FCPAméricas Blog

Colombia and Panama FTAs Could Be Good for Compliance

Author: Matteson Ellis

Free trade agreements (FTAs) are more important for anti-corruption compliance in Latin America than one might think.

Take the U.S.-Colombia and U.S.-Panama FTAs, just passed by the U.S. Congress last week after years of negotiation and lobbying to lawmakers. When implemented, the agreements will eliminate trade barriers between the United States and two of its most important Latin American partners.

Colombia is the third largest trade partner in South America. Panama is one of the fastest growing economies in the region.

The resulting boost in opportunity for U.S. companies would normally mean increased corruption risk. The more business activity a company has in a place where risk is high, the more opportunities for that company to run afoul of international anti-corruption laws, namely the U.S. Foreign Corrupt Practices Act (FCPA).

But the FTAs are designed to help reduce corruption risk too.

Enhanced Regulatory Transparency

The FTAs require enhanced regulatory transparency in key areas of government decision-making. Most notably, Colombia and Panama must implement new rules for government procurement. This is an area notoriously known for corruption because arcane government contracting rules, some unwritten, can give room to local officials to abuse the systems for personal gain.

Specifically, under the FTAs, officials must now publish procurement rules, advance notices of procurement opportunities, tender criteria (including the use of international standards for the technical criteria), and legal and factual bases for decisions. These requirements help reduce the ability of local officials to use their own discretion in the selection process.

The FTAs even go so far as to cite the U.S. Administrative Procedures Act as the standard for adequate regulatory procedures.

How are these rules relevant to the anti-corruption compliance practitioner? When implemented, they could provide an element of consistency to the work of assessing and managing risk.

Personally, I have seen clearer procurement rules help lay the groundwork for managing corruption at international financial institutions. Multilateral lending banks like The World Bank address fraud and corruption risk by similarly requiring borrower countries to follow detailed procurement guidelines. When I was investigating corruption tied to lending at The World Bank, a large bulk of our cases came from the manipulation of the contracting phases of development projects. Had there been no specific rules in place, it would have been near impossible to proceed against improper misdirection of public funds.

To the extent that Colombia and Panama can implement rules that are standardized and transparent, businesses operating there will have an easier time navigating risk and countries will have an easier time prosecuting wrongdoing.

Reinforcement of International Anti-Corruption Commitments

It is also notable that the FTAs reinforce Colombia and Panama’s commitments to international anti-corruption efforts. The agreements require the countries to criminalize and prosecute foreign bribery and to “encourage and support” similar international initiatives.

The Colombia FTA explicitly reaffirms the country’s rights and obligations under the 1996 Inter-American Convention Against Corruption (IACAC) and the 2003 United Nations Convention Against Corruption (UNCAC).

If every member country of these conventions were to criminalize and prosecute foreign bribery as vigorously as countries like the United States, the UK, and Germany, the result would be a more level “playing field” for companies doing business internationally. As is, companies subject to jurisdictions where enforcement is high often feel disadvantaged when competing against companies not subject to those jurisdictions. The FTAs might take a step towards changing this dynamic.

Eventual Impact Still Unclear

Though the Colombia and Panama FTAs bring the potential for positive reform in managing corruption risk, it is still unclear whether, in practice, they will cause countries to realize this potential. It will take years for the FTAs to enter into force and be implemented. It will take even more time to see whether risk environments really change.

A former Assistant USTR with responsibility for the Americas who has worked on these issues from both the public policy side and the private sector side of managing risk (he is now a VP of a major multi-national corporation) gave his perspective to The FCPAméricas Blog:

“It is too early to make specific comments about the implications for realities [for companies] on the ground. Nonetheless, these agreements clearly offer promise as an additional tool – and potentially a very important one – in helping to curb corruption.”

Vamos a ver.

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. The Editor, authors, and contributors give their permission to use and share any information posted on the FCPAméricas blog. 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.

© 2011 Matteson Ellis Law, PLLC

Matt Ellis

Post authored by Matt Ellis, FCPAméricas Founder & Editor

Categories: Colombia, FCPA, Free Trade Agreements, IACAC, Panama, Procurement, UNCAC, World Bank

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