Is “Business as Usual” about to Blow Up in Latin America?

by Pablo Amaya, JD, and Sergio Guzmán | Apr 25, 2017
Pennsylvania CPA Journal
In Latin American politics, a watershed moment occurred on Dec. 21, 2016, when Brazilian construction company Odebrecht signed the largest ever settlement for corrupt behavior after admitting to bribing officials in 11 countries: Angola, Argentina, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru, and Venezuela. The U.S. Department of Justice (DOJ) on the same day reported that the company paid out more than $788 million (U.S.) to gain an upper hand on public works programs from officials in those countries between 2009 and 2015.

The political ramifications of the Odebrecht case rippled throughout Latin America with unprecedented speed: a former senator and former vice minister were arrested in Colombia on Jan. 14, 2017; an international arrest warrant was put out for former Peruvian President Alejandro Toledo on Feb. 9, 2017; arrest warrants were issued for the sons of former Panama president Ricardo Martinelli on Feb. 13, 2017; and investigations of high-level government officials – including presidents, ministers, and vice ministers – are taking place in Colombia, the Dominican Republic, Ecuador, and Panama. Although corruption has a deep-rooted history in the region, instances when ex-presidents and high-level officials are actually held accountable are few and far between, much less coordinated and swift.

It has yet to be determined if these allegations will bring about significant change to the corruption landscape in the region. One signal that it has would be if we see new laws and regulations on contracting requirements and public bidding emerge in response to Odebrecht.

Anti-corruption laws and efforts differ significantly from country to country – from independent domestic law enforcement agencies to international bodies, from government-led probes to investigative media. But two things are important to highlight: the trend of stricter law enforcement is evident everywhere and is set to intensify as a result of greater popular demand for transparency and accountability; and politicians generally do not go down alone, meaning that we can expect more politicians, government officials, and even company executives to be investigated or arrested on account of corruption charges related to the Odebrecht scandal and possibly emergent scandals.

Should Latin America begin to clamp down on corrupt practices, companies that do business there will need to ensure they have tight anti-corruption measures in place and employee compliance is unwavering. If not, any company could come under suspicion or prosecution.

Robust policies against fraud, bribery, and corruption need to be implemented in every corporation. International corporations need to strengthen their current policies, not just duplicate their global compliance programs to their subsidiaries in other jurisdictions. International standards certainly are a good start for compliance programs, but with new regulations popping up throughout Latin America, companies need to make sure compliance programs are applicable to local regulation and policies. The U.K. Bribery Act and the U.S. Foreign Corrupt Practices Act (FCPA) are now complemented by local regulations that have been put in place throughout the region. Examples include the 2011 Anti-Corruption Statute in Colombia as well as its transnational bribery law of 2016 (Colombia will now reach OECD standards for anti-bribery), Brazil’s Clean Companies Act of 2014, Mexico’s anti-corruption framework that is close to being implemented along with its new Transparency and Access to Public Information Law in 2016. In addition to compliance policies tailored to local regulation, companies need to focus on the particular industry they operate in and the evolving tendencies in those markets, where politics, economy drivers, social customs, and other players can affect company projections and intentions. For example, investing in the oil and gas industry in Indonesia will be very different than in Peru.

Transformative for Some, Not so Much in Others

Despite the sweeping anti-corruption effort involved with the Odebrecht scandal – prosecutors from the 11 countries met on Feb. 17, 2017, to streamline cooperation and coordination to unveil the extent of the corruption scheme – each country has its own tolerance level and dedication to the fight. For instance, Venezuela was the country where Odebrecht allegedly paid the most money in bribes ($98 million U.S.), but it is not expected that investigative actions will yield significant or swift results since many allegedly involved individuals are government officials from the ruling party. The case is different in Peru, where President Pedro Pablo Kuczynski has promised a full investigation of the events, and gone further than any of his predecessors to implement anti-corruption laws, regardless of what interests or politicians end up involved. In Peru’s case, it happened to be Toledo, Kuczynski’s former boss.

Whether or not significant change is on the horizon could be determined in the next year or so if a greater investigative zeal among authorities against corruption cases grows beyond Odebrecht. But should investigations stall in the enforcement agencies, congressional investigative committees, or other instances, we can assume by the context that Latin America will remain in “business as usual” mode. But even if there is a sea change toward fighting corruption, companies must not become complacent in their oversight. For most of the region, corruption does not occur at the large-scale national level; it is more prevalent at the local level, in states, mayoralties, townships, and the administrative divisions therein.

Addressing the low-level corruption that remains endemic across much of Latin America’s bureaucracy and state institutions will require even more significant commitment to far-reaching administrative reforms, of which there has been little sign to date, mostly because such initiatives bring little political reward and face deep institutional resistance.

This is why, even if national-level crackdowns continue, companies still need to review and strengthen their current compliance programs and to make sure those programs are tailored to cover the applicable international and domestic regulations with regard to corruption. Be sure to design and apply a robust internal controls system with up-to-date technology, and to train and educate local personnel regarding the company’s anti-corruption policies and best practices. Then be sure to implement whistle-blower mechanisms and incentivize self-reporting. Lastly, keep an eagle eye on new and upcoming regulations being introduced throughout the region to stay up to speed.

The Influence of the DOJ

The DOJ has had an important role in helping uncover corruption scandals, such as the toppling of the leadership of the Fédération Internationale de Football Association (FIFA) in 2015 and Odebrecht in 2016. The DOJ got involved in these cases because U.S. financial institutions had been used to transfer funds between the parties allegedly involved in crimes, thus giving U.S. authorities jurisdiction over those investigations. Had DOJ not pursued those scandals, it is likely they may not have rocked the Latin American political establishment as much as they have.

Collaboration between the United States and Latin American authorities is expected to continue going forward, but the unpredictability of the presidency of Donald J. Trump could rock the boat more than had been anticipated. However, should the United States continue adding its investigative prowess to Latin American anti-corruption efforts, authorities are likely to uncover even more instances of transnational corruption.

Be Proactive

Countries such as Ecuador and Peru have begun to formally press charges against many of those involved in corruption scandals, including high-profile businessmen and even ex-presidents.

Kuczynski recently announced seven measures his government is going to take against corruption, including the expulsion from Peru of companies convicted of corruption; a tripling of the budget for the attorney general’s office to investigate corruption cases; a whistle-blower mechanism with rewards for those who report or help identify corrupt practices; and a new, stronger anti-corruption clause in public-bidding contracts. These measures are just the beginning of what seems to be a stronger seat belt in regulatory measures taken to fight corruption in Latin America.

Companies have to understand that reactive measures may come too late when mitigating risks or scandals. Proactive actions must be taken, including putting into place strong operative systems within the company, including high-end IT tools that strengthen the day-to-day business compliance procedures. Other proactive measures include conducting risk assessments from experts to identify gaps or weaknesses, training and education directed to employees, and implementing whistle-blower procedures that encourage self-reporting. Companies also need to make sure they are monitoring their employees and that their subsidiaries are strictly following compliance policies too.

Yes, companies will have to open their wallets in the short run to implement the appropriate measures. But let’s not forget former U.S. Deputy Attorney General Paul McNulty’s wise words: “If you think compliance is expensive, try noncompliance.”

Pablo Amaya, JD, is a consultant within Control Risks’ compliance, forensics, and intelligence practice in the Bogota, Colombia, office. He can be reached at

Sergio Guzmán is an analyst within Control Risks’ global risks analysis practice in Bogota. He can be reached at
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