Anti-Corruption 2018

Introduction

October 2016 marks Latin Lawyer’s fourth annual Anti-Corruption and Investigations Conference, organised jointly with Global Investigations Review. Over the past year, anti-corruption compliance and enforcement have become an increasing priority in a number of Latin American jurisdictions, as reflected by various government investigations and legislative changes. Businesses and their investors should take stock of these developments, seizing the opportunity to identify and mitigate relevant anti‑corruption risks.  

October 2016 marks Latin Lawyer’s fourth annual Anti-Corruption and Investigations Conference, organised jointly with Global Investigations Review. Over the past year, anti-corruption compliance and enforcement have become an increasing priority in a number of Latin American jurisdictions, as reflected by various government investigations and legislative changes. Businesses and their investors should take stock of these developments, seizing the opportunity to identify and mitigate relevant anti‑corruption risks. 

By any measure, corruption in Latin America remains a major concern. Transparency International’s 2015 Corruption Perceptions Index (CPI) describes the Americas as a region with a “serious corruption problem”. Nearly all Latin American and Caribbean countries surveyed (22 out of 24) scored below 50 on a scale from zero (highly corrupt) to 100 (very clean), the only exceptions being Chile and Uruguay. The majority of those countries received lower scores or experienced no improvement relative to the 2014 CPI. Brazil and Guatemala dropped most precipitously in this group, falling from 43 to 38 and 32 to 28, respectively, and Venezuela is now among the 10 countries perceived as most corrupt in the world.

Such developments mirror broader concerns about conducting business in the region.  According to the 2016 Latin America Corruption Survey, compiled by a number of leading law firms based on input from participants in 19 different countries, almost half of respondents viewed corruption as a “significant obstacle” to business operations. More than 90 per cent of respondents identified a strong link between corruption and the activities of political parties or state-owned enterprises in Latin America, and roughly 80 per cent of participants described national anti-corruption regimes as ineffective. Similarly, according to the World Bank’s Enterprise Survey on corruption, approximately 44 per cent of firms surveyed in Latin America and the Caribbean identified corruption as a major constraint – the second-highest percentage among the eight groups of countries surveyed worldwide, right after the Middle East and North Africa.

These results are arguably unsurprising given regulatory challenges and risk factors that permeate the region. For example, according to the World Bank’s Ease of Doing Business 2016 Report, Latin America and the Caribbean, along with East Asia and the Pacific, ranked last among regions implementing regulatory reforms to make it simpler for businesses to operate. Only Mexico and Peru are among the top 50 economies considered as easy in which to conduct business, and Venezuela now occupies the fourth worst position in that ranking.

Although corruption risk in Latin America certainly is not novel, the relative uptick in enforcement activity is, with corruption scandals and investigations making headlines each day. In addition to continued scrutiny by foreign regulatory bodies (especially from the United States), the most significant – and, in some instances, unexpected – developments flow from the efforts of various local enforcement agencies. Over the past year, some of the key developments in Latin American anti-corruption enforcement include the following:

  • Brazil’s Operation Lava Jato (known also as Operation Car Wash) continues to unfold in dramatic fashion, making it among the most significant corruption cases ever.  According to the Brazil Federal Prosecutor’s Office, as of September 2016, Lava Jato’s multi-authority task force already has conducted over 650 police raids, arrested more than 170 individuals, and submitted or received at least 112 requests for international cooperation, in a case that involves alleged bribery of over 6 billion reais. Thus far, the operation has led to the criminal prosecution of 225 individuals and the investigation of over 20 companies. Seventy individuals have signed collaboration agreements, and six companies have entered into leniency agreements with authorities.  The investigation has contributed to the recent impeachment of former President Dilma Rousseff and the indictment of numerous other senior politicians, including former President Lula da Silva. 
  • Also in Brazil, the so-called Operation Zelotes involves the investigation of large multinationals and major Brazilian enterprises for an alleged multi-billion-dollar scheme to bribe members of Brazil’s tax appellate council in order to reduce fines or dismiss tax evasion claims. Several senior executives have been criminally indicted in Brazil, and shareholders recently have brought federal securities class actions in the United States to recover alleged losses. Meanwhile, recently launched Operation Greenfield targets alleged fraud and corruption involving numerous government-controlled pension funds, individuals and companies.
  • Over 11.5 million documents leaked from a Panamanian law firm, making public in April 2016 thousands of dealings involving more than 214,000 offshore companies based in Panama and other tax havens. The episode, known as “the Panama Papers”, has so far implicated over 140 politicians, including Russia’s Vladimir Putin, and even celebrities such as footballer Lionel Messi, over allegations ranging from tax evasion to terrorism financing.
  • The FIFA corruption case continues to grow, with numerous connections to Latin America, including CONMEBOL, CONCACAF, Brazil’s CBF and Bolivia’s Football Federation. Allegations include bribes paid to FIFA officials in connection with the purchase of commercial and broadcasting rights, the selection of World Cup hosts, and FIFA’s presidential election. US prosecutors already have indicted almost 40 individuals on charges of racketeering, wire fraud and money laundering, with more charges expected.   
  • In Guatemala, former President Otto Pérez Molina and his Vice President were arrested and charged along with more than 50 others for bribery in connection with public contracts. This followed an investigation and prosecution by national authorities in conjunction with the International Commission Against Impunity in Guatemala (CICIG), a joint UN and US effort established in 2007.
  • In Mexico, a series of influence-peddling cases have battered President Enrique Peña Nieto’s administration. Most recently, a government contractor was accused of lending and paying taxes for Miami apartments used or owned by Mexico’s First Lady, Angélica Rivera. President Peña Nieto has publicly apologised for one of the scandals dating back to 2014, after the country’s anti-corruption watchdog in 2015 found him not guilty of any wrongdoing.
  • The investigation by the US Department of Justice (DOJ) into alleged bribery of Mexican officials by Wal-Mart has continued, with some public debate regarding the strength of the evidence uncovered. Wal-Mart is also facing shareholder derivative suits in US state and federal courts in connection with the Mexican bribery allegations. Additionally, Citigroup is facing similar claims in the United States by investors and creditors of services firm Oceanografia. Plaintiffs allege they have been harmed by a fraudulent loan scheme involving Citigroup’s Mexican subsidiary, Banamex.
  • The US Securities and Exchange Commission (SEC) recently announced that Houston-based Key Energy Services agreed to disgorge US$5 million for FCPA violations in connection with payments made by Key Energy’s Mexican subsidiary to an employee of state-run Mexican company Pemex.
  • In Argentina, local authorities are investigating former President Cristina Kirchner and some of her cabinet members for corruption and money laundering. Former Secretary for Public Works José Francisco López was recently arrested while allegedly trying to bury millions in cash and jewels near a convent in the outskirts of Buenos Aires. The Kirchner probe has implicated even current President Mauricio Macri, as some of his close allies and family members have been accused of involvement in the Petrobras scandal. Argentinian prosecutors are reportedly investigating around 100 companies possibly connected to facts stemming from Operation Lava Jato in Brazil.
  • A Senate report in Haiti claims two former prime ministers and a number of ministers committed embezzlement and other offences in connection with the use of funds from Venezuela’s PetroCaribe programme, an alliance between Venezuela and certain Caribbean countries for the purchase of subsidised oil.
  • Chile’s LATAM Airlines recently entered into a deferred prosecution agreement with the US DOJ and a settlement with the US SEC, in order to resolve an FCPA investigation into payments to union officials in Argentina, resulting in fines of around US$22.2 million.
  • Peru’s new President, Pedro Pablo Kuczynski, has been called to testify before Peru’s anti-corruption regulator for having allegedly favoured a company implicated in Lava Jato in connection with a road construction project while he was still a cabinet member of former President Alejandro Toledo. Meanwhile, a recent judicial order prohibited Peru’s former First Lady, Nadine Heredia, from leaving the country during ongoing investigations of money laundering in connection with her husband’s campaign contributions.
  • Several individuals settled charges with US prosecutors in connection with their dealings with officials of PDVSA, Venezuela’s state-owned energy company, and one of the country’s state-owned banks. Authorities from other countries, including Spain and Switzerland, are reportedly also investigating PDVSA.

In addition to these heightened enforcement efforts, several Latin American countries have considered and, in some cases, passed new laws, and also adopted new initiatives, regulations and decisions that may impact significantly the Latin American anti‑corruption landscape.  Such developments include:

  • In Brazil, the Federal Prosecutor’s Office’s “Ten Measures Against Corruption” is now pending as legislation before the Brazilian Congress. These measures, which received supporting signatures of over two million Brazilian citizens, include proposed amendments such as higher sentences for corruption offences, the criminalisation of slush funds and the extension of criminal statutes of limitation in certain circumstances.
  • Of particular significance to Lava Jato, Brazil’s highest court (STF) recently decided that criminal defendants can serve jail time upon conviction by a court of second instance, even if the decision remains subject to appeal. This altered STF’s previous understanding that prison sentences could be executed only after a final, unappealable judgment.  Meanwhile, Brazil’s Comptroller General (CGU) – the country’s corruption watchdog that played an important role in implementing Brazil’s Clean Company Act – was replaced recently by the Ministry of Transparency, Monitoring and Control, with some questioning the ministry’s independence.
  • In February 2016, Colombia adopted Law 1778 (Ley Antisoborno), which, for the first time under Colombian law, established an administrative procedure for the investigation and sanctioning of legal entities involved in acts of transactional bribery or corruption. The law vested authority in Colombia’s Superintendency of Companies to sanction entities registered in Colombia, as well as foreign parents of Colombian subsidiaries and foreign subsidiaries of Colombian companies, for conduct in Colombia or abroad. The new law explicitly makes companies liable for the acts of contractors and associates, neither of which the law defines. Companies may be subject to fines of up to US$40 million under the new regime, which provides for a waiver or reduction of penalties for entities that self-report and cooperate with government investigations.
  • In July 2016, on the heels of recent scandals, the Mexican government ratified legislation introducing far-reaching changes to Mexico’s anti-corruption regime.  Composed of a series of new laws and amendments to existing ones, the new legislation establishes new penalties for individuals and legal entities. Those found guilty of bribery (which is defined broadly), bid rigging and influence peddling, among other offences, may face steep criminal and administrative sanctions, including imprisonment, debarment for up to 10 years and up to approximately US$6 million in corporate fines. Different from the FCPA, Mexico’s new law explicitly prohibits public servants from accepting facilitation payments. The new regime expressly provides for extraterritorial jurisdiction in cases of “collusion”:  when “a private party acts in concert with another private party” to secure an advantage in public procurement, in Mexico or abroad. The new laws also establish Mexico’s first independent anti-corruption prosecutor, in addition to whistle-blower protections for individuals and entities, and the possibility of mitigating liability if the company has an adequate compliance programme in place.
  • Also of significance, Mexico’s Supreme Court has recently ruled unconstitutional attempts by two different Mexican states to promulgate their own anti-corruption laws.  Among other things, the state laws granted ample powers for governors to appoint anti-corruption regulators at state level.
  • In Argentina, bills pending before Congress aim at revamping the country’s anti‑corruption system. Approval of the pending legislative package is seen as a strong step towards Argentina’s entry into the OECD. In addition to extraterritorial jurisdiction for corruption offences, the proposed reforms include allowing asset seizure before corruption trials have come to an end, the possibility of plea bargaining in corruption cases and corporate liability for corrupt conduct. The bill underscores the importance of adopting anti-corruption policies and procedures that embody a culture of integrity and that target compliance with the new legislation.
  • Following Guatemala’s example of the CICIG, the government of Honduras recently created a new anti-corruption organism, the Support Mission Against Corruption and Impunity in Honduras, established under the auspices of the Organization of American States and the UN. Also mirroring the Guatemala model, in January 2016, the UN Office on Drugs and Crime announced the creation of an international program to fight corruption in El Salvador. The two initiatives come at a time of increasing international concern regarding organised crime in Central America.
  • Chile’s parliament recently approved a new law making cartel behaviour a criminal offence punishable with prison time.

Because countries in the region differ substantially from each other in many ways, including resources, governance, culture, language and local risks, there is no effective one-size-fits-all approach to anti-corruption compliance. Tailored and prioritised approaches are essential.  Companies should take steps to be informed about risks specific to the jurisdictions in which they operate, have sales or target an acquisition. Outside advisers, including lawyers, forensic accountants and other professionals with first-hand experience in the region, can be helpful in evaluating such risks, formulating effective compliance programmes and conducting internal investigations. To assist in better understanding the legal terrain, this reference section offers an overview of different countries’ anti-corruption legal frameworks, as well as information about enforcement actions, key risk areas and compliance best practices.

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