FCPAméricas Blog
Six Compliance Lessons from the 2012 Latin America Corruption Survey (Part 1: Subtle Signs of Improvement in the Compliance Environment)
9.25.2012
The following article by FCPA attorneys James Tillen of Miller & Chevalier Chartered and Matteson Ellis of Matteson Ellis Law PLLC was originally published in the widely-read FCPA Report on September 5, 2012. It is republished below with the publication’s permission. Part 1 (below) discusses subtle signs of improvement in the compliance environment. Part 2 discusses compliance program benchmarking. And Part 3 discusses take-aways for the compliance officer.
A recent survey of companies spanning 14 countries throughout the Americas, organized by our U.S. law firms Miller & Chevalier Chartered and Matteson Ellis Law PLLC along with 12 Latin American law firms, provides insight into corruption issues in the region. Four hundred and thirty nine respondents from local, regional and multinational companies completed the 2012 Latin America Corruption Survey. The results offer perspectives on the extent of corruption in Latin American countries, the effects of corruption on companies operating in those countries, the effectiveness of regional anti-corruption laws, and tools that companies are using to address corruption risks. For a summary of the survey, see “Miller & Chevalier and Matteson Ellis Law’s 2012 Latin American Corruption Survey Results Shows Increasing Awareness of the FCPA,” The FCPA Report, Vol. 1, No. 3 (Jul. 11, 2012).
In this article, we provide additional analysis that will be useful to compliance personnel when they are evaluating the effectiveness of their compliance programs in Latin America. In particular, we highlight four themes of the results and six corresponding takeaways from the survey findings for compliance officers.
When compared to a similar survey conducted in 2008, which also gauged the opinions of local, regional and multinational businesspeople operating in the region, the 2012 survey results suggest that the corruption environment in the region is improving. The changes detected are admittedly subtle. Nonetheless, when considered in the aggregate, the movements confirm encouraging trend lines to monitor.
Increased Awareness. Evidence of an improving environment is the fact that 85% of respondents say their company’s management has taken steps to protect the organization from corruption risk, up from 77% in 2008. One reason for this uptick might be the steady increase in FCPA enforcement. Headline cases involving the region mean that more companies are aware of the consequences of ignoring compliance. Indeed, 64% of respondents say they are somewhat or very familiar with the FCPA. Knowledge is especially prevalent among businesspeople working for publicly listed companies or affiliates of U.S. multinational companies. Just 3% of those respondents think their company is not subject to the FCPA and 19% “don’t know.” This is a significant change since 2008. That year, 30% of respondents whose companies were clearly subject to the FCPA did not recognize that their companies were covered by the law. Even the U.K. Bribery Act, which just went into effect last year, is on people’s minds. Forty-percent (40%) of respondents are either somewhat familiar or very familiar with the law.
Competitive Effect. Another positive trend relates to the number of respondents (51%) who say their company has lost business to competitors that have made illicit payments, down from 59% in 2008. Multinational companies (46%) are less likely than local/regional companies (59%) to believe they have lost business to competitors making illicit payments. This difference might be due to the positive effects of compliance programs, which are more prevalent among multinational companies. If a multinational’s direct competitors have internal protections against bribery activity as well, they are less likely to pay bribes. In fact, fewer respondents from multinational companies (39%) feel that corruption is a significant obstacle to doing business in comparison to respondents from local/ regional companies (52%), another likely by-product of compliance programs.
Enforcement Increase. The results also suggest that enforcement is on the rise. Seventy-five percent (75%) of respondents say they are aware of an offender being prosecuted in the country in which they work for making or receiving illicit payments, up from 69% in 2008. Greater awareness might be due to the fact that, in some countries, more local prosecutions are starting to take place. For example, Honduran authorities initiated investigations into bribery by telecommunications company Latin Node Inc. after its executives were prosecuted in the United States under the FCPA. U.S. officials reportedly have supported the Honduran authorities with evidence through mutual assistance agreements. Similar coordination is occurring between U.S. and Mexican officials as well. Since the change of government in Colombia 18 months ago, there has been a wave of corruption prosecutions in the country.
In Costa Rica, there are now more than seven public bodies with authority to play a role in corruption investigations, working to increase the prevalence of prosecutions. Whether or not anyone is ultimately convicted locally in these cases throughout the region, the fact is that investigations are now more common.
Technology and Globalization. Technology might also be driving awareness. Traditional and new media have the ability to quickly publicize investigations now common in countries like Argentina, Brazil and Mexico. Even if enforcement of corruption laws in many Latin American countries has not significantly changed, the media’s coverage of the topic has changed.
Globalization likely plays a role too. By driving more cross-border business, globalization has exposed local and regional companies to anti-corruption standards employed by multinationals. Local and regional companies are increasingly subject to third-party due diligence, acquisition due diligence, trainings, certifications and other compliance initiatives. When a deal falls apart because of a corruption concern, the word spreads in tight-knit regional markets.
Regional Corruption Risks Still Significant. Despite signs of improvement in the compliance environment, risks are still real. The positive trends noted above should be read in context. Latin America remains one of the most corrupt regions in which to operate.
For example, 44% of respondents believe that corruption is a significant obstacle to doing business. Half of all respondents still feel that their company has lost business to competitors making illicit payments in the region. Almost half of respondents from local/regional companies think that an offender is unlikely to be prosecuted in their countries.
Moreover, only 28% of respondents believe that anti- corruption laws are effective in the country where they work. Though this is an improvement over the result in 2008 (18%), it still reflects a widespread view that laws do not serve as adequate deterrents in various Latin American countries. Only 13% of respondents say they reported their concerns to authorities after they lost business to competitors that made illicit payments, also reflecting a general lack of faith in the ability of governments to address corruption. Only a third of the respondents who reported concerns to the authorities say that the government investigated the matter.
These results are likely due to several factors, depending on the country. Some Latin American countries have highly politicized judicial systems or under-resourced law enforcement agencies. Cases in some countries can take years to conclude with no decision, or if a court applies a penalty, the state has no effective asset recovery measures to enforce it.
For example, though Guatemala has several anti-corruption provisions in its criminal code, only 2% of respondents believe that the country’s laws are effective. This result is likely due to extremely lax enforcement. Not one respondent considers Paraguay’s legal anti-corruption regime to be effective, most likely because there is no national anti-corruption law in Paraguay. Despite its ratification of the Inter-American Convention Against Corruption and United Nations Convention Against Corruption, the country’s commitments have not yet been incorporated into domestic law or practice.
In contrast, respondents view Chile (76%) and the United States (70%) as having highly effective laws. The United States is widely recognized as an aggressive enforcer of its anti-corruption laws. Chile has a less recognized enforcement track record, but consistently ranks as the least corrupt Latin American country in Transparency International’s Corruption Perceptions Index.
The implication for multinational companies operating in Latin America is that compliance programs are essential. Respondents state that the best ways to reduce corruption are through effective government investigation and prosecution, coupled with enhanced accountability and transparency in the public sector. Short of this, respondents indicate that their companies are forced to rely on their own preventative measures.
The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.
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© 2013 Matteson Ellis Law, PLLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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