FCPAméricas Blog

The Shadow of Fujimori: Common Corruption Risks in Peru

Author: Matteson Ellis

FujimoriFCPAWhen Alberto Fujimori ruled Peru between 1990 and 2000, he brought security and stability to a country known for Shining Path terrorism, economic ruin, and runaway inflation. These accomplishments came with a downside – widespread corruption at the highest levels of government. President Fujimori now sits in prison serving a 25-year sentence for siphoning away public money. (FCPAméricas previously interviewed the lawyer who put him in jail.)

Stability cloaking corruption might be thought of as a common theme in Peru. On one hand, the country now distinguishes itself in the region for its high level of macroeconomic stability, the second lowest level of inflation, and the second highest GDP growth. Last year it had the second highest increase of foreign direct investment in percentage terms.

But this facade of normality should not fool the outsider. Corruption is a major problem in Peru. In a survey conducted last year by Proética, Transparency International’s affiliate there, Peruvians cited corruption as their second highest concern, behind security, with almost half stating that it is one of the country’s biggest problems. With this in mind, FCPAméricas highlights five areas to watch out for when doing business there. (We also note that Peru is considering joining the OECD Anti-Bribery Convention, which would be a significant step forward.)

Lawyers and Impunity. Peru has several well-respected law firms, but certain segments of the bar are known for illicit dealings with the judiciary. The court system is overloaded. If lawyers want their cases moved up the docket, they often need to pay. Some call it “La Danza de los Maletines” – lawyers dancing around the courts with suitcases of money in hand. The Proética survey found that 56% of Peruvians think the judiciary is corrupt. A sense of impunity means that bribery is often straightforward, with little need to devise complex schemes. Even if a lawyer is caught, he or she is ultimately unlikely to be punished.

Business Community Tolerance. Foreigners doing business in Peru sometimes encounter a considerable degree of tolerance for corruption among the business community, or a willingness to look the other way. Some might say this is directly linked to opinions of Fujimori and his legacy. Many in the business community revere the former president for the stability he brought. He is still so popular that his daughter narrowly lost her bid for the Presidency in 2011. These attitudes, in certain situations, can lead business people to view anti-corruption compliance efforts with skepticism, interpreting them as little more than the usual political criticisms. As a result, conversations about managing corruption risk can take on unexpected dimensions.

Unique Mining Risks. Mining is big business in Peru, accounting for the majority of the country’s exports. Permitting processes are relatively transparent, and government officials working on concessions are generally professional and technically knowledgeable, though corruption risks still exist. Other aspects of the industry can present bigger risks. To obtain exploration and mining rights in some areas of the country, companies need to establish agreements with local indigenous groups. Under local law, these groups have rights to use of surface lands in some mining-rich areas of the country. Companies obtain permission to use lands through rent payments, charitable donations, and other benefits. These interactions create risks that companies will give improper payments to local officials to win indigenous support or to circumvent its authority.

Industries with Limited Licensing. Some industries, like oil and gas, construction, fishing, and lumber, have more limited granting of licenses and concessions than mining. This results in high levels of competition and pressure to win contracts, giving authorities leverage to extract concessions. This creates bribery risk. Procurement officials are known to tell bidders, “no proposal is perfect,” implying that bid mistakes can be cured with favors. Bidders might be encouraged to use unscrupulous third party “operadores” in tenders. In particular, the construction sector is known for its cartels. Similarly, lumber quotas in the Amazon create incentives for companies harvesting wood to pay off inspectors to turn a blind eye.

Police. The police force in Peru is known to be highly corrupt, one of the most corrupt in the region. Proética reports that, in 2011 and 2012, more than 6,000 policemen were being investigated for corruption. Last year, the Peruvian authorities initiated the rotation of 80% of the force to disrupt police involvement in criminal activity. The risks are shown in surveys. The 2012 Latin America Corruption Survey found that more than 80% of respondents with experience in Peru considered the police to present “significant” corruption risk, one of the highest for this category, on par with Mexico, Venezuela, and Bolivia.

The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.

© 2013 FCPAméricas, LLC

Matteson Ellis

Post authored by Matteson Ellis, FCPAméricas Founder & Editor

Categories: Anti-Corruption Compliance, English, FCPA, LA Corruption Survey, OECD, Peru, Risk Assessments

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One Response to “The Shadow of Fujimori: Common Corruption Risks in Peru”

  1. Luis Cabrejo Says:

    Very nice article, i agree with you…

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