Anti-Corruption in Latin America
From newly enacted legislation to ground-breaking domestic and international enforcement actions, the anti-corruption landscape in Latin America has changed dramatically in recent years – and responding to a corruption crisis in Latin America has, as a result, become far more complicated. The purpose of this chapter is to assist practitioners in navigating certain key complexities involved in managing such a crisis. First, we consider some of the background diversity in anti-corruption risks that companies confront across the region. Second, we explore some of the most important recent trends in anti-corruption enforcement in the region, including standardisation in anti-corruption legislation and the increase of coordinated enforcement actions and resolutions. Finally, we focus on important ways to mitigate the challenges of navigating and avoiding a cross-border corruption crisis: whether by effectively gathering and sharing information when a problem arises, or by ensuring that compliance programmes are effectively designed and implemented with certain key elements.
Regional diversity in anti-corruption risk
Latin America encompasses a vast geographic area, with many different countries, varied languages and regionalisms. This diversity holds equally true when it comes to anti-corruption risk, as illustrated by Transparency International's Corruption Perceptions Index (CPI). The CPI ranks 180 countries and territories by their perceived levels of public-sector corruption from one (least corrupt) to 180 (most corrupt) and is used by compliance professionals and enforcement authorities alike as a helpful guide for assessing anti-corruption risk. In 2017, Latin American countries ranged from 23rd (Uruguay) and 26th (Chile) on the high end of the scale to 169th (Venezuela) on the low end. Somewhere in between fell the region's four largest economies, as measured by 2017 GDP: Argentina (85), Brazil (96), Colombia (96), and Mexico (135).
In addition to the CPI, practitioners can also look at enforcement actions brought under the US Foreign Corrupt Practices Act (FCPA) as another rough measure of anti-corruption risk. As measured by the total number of companies and individuals who have been charged by the United States Department of Justice (DOJ) and Securities and Exchange Commission (SEC), enforcement actions have been particularly frequent in Latin America over the last 14 years (March 2004 to September 2018). Indeed, four of the most-named countries in FCPA enforcement actions are located in Latin America, and the number of enforcement actions involving the region has increased at a rapid pace since approximately 2014.
|Top 10 countries for FCPA enforcement actions|
|Country||Region||Number of FCPA enforcement actions*||2017 TI CPI rank|
* As measured by the total number of companies and individuals charged from March 2004 to September 2018.
But it is not just the perception of risk or the prevalence of FCPA enforcement actions that differs between Latin American countries. The type of anti-corruption risk also varies. Highly regulated or bureaucratic countries, or countries with powerful state-owned enterprises, generally present a higher risk of official bribery, whereas a country with a more free-market system may present a higher risk of commercial bribery. Regional differences in the use of third-party intermediaries in business transactions or a culture of gift-giving also shape anti-corruption risk. And a company's own business model in the region – for example, whether a company uses third parties in its sales channels or government relations efforts – can also affect anti-corruption risk.
Given this diversity of anti-corruption risk, it is important for anyone responding to, or hoping to avoid, a corruption-related crisis in Latin America to take time to understand the unique factors that may be at play. Understanding the local economy, press, legislation and political landscape are all critical to identifying and responding to anti-corruption risk. To successfully navigate a crisis in the region, language proficiency certainly helps so that matters are not literally lost in translation. Also, an appreciation for the local environment is crucial in order to understand the legal, social, economic and political aspects that may directly or indirectly impact the potential investigation, resolution and remediation of such a crisis.
The standardising role of multilateral anti-corruption agreements
The array of domestic anti-corruption laws also varies widely between Latin American countries. Since a detailed analysis of each country's law is beyond the scope of this chapter, we instead focus in this section on the factors that are promoting standardisation in the fight against corruption within the region and, in particular, on the role of multilateral anti-corruption agreements.
Until recently, the United States – through the FCPA – dominated the international corruption enforcement landscape. When the FCPA was enacted in 1977, the United States became the only country in the world with a foreign bribery offence, and companies often viewed paying bribes as an inevitable cost of doing business in certain parts of the world. That outlook began to change 20 years later with the advent of the Organisation for Economic
Co-operation and Development's (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Anti-Bribery Convention). The OECD Anti-Bribery Convention requires its Member States to establish a foreign official bribery offence that is criminally enforceable against individuals and either civilly or criminally enforceable against corporations. Among other things, the OECD Anti-Bribery Convention also requires its members to enforce these laws, regardless of national economic interests or the impact such enforcement may have on international relations, and to cooperate with enforcement efforts by other Member States by providing 'prompt and effective legal assistance'. The effects of the OECD Anti-Bribery Convention on international cooperation in enforcement matters are discussed below.
As a result of the OECD Anti-Bribery Convention, laws similar, and in some cases even more expansive, than the FCPA started to be adopted across the world. For example, in 2010, the United Kingdom adopted the UK Bribery Act (UKBA), which mirrored the FCPA in many respects, but also went further and prohibited commercial bribery. As a result, companies with a UK nexus must consider the UKBA when doing business in Latin America.
Today, six Latin American countries, including those with the five largest economies as measured by 2017 GDP – in descending order, Brazil, Mexico, Argentina, Colombia and Chile – are signatories to the OECD Anti-Bribery Convention.2 OECD Member States are subject to a rigorous peer review process. At regular intervals, member countries are evaluated by two of their peers on the adequacy of their implementing legislation (Phase 1), whether they are applying the legislation effectively (Phase 2), and whether they are enforcing the Convention's requirements (Phases 3 and 4). The OECD review process has driven significant change throughout the Convention's membership, including in Latin America. Indeed, a key driver of Brazil's Clean Companies Act, which entered into force in 2014,3 was the OECD's insistence in a
2010 Phase 2 follow-up report that Brazil 'promptly' enact legislation to create effective liability of legal persons for foreign bribery. The OECD made clear that, while Brazil had been a signatory to the OECD Anti-Bribery Convention for 12 years, it simply had not done enough to combat corruption. With the passage of the Clean Companies Act, Brazil finally fell in line with the standards of the convention.
OECD pressure, combined with local factors, has similarly influenced changes in
anti-corruption legislation in other countries in the region. For example, on 8 November 2017, Argentina's legislature passed a law targeting corporate corruption. This new legislation, which came into effect in 2018, provides for steep fines to be imposed against companies and introduces 'leniency agreements' for companies to resolve corruption-related matters.4 Argentina's new law was passed in reaction to the OECD Working Group on Bribery's 24 March 2017 supplemental report finding that Argentina remained 'in serious non-compliance' with key articles of the OECD Anti-Bribery Convention.5 Similarly, on 1 January 2018, Peru's Law 30424, which introduces corporate criminal liability for foreign and domestic bribery of public officials, came into effect. Companies found guilty of violating this law face a range of penalties, including fines, debarment from government contracting, suspension of or prohibition on company activities, and dissolution. Companies can mitigate responsibility through substantial cooperation, reparation and the existence or implementation of an adequate compliance programme. The new legislation is part of Peru's anti-corruption efforts as it seeks to become an OECD member.
In addition to requiring the implementation and enforcement of a foreign bribery offence, the OECD has also been a leader in providing guidance for effective anti-corruption compliance programmes. In 2010, the OECD released its 'Good Practice Guidance on Internal Controls, Ethics, and Compliance' (the Good Practice Guidance). The Good Practice Guidance is persuasive to enforcement authorities throughout the Anti-Bribery Convention's membership and is helping to contribute to a common understanding of the elements of an effective compliance programme. Several Latin American Member States have expressly made compliance programmes either an affirmative defence or a mitigating circumstance of their legislation implementing a corporate foreign bribery offence. Compliance programmes are discussed in more detail below.
The chart below is intended as a high-level summary of key aspects of anti-corruption legislation throughout the region.
|Summary of anti-corruption legislation in Latin America|
|Country||Signatory to the OECD Anti-Bribery Convention?||Criminal corporate liability?||Corporate civil liability for foreign bribery?||Compliance programme: requirement, affirmative defence or mitigating circumstance?|
* A bribe payment to a foreign government official is a violation of the Criminal Code, which punishes conduct only of individuals. There may, however, be 'accessory consequences' to an entity, including dissolution of the company.
The net effect of the OECD's Anti-Bribery Convention is that those countries with the region's largest economies are moving closer together with respect to the foreign bribery offence, enforcement and compliance expectations. Although regional differences must still be considered, this increased standardisation does present some good news for companies doing business throughout the region, as they can adopt compliance procedures and responses that effectively address the concerns of multiple enforcement authorities at the same time.
We have focused on the OECD's Anti-Bribery Convention, but it is not the only multilateral agreement that is relevant in the region. For example, the United Nations Convention against Corruption (UNCAC) is a multilateral treaty between more than 180 signatory countries, including every single Latin American country.6 UNCAC requires its signatories to implement several anti-corruption measures that focus on five principal areas: prevention, law enforcement, international cooperation, asset recovery, and technical assistance and information exchange.7 Similarly, the Organization of American States's (OAS) Inter-American Convention Against Corruption (IACAC) has the primary purpose of: promoting and strengthening the development of each member's mechanisms needed to prevent, detect, punish and eradicate corruption; and to promote, facilitate and regulate cooperation between its members.8 IACAC also provides that 'the State Parties shall afford one another the widest measure of mutual assistance' and 'shall foster exchanges of experiences by way of agreements and meetings between competent bodies and institutions'.9 Every country in Latin America (and the United States) is a signatory to IACAC.
While both UNCAC and IACAC are important mechanisms in the fight against corruption throughout Latin America, these agreements historically have lacked the rigorous peer review process of the OECD Anti-Bribery Convention to keep the member countries on track and to be held accountable for the enforcement of anti-corruption laws.10
The impact of increased international cooperation in anti-corruption enforcement in Latin America
The increased international alignment created by the OECD Anti-Bribery Convention and other multilateral agreements has complicated the enforcement environment for multinational companies doing business in the region. Ten or 20 years ago, a practitioner could predict fairly confidently that a domestic corruption scandal in Latin America would be addressed by local authorities and that foreign bribery offences in the region would be investigated and prosecuted by the United States under the FCPA. Over the last five to 10 years, however, the lines between domestic and foreign bribery investigations have blurred as enforcement authorities in several countries are now cooperating with their counterparts within and outside of the region. As a result, there has been an uptick in enforcement against companies and individuals both in the United States and throughout the region.11
As the fight against corruption has become a global initiative, practitioners will find themselves representing companies or individuals that face liability across jurisdictions and on multiple fronts. Perhaps no better example is Lava Jato (also known as Operation Car Wash), a sprawling domestic bribery and money laundering investigation in Brazil that has spawned a massive number of individual and corporate prosecutions across the world. Lava Jato began in 2014 as a small-scale probe by the Federal Police in Curitiba into gas service stations suspected of being used for money laundering. The investigation ultimately revealed a massive and systemic corrupt scheme by officials of Brazil's national oil company, Petróleo Brasileiro SA (Petrobras), to overcharge contractors in exchange for a cut in the deals. The investigation ensnared more than 100 politicians, including four former presidents, and numerous companies, including nine of Brazil's major construction companies. Although there is no centralised database of the number of cases that have been brought at various state and federal levels in Brazil, the State of Paraná (where Curitiba is located) reports that, as of the end of September 2018, it alone has indicted 347 individuals resulting in more than 200 convictions as part of the Lava Jato investigation.12 The State of Paraná also reports that it has received more than 540 requests for cooperation in investigations by 45 countries.13 Outside of Brazil, the Lava Jato investigation has touched dozens of countries and implicated numerous companies and scores of politicians, including current and former presidents in Argentina, Colombia, Peru and Venezuela, among others.
One notable aspect of Lava Jato is the cooperation and coordination between prosecutors in Brazil and several other jurisdictions, including the Netherlands, Singapore, Switzerland, the United Kingdom and the United States. Not only have these jurisdictions shared evidence, but they have also shared penalties pursuant to coordinated corporate resolutions.14 The chart below shows FCPA resolutions brought by US enforcement authorities in connection with Lava Jato and the countries that shared in the penalties.
|Lava Jato-related coordinated resolutions|
|Company||US resolution date||Total resolution*||US portion*||Other countries|
|Odebrecht SA/Braskem SA||21 Dec 2016||$3,500 million**||$350 million||Brazil, Switzerland|
|Rolls-Royce||17 Jan 2017||$800 million||$170 million||Brazil, UK|
|SBM Offshore||30 Nov 2017||$820 million||$238 million||Brazil, Netherlands|
|Keppel Offshore & Marine||22 Dec 2017||$422 million||$106 million||Brazil, Singapore|
|Petrobras||27 Sept 2018||$1,787 million||$171 million||Brazil***|
* Amount agreed at time of settlement and rounded to the nearest million.
** The total resolution amount was ultimately reduced to $2,600 million based on the company's inability to pay the full resolution amount.
*** $933 million in disgorgement was also credited to a settlement fund for a securities class action lawsuit.
In addition to coordinating corporate resolutions, enforcement authorities have cooperated in other ways. For example, in a large foreign bribery investigation involving Brazilian jet manufacturer Embraer SA, the United States and Brazil reportedly agreed to a division of labour in which the United States charged the company with foreign bribery violations (unlike Brazil at the time, the United States had the ability to bring a foreign bribery enforcement action against the company) while Brazil charged the company's Brazilian executives for related conduct.15
This coordination among enforcement authorities can present challenges for companies and practitioners. On the one hand, coordinated resolutions mitigate the risk that a company will pay multiple penalties for the same underlying conduct. On the other hand, it has become increasingly difficult to contain an international anti-corruption investigation to one jurisdiction. Documents and information disclosed to one enforcement authority may be disclosed to another enforcement authority through formal and informal law enforcement information sharing.16 In order to obtain self-reporting and cooperation credit in multiple jurisdictions, companies must thus decide which enforcement authorities to report to, the sequence in which they make these reports, and the best means to approach the authorities (e.g., whether the company should approach an authority itself or request one authority to help coordinate with other authorities).
While international coordination presents companies with difficult choices, an even more difficult situation is presented when countries are not coordinating. A lack of coordination can result in an inability to attain finality as the threat of additional actions by other government entities continues to loom over the company. Such lack of coordination can prolong a crisis for years and inhibit a company from moving past the scandal both in terms of reputation and financial impact.
The experience of the family-owned Brazilian construction and engineering conglomerate Odebrecht SA (Odebrecht) dramatically illustrates this point. In December 2016, Odebrecht and its affiliate Braskem SA, a Brazilian petrochemical company, agreed to a $3.5 billion global settlement to resolve charges with US, Brazilian and Swiss authorities arising out of alleged schemes to pay bribes to foreign officials around the world.17 Rather than achieving finality with the announcement of this coordinated resolution, Odebrecht has faced an onslaught of investigations across the region since December 2016. Immediately following the announcement of the resolution, there were calls by multiple governments for Odebrecht to explain the corrupt payments in the respective countries, with a number of the countries, including Ecuador and Colombia, opening formal investigations.18 Odebrecht has since been negotiating individual settlements with countries throughout the region. In 2017, for example, Odebrecht agreed to pay $220 million in fines to the Panamanian authorities and $184 million in penalties to the Dominican Republic's authorities.19 While formal resolutions have not been reached in various other countries, Odebrecht has been formally or de facto banned from participating in government projects (including suspension of current projects) in a number of countries including Argentina, Colombia, Mexico, and Peru.20
Almost two years after the resolution with the United States, Brazil and Switzerland, Odebrecht has yet to achieve finality as it continues to negotiate separate and uncoordinated resolutions throughout the region. On the other hand, the Odebrecht case also illustrates that, even amid the individual negotiations and settlements, there has been an increase in the sharing of information between countries in the region. Most recently, for example, in the context of the Odebrecht investigations, Brazilian authorities reached a deal with Argentine authorities to provide Argentina with information and evidence concerning Odebrecht.21
As coordination spreads throughout the region, more of these jurisdictions may be, at the very least, willing to share information, if not willing to enter into coordinated resolutions. For now, however, the risk for companies for follow-on investigations and prosecutions remains high.
Information gathering and sharing in Latin America
Any company responding to a potential corruption-related crisis anywhere (including Latin America) will need to gather facts and information to understand what happened, assess potential exposure to liability, and develop appropriate remedial measures. This is true regardless of whether the matter remains internal or becomes a government-facing investigation. How a company goes about investigating a matter and, if necessary, sharing information with stakeholders and enforcement authorities must be thoughtfully considered. Companies must be careful to avoid the pitfalls of myriad often restrictive and conflicting laws, including data privacy, data protection, and labour and employment laws. Practitioners need to ensure that, in responding to a corruption crisis, the company does not expose itself to violations of other laws.
Limitations imposed by data privacy and data protection laws
Data privacy and data protection laws, which prohibit the misuse or disclosure of personal information, are an important consideration when starting an investigation in Latin America. Data privacy regimes, and the restrictiveness of each regime, vary widely between countries. Below is a chart showing which Latin American countries have enacted data privacy laws.
|Latin America countries with data privacy laws as of September 2018|
|Country||Data Privacy Legislation enacted||Laws with limited data privacy provisions||No data privacy legislation enacted|
* Law goes into effect in 2020.
Data privacy is a crucial consideration when organising a response team and requires skilful navigation. In addition, data privacy concerns can have important practical implications for the collection and review of documents. For example, data privacy concerns might require that these initial phases of the investigation be handled in-country, and personal information might need to be redacted from documents before they are taken out of the country. Data privacy is an issue that can significantly affect costs and legal fees, as well as create logistical difficulties with respect to the flow of information in order to build the facts of the case. Practitioners working in the region are advised to retain or consult with both a data privacy lawyer and a vendor equipped to handle cross-border data privacy issues early on in an investigation.
Data privacy issues also create additional challenges for cooperating companies seeking to voluntarily produce documents to foreign enforcement authorities. For example, although heavily redacted documents may not be viewed favourably by enforcement authorities, data privacy laws generally do not contain exceptions for productions made to foreign enforcement authorities. Practitioners representing cooperating companies therefore should consider whether any other exceptions may be available (e.g., some data privacy laws have exceptions for litigation defence), whether the company's IT-use policy permits production of the information for purposes of an investigation, or whether the company should seek express consent from its employees to produce their personal information. In some circumstances, companies might consider delivering unredacted documents to domestic enforcement authorities for transfer to foreign enforcement authorities through the mutual legal assistance process. This option may be impracticable, however, if the domestic and foreign enforcement authorities are not otherwise coordinating their investigations and could open the company up to unwanted domestic scrutiny.
Conducting witness interviews and making witnesses available
Investigations in Latin America, like any other investigation, will include witness interviews. In addition to Upjohn-type warnings, practitioners should consult with local counsel regarding any additional warnings that may be required under local law. Practitioners should also consult with local counsel on any limitations on a company's ability to require its employees to cooperate in an internal investigation or to cooperate with enforcement authorities, which may request to interview employees. Special consideration should be given to requests to conduct such interviews in the United States or at a US embassy, since doing so would subject witnesses to US jurisdiction. In contrast, US enforcement authorities generally cannot interview witnesses in another country without the second country's express approval, usually through a mutual legal assistance request.
The importance of anti-corruption compliance programmes in Latin America
As in any other region, having a robust, risk-based compliance programme is the best way to avoid a corruption-related crisis in Latin America. An effective compliance programme should be designed to detect and prevent improper conduct. Ideally, the compliance programme will be tailored not only to the company's business but also to the unique aspects of doing business in a particular country. But, as noted above, because global standards are rapidly converging, the core elements of a compliance programme can be designed to effectively address the concerns of multiple enforcement authorities at the same time.
By way of illustration, below is a chart comparing some key elements of the OECD's Good Practice Guidance to the compliance expectations set forth under the new anti-corruption regimes in Brazil and Argentina.
|Compliance programme element requirements|
|Requirement||OECD Good Practice Guidance||Brazil Clean Companies Act||Argentina Law 27,401|
|Tone at the top||Strong, explicit and visible support and commitment from senior management||Commitment of senior management and board members to compliance programme||May include visible and clear support from senior leadership and management|
|Articulated policies and procedures||Maintain a clearly articulated and visible corporate policy||Implement policies and procedures applicable to everyone at the company||Must include a code of ethics or conduct or equivalent set of policies|
|Training requirement||Design measures to ensure periodic communication and documented training for all levels of the company||Conduct periodic training||Must include periodic training|
|Reporting mechanism||Maintain internal, and where possible, confidential reporting by and protection of directors, officers, employees and, where appropriate, business partners||Implement reporting channel that is openly and broadly disseminated and anti-retaliation protection for whistle-blowers||May include reporting mechanism and whistle-blower protection|
|Periodic risk assessment||Conduct periodic reviews of ethics and compliance programmes||Conduct continuous monitoring of the programme and periodic risk assessment||May include periodic risk assessment|
|Third parties||Establish properly documented risk-based due diligence and appropriate and regular oversight of third parties||Adopt policies and procedures applicable to third parties, including due diligence on third parties||May include third-party monitoring|
As shown in the summary of anti-corruption legislation chart (p. 5), an effective compliance programme serves as a mitigating factor for a corruption offence in several Latin American countries and serves as an affirmative defence in several others. Brazil's Clean Companies Act, for example, takes into account a company's compliance programme for purposes of a reduction in sanctions. Similarly, Argentina's new anti-corruption statute considers the existence of an effective compliance programme as a mitigating factor when calculating sanctions. In countries such as Colombia and Peru, an effective compliance programme can serve as an affirmative defence.
There have been significant changes in the enactment and enforcement of anti-corruption laws in Latin America over the past few years. Any practitioner working in this region should be aware of these changes, specifically with respect to the undeniable movement toward the standardisation of anti-corruption legislation across countries.
On the one hand, this trend towards alignment helps companies implement global compliance programmes that can adequately meet the expectations of various enforcement authorities; on the other hand, the increased focus on
anti-corruption legislation and the growing pressure to enforce these new laws will likely lead to the increase of enforcement actions across the region, putting companies and individuals at increasing risk of liability. Also, practitioners should be aware of the increasing cooperation and information sharing, both within countries in the region and with countries outside of the region – most notably, the United States. Any step or disclosure taken in one country faces the very real risk of being shared with regulators or prosecutors in another jurisdiction.
Finally, in terms of practical considerations when conducting an investigation in Latin America, practitioners should be aware of local legal, cultural, political and economic factors that come into play. All of these differences can increase the effectiveness, as well as the time and cost it may take to conduct an investigation and resolve a corruption-related crisis in the region.
1 James M Koukios and Ruti Smithline are partners, and Gerardo Gomez Galvis and Julian N Radzinschi are associates at Morrison & Foerster LLP.
11 For example, there has been increased enforcement in the United States against individuals in Latin America, specifically with respect to Petroleos de Venezuela S.A. (PDVSA), where numerous individuals have pled guilty to FCPA-related charges, and PetroEcuador, where a former official pleaded guilty to conspiracy to commit money laundering. https://www.bizjournals.com/southflorida/news/2017/11/22/u-s-attorney-former-oil-official-participated-in.html.
14 In this respect, the DOJ recently made coordinated resolutions a part of its official policy. In enacting its anti 'piling on' policy, the DOJ explained that the 'new policy discourages “piling on” by instructing DOJ components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct'. https://www.justice.gov/opa/speech/deputy-attorney-general-rod-rosenstein-delivers-remarks-new-york-city-bar-white-collar.
16 For example, after disclosing information about its internal FCPA-related investigation to DOJ, it was reported in 2015 that 'Brazilian authorities had filed a criminal action against eight Embraer SA employees, accusing them of bribing officials in the Dominican Republic in return for a $92 million contract to provide the country's armed forced with attack planes.' Significantly, the complaint was filed 'with help from the Justice department and the Securities and Exchange Commission.' https://www.wsj.com/articles/embraer-in-talks-with-justice-department-1432120068 ; see also https://www.wsj.com/articles/brazil-files-bribery-charges-in-embraer-aircraft-sale-to-dominican-republic-1411502236 .
panama-probe-idUSKBN1AH57C; https://www.reuters.com/article/us-brazil-corruption-odebrecht-dominican/dominican-republic-ratifies-terms-of-odebrechts-184-million-plea-deal-idUSKBN17L2X1 .
20 See, e.g., https://www.reuters.com/article/us-mexico-odebrecht/mexico-bans-government-business-with-odebrecht-for-two-and-a-half-years-idUSKBN1HP2WT ; https://www.reuters.com/article/us-argentina-odebrecht-idUSKBN19O2JV ; https://andina.pe/Ingles/noticia-odebrecht-banned-from-signing-contracts-with-peru-state-648542.aspx .