don't know the extent" of official corruption in Mexico, "nor are they aware of what it really means for them."