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The Chargé in Mexico (Boal) to the Secretary of State

185. My 179 of July 7, 3 p.m., and 184 of July 10, 5 p.m. Beteta asked me to come to see him and told me informally that he had been looking into the situation regarding the petroleum conditions with the Department of National Economy. It appeared that no early legislative action which he would consider as affecting the Morrow arrangement was now contemplated but that administrative action might be taken to obtain a tax or royalty from the petroleum companies and to prevent Mexico from becoming a petroleum “reserve,” that is, to cause the companies to exploit more fully the properties which they hold. He said that in view of this and of his knowledge of the President’s mind he thought it best if I agreed not to take up with the President at this time the subject of my memorandum as reported to the Department in my 184. He said further that he would try to inform me ahead of time if any move for new important legislation in petroleum matters became imminent. I told him that of course I did not wish to ask him to go against his best judgment.

He then said he wanted to tell me confidentially of measures which the Government contemplated taking against the Huasteca Petroleum [Page 649] Company. The Government, he said, intended to proceed against that company for evasion of taxes over several years period and amounting to several million dollars on petroleum from the Cerro Azul fields. The Government would take one of three courses; either (1) what is known as económico coactivo action which might involve taking administrative possession of the company’s holdings or (2) a regular suit in court subject to amparo, et cetera, or (3) penal procedure against the company for fraud. He did not know yet which of the three courses will be followed but wanted us to know ahead of time what was contemplated.

Referring to Department’s 138 of July 12, 7 p.m., it would seem from the above that it is important to determine whether administrative action (possibly by Presidential “acuerdo”) levying royalties on the companies and penalties (in the sense of my 179) if they do not more fully exploit the properties to which they hold concessions is to be considered as contrary to the Morrow arrangement.