Corruption and the Regulatory Landscape in Latin America: Exiger’s Integrity Forum Hosts Private-Sector Anti-corruption Experts from Key Latin American Jurisdictions

Thursday, August 1, 2019

The Integrity Forum, an initiative of Exiger, examined changes in anti-bribery and corruption enforcement in Latin America, and how multinational companies can maintain robust compliance programs to meet these new regulatory challenges. The program featured several panel discussions held at breakfast programs in New York and Washington, D.C., as well as at Columbia Law School’s Center for the Advancement of Public Integrity and the Georgetown Law Center’s Center for the Advancement of the Rule of Law in the Americas. The program was moderated by Daniel R. Alonso, Managing Director at Exiger and Chair of the Integrity Forum, with expert panelists Gustavo Morales Oliver, Partner at Marval, O’Farrell & Mairal in Buenos Aires, Argentina; Eloy Rizzo Neto, Partner at Koury Lopes Advogados in São Paulo, Brazil; Daniel Rodríguez, Partner at CMS Rodríguez-Azuero in Bogotá, Colombia; Diego Sierra, Partner at Von Wobeser y Sierra in Mexico City, Mexico; Aaron Narva, Vice President and Global Head of Exiger Insight 3PM; Rajal Dubal, Head of Exiger’s Financial Investigations Practice; and Brandon Daniels, President of Global Technology Markets at Exiger.

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Over the past decade, Latin America has seen unprecedented victories in the fight against bribery and corruption. In Guatemala, former President Otto Pérez Molina currently awaits trial in custody for charges involving a customs corruption scandal, while his former Vice President, Roxana Baldetti, was sentenced to 15 years last fall for embezzling funds intended to decontaminate Lake Atitlán; in Perú, three former presidents are currently under investigation as part of the Odebrecht corruption scandal; and last year, in the U.S. District Court for the Eastern District of New York the former president of the Brazilian soccer federation and former president of the South American Football Confederation, were sentenced to four and nine years, respectively as part of the ongoing corruption investigation into FIFA officials.

All indications are that these are early victories. More and more, governments, civil societies, and private sector actors are challenging the culture of impunity that has undermined the rule of law across the region. But the panelists at the Integrity Forum agreed that in many ways, anti-bribery and corruption (ABAC) compliance in Latin America is in its infancy, and forcefully argued that both governments and corporate actors need to play an integral part if these nations are to see real breakthroughs in controlling their corruption problems.

Trends in Anti-Bribery and Corruption Enforcement in Latin America

  • In Brazil, the ongoing Lava Jato (“Car Wash”) investigation over the past five years has signaled a decided departure from the sense of impunity among the nation’s elites. Mr. Rizzo explained that before the investigation, government bribes were sometimes seen as obligatory for companies doing business in the region, costing an average of one to five percent of government contracts. Operation Car Wash has already resulted in unprecedented incarceratory sentences for many high-ranking executives and public officials, including the former CEO of Odebrecht and former President Luiz Inácio “Lula” da Silva. Recently, authorities filed a new corruption indictment against former Brazilian President Michel Temer. (As this update was being finalized, the Brazilian Supreme Court put a temporary freeze on certain corruption investigations based on its view that the Brazilian financial intelligence unit had improperly shared suspicious transaction reports (STRs) with prosecutors without court orders to do so. That issue will be the subject of a future Exiger update.)
  • The implications of the Car Wash investigation reach beyond Brazil’s borders. In Colombia, as Mr. Rodríguez described, a senior executive at Grupo Aval was sentenced to nearly 12 years in prison earlier this year, for bribery carried out with Odebrecht executives. And in an unrelated but highly significant development, just months earlier, Colombia’s former National Director of Anti-Corruption was sentenced to prison in U.S. District Court in Miami for corruption and financial crimes.
  • Mr. Morales Oliver discussed the ongoing investigations in Argentina over the “notebooks” scandal, which has thus far exposed large-scale corruption within the highest levels of government. The current vice-Presidential candidate and former President Cristina Fernández de Kirchner are among those implicated in the scandal. Separately, Fernández de Kirchner is currently awaiting trial for one of several indictments that have been brought against her since she left office in 2015.
  • Although countries across the region have prosecuted significant corruption more actively in recent years, Mexico had largely absented itself from such initiatives, Mr. Sierra told participants. President Andrés Manuel López Obrador’s anticorruption platform was central to his landslide victory in the 2018 election, as the public’s frustration with deep-rooted corruption and impunity grew under the previous administration. But, according to Mr. Sierra, the President’s campaign promise of “zero tolerance” for corruption has yet to be fulfilled. One bright sign for Mexico’s anticorruption movement was the announcement in May from the Office of the Attorney General, which was recently granted independence from the executive branch, that it will bring new allegations involving the Odebrecht company.

The Integrity Forum participants stressed that, in light of these recent cases and initiatives across the region, a growing number of companies are recognizing the imperative of thorough and effective anti-corruption compliance programs throughout Latin American markets. Companies conducting business in the region, whether directly or through a local subsidiary, now face renewed efforts in anti-corruption enforcement from Latin American governments, in addition to the continued strong oversight by the U.S. Department of Justice, the Securities and Exchange Commission, the UK Serious Fraud Office, and other international regulators.

Best Practices for Anti-Bribery Compliance

The Integrity Forum panelists emphasized that these enforcement actions and trends should spur companies to take a proactive approach to ABAC compliance. For companies embroiled in corruption scandal, thorough internal investigations are critical as a means to making informed decisions; as Mr. Morales Oliver (Argentina) explained, the results of an internal investigation can help craft effective controls to remediate future ABAC compliance issues. To that end, the panelists suggested a handful of best practices and key strategies to mitigate risk and withstand scrutiny from local and international regulators and prosecutors. 

Local Implementation

Mr. Sierra (Mexico) explained that although many companies adhere to international best practices in ABAC compliance at their headquarters in North America or Europe, many of these companies fail to implement or enforce these practices in their Latin American subsidiaries. As international and local regulators hold companies to an increasingly high standard of oversight, such implementation will be crucial throughout all jurisdictions of operation. Through the FCPA and UK Bribery Act, the DOJ, SEC, and SFO will hold companies responsible for the actions of their subsidiaries; companies under the purview of these laws must therefore ensure that their compliance programs are no less robust across all subsidiaries.

As Mr. Morales Oliver (Argentina) noted, multinational corporations sometimes use a one-size-fits-all approach based exclusively on the compliance program dictated by the parent company, without addressing local anti-corruption regulation adequately. Argentina, for example, enacted the national Ley 27.401 in 2016, and the Anticorruption Office has since published detailed guidelines on what constitutes an effective compliance program. Importantly, the new Argentine law fully exempts companies from criminal liability if they (a) have an effective compliance program in place; (b) self-report the matter to the authorities; and (c) return any resulting illicit proceeds. Mr. Morales Oliver stressed that compliance with Argentine regulations in addition to international norms will be crucial.

Third-Party Management

The panelists discussed how regulators and prosecutors are focusing heavily on the importance of third-party management and due diligence. Mr. Rodríguez (Colombia) noted that recent investigations had pointed to the importance of understanding who is doing business on your company’s behalf. The panelists agreed that today’s regulatory expectation is that companies will conduct risk-based due diligence on their third parties, monitor them commensurate with that risk, and control their activities on the company’s behalf. Mr. Narva (Exiger) and others stressed the value of having the proper technological tools to monitor third parties.

Innovation in Technology

Not surprisingly, at the same time that regulators are increasing their focus on corruption, corporate compliance outlays have skyrocketed. To alleviate the cost problem, artificial intelligence (AI) technologies and other new compliance tools will become indispensable. As Mr. Daniels (Exiger) explained, when accompanied by a strong compliance culture, AI technologies, including natural language processing and machine learning, can be transformative. Specifically, they can be used to perform complex compliance functions efficiently, including:

  • Conducting thorough and cost effective due diligence for customers, third parties, and em-ployees;
  • Managing broader coverage of third party relationships;
  • Risk rating third parties;
  • Conducting negative news and sanctions screenings;
  • Conducting standardized, enterprise-wide risk assessments
  • Maintaining a clear audit trail of compliance activities in case of regulatory issues or audits; and
  • Monitoring for any changes to third-party risk.

According to Mr. Daniels and Mr. Narva, these technologies make it easier for companies to standardize compliance practices across all subsidiaries, thereby reducing risk exposure across the globe.

Ongoing Monitoring and Continuous Evaluation

Amid the wave of anticorruption reform in the region, the panelists agreed that the most effective means to prevent future compliance issues is to conduct ongoing monitoring and continuous evaluation. These processes, especially when deploying time-saving AI technologies, are not only the fastest way to identify and remediate weaknesses in a compliance program, and demonstrate to regulators and financial stakeholders that a company takes its compliance commitments seriously.

Special Issue: Project Finance

Mr. Rodríguez (Colombia) discussed particular risks for lenders involved in project finance in Co-lombia and other Latin American countries, particularly the key risk of early termination of a project contract if corruption is found in the procurement process. Such termination can occur regardless of whether lenders or other third parties were aware of the corruption, and even if they conducted reasonable due diligence on the project or on the concessionaire. Early termination in any project finance scenario affects equity investors and sponsors, lenders, goods and services providers, and employees.

The consequence of this risk, as Mr. Rodríguez explained, is that a number of third parties have refrained from participating in projects associated with corruption risks that cannot be reasonably measured, or efficiently mitigated or controlled. And those few third parties that do participate in projects impose onerous fees to compensate for this risk.

Shortly after the Integrity Forum events were held in the U.S., the Colombian Constitutional Court issued a decision in connection with public-private partnerships (PPPs), granting good faith third parties the right to collect from contracting public entities any money owed by those entities in connection with such projects. The Court’s decision, as Mr. Rodríguez explained, helps mitigate the loss associated with corruption for non-complicit third parties. Ideally, though, all companies involved in project finance, as well as the public contracting entities and PPPs, will impose adequate controls to prevent corruption altogether, including conducting thorough due diligence for all stakeholders and careful ongoing compliance monitoring throughout the project itself.

 

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Daniel R. Alonso, Managing Director | General Counsel

Click to read in Spanish | Click to Download Full Spanish Bio

Daniel R. Alonso is a Managing Director based in Exiger’s New York office, where he focuses on monitorships, investigations, and financial crime compliance (including anti-bribery and corruption). A lawyer and former high-ranking federal and state prosecutor and ethics official, he brings a distinguished enforcement career of more than 20 years to Exiger. At Exiger, Mr. Alonso has led monitorships, other third-party assignments, complex investigations, and compliance reviews. He also serves as Exiger’s General Counsel.