FCPAméricas Blog

Latin America is not a Country (Managing FCPA compliance when risks are diverse)

Author: Matteson Ellis

I was recently asked to give a presentation on a webinar about common corruption risks in Latin America. My first reaction – impossible.

As people in the region will sometimes tell you, “Latin America is not a country.” It is a massive region with more than half a billion people and 24 different nations represented. Latin Americans speak Spanish, Portuguese, French, English, and hundreds of other indigenous languages. The cultures found in Paraguay are not the cultures found in Panama.

Even within individual countries, the diversity can be staggering. Just compare the natural jungle of Manaus to the concrete jungle of São Paulo – both are in Brazil.

This diversity makes for a diverse collection of corruption risks. You can see it in the FCPA enforcement actions involving the region. Exposed corruption schemes have included bread-and-butter, straight-forward payments to offshore shell companies to win public contracts in underdeveloped countries like Haiti (see, e.g., the Terra Telecommunications Corp. indictments). Schemes also include highly sophisticated structures involving multiple actors meeting throughout the world to rig billion dollar public contracts in more developed countries like Argentina (see, e.g., the Siemens Argentina complaint).

Consider also that Argentina and Chile share the longest border in South America. And they could not be further apart in terms of corruption risk. Chile is considered “cleaner” than the United States on Transparency International’s 2011 Corruption Perceptions Index. Argentina, on the other hand, is the country that gave us Carlos Menem.

So what is an FCPA compliance practitioner to do when faced with a diversity of threats?

First, conduct targeted risk assessments for your operations there, and periodically update those assessments. Simply stated, to respond to corruption threats, you must understand them first.

Enforcement officials tell us to consider a list of factors when assessing risk. We should consider the specific country, industry or sector, and nature of government interactions. We should consider the risks that third party intermediaries with whom we engage create by virtue of the work they do on our behalf. We should consider the risks created by our joint venture partners.

Second, access local expertise, when possible, to ensure that you fully understand the playing field. There is no substitute for being able to speak the local language and understand the local culture. You do not want your sales personnel to be caught off guard after weeks of negotiating a deal with a Honduran utility when its representative suddenly asks for a “special commission.” You do not want your logistics personnel to be surprised when the Venezuelan authority tells you that, to receive the building permit for your new plant, the state must choose the contractor you use.

Third, take a nuanced approach to understanding particular risks to your operations. Nuance can help you unpack latent corruption threats.

For example, you might need to ask questions like, how are rural risks different from urban risks? In Colombia, rural operations might involve “security payment” requests while your work in Bogotá might involve complicated public procurements risks. Is the economy heavily influenced by the state (e.g., Venezuela and Bolivia)? When it is, you might face unique challenges, like “offset” obligations requiring you to build clinics and housing.

How does risk in countries where wealth and power is highly concentrated (like most Central American and Caribbean countries) differ from risk in countries where it is decentralized and multi-faceted (like Mexico, Colombia, Brazil, and Argentina)? Countries with high levels of concentration are oftentimes more prone to issues like regulatory capture, where a small elite regularly move in and out of government and the private sector. This means that, when you partner with a local company or use a third party, there could be a higher likelihood that a member of that outfit is a former government official or married to a military general. In contrast, countries with decentralized and multi-faceted power structures usually create a different set of issues. Companies might be required to seek a series of approvals from several different government entities to sign off on a license renewal. It might be necessary to consult local expertise that knows how to navigate dense procurement processes, which can create a different kind of third part risk.

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.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

© 2012 Matteson Ellis Law, PLLC

Matt Ellis

Post authored by Matt Ellis, FCPAméricas Founder & Editor

Categories: Anti-Corruption Compliance, Argentina, Bolivia, Brazil, Caribbean, Charitable Donations, Chile, Colombia, Due Diligence, Enforcement, FCPA, Foreign Official/Instrumentality, Honduras, Mexico, Panama, Paraguay, Procurement, Risk Assessments, Third Parties, Transparency International, Venezuela

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2 Responses to “Latin America is not a Country (Managing FCPA compliance when risks are diverse)”

  1. High Tide: From Lending A Horse To Charges Against Aristide | Rishwat – Campaign against Corruption in India Says:

    […] Corp. executives. Mike Volkov returns explaining the cost of non-compliance. The FCPAAmericas blog reminds that Latin America isn’t a single country, and shouldn’t be treated as such due to the diverse […]

  2. Customs and Police Top Corruption Risks in Latin America - Legal, Ethics and Compliance Says:

    […] Municipal/Local. Responses varied by country, which appears to be consistent with FCPAméricas’ previous commentary about the diversity of risks in Latin America. For example, Bolivia registered high levels of […]

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