The Complete Compliance and Ethics Manual 2021

Corruption Landscape

As in other regions of the world, the specific corruption risks in Latam vary from country to country, but some consistencies exist across the region. For example, most countries in the region rank below 50 in the Corruption Perception Index (CPI)^[2] published yearly by Transparency International. The CPI score relates to the degree to which corruption is perceived to exist among public officials and politicians by businesspeople and country analysts. Score ranges between 100 (highly clean) and 0 (highly corrupt). The average risk score for Latam according to the 2019 CPI is 41.4. Any rating below 50 indicates that countries are perceived as failing to fight corruption. When comparing CPI scores in the last decade, one can see the progress made by many of the countries in Latam, although there is still a long way to go in the fight against corruption.

These low CPI scores reflect the general belief of individuals and organizations that corruption is part of local business practice, and for decades they have learned to live with it. One does not need hard data to see that corruption is embedded in many sectors of society across Latam. It is felt every day by millions of citizens in their dealings with law enforcement, the judicial system, educational and health institutions, utility service companies, and document processing agencies. According to the 2019 Transparency International report on Latin America and the Caribbean titled Citizens’ Views and Experiences of Corruption:

• Most people in the region saw the level of corruption increase over the previous 12 months.

• An overwhelming majority of people (85%) think that government corruption is a big problem.

• Politicians, government officials, police, and judges were perceived as the most corrupt public sectors.

• More than half of the people said that their government was not successful in fighting corruption.

• One out of five people using public services paid a bribe in the previous 12 months.

• Police, utility companies, and identity document agencies were cited as the most likely to demand bribes.

• Only 27% of people have trust and confidence in the judicial system. ^[3]

Socioeconomic and Political Factors

Another common denominator in the region is income inequality and the fact that social class differences are still very prominent. According to the World Economic Forum, Latam has the most income inequality of any region in the world.^[4]

In the early 2000s, Latam enjoyed an economic boom that came to a halt in 2014. During those years of high growth, the percentage of people living in poverty in the region fell from 42% to 26%, while the middle class grew from 22% to 34%. Nonetheless, income inequality is still very visible, and much of the wealth in Latam is in the hands of a small number of individuals. A lot of that wealth ends up reinvested abroad or placed in bank accounts in tax havens such as Panama, the Cayman Islands, or the Bahamas, sometimes leading to tax avoidance or evasion. Tax avoidance and evasion is a worldwide problem, but it is certainly widespread in Latam, as evidenced by the Panama Papers scandal of 2015.^[5]

When doing anti-bribery and corruption due diligence in Latam, it is common to come across large conglomerates owned by powerful families, who typically have ties to politicians and other influential individuals in their countries.

Democracy is still young in the region. Going back to the 1980s, there were only three full democracies in Latin America, while now all countries except two (Cuba and Venezuela) have democratic governments. With democracy came better education and a rise of the middle class; however, in recent years, the slowdown of Latin America’s economy coupled with public frustration over corruption scandals, nepotism, impunity, and weak public institutions, are creating more political instability and social unrest. This presents a more complicated landscape in the region when it comes to preventing corruption.

Social unrest and political instability are also important factors in the minds of those individuals in top economic brackets, creating more secrecy around their personal finances and business operations. This makes it more difficult for compliance professionals to obtain beneficial ownership information when doing anti-corruption due diligence. Personal safety is commonly brought up to excuse the secrecy around beneficial ownership, so compliance and ethics professionals must be creative in securing this information.

Social and political discontent in recent years has given rise to a number of populist leaders who, in some cases like Brazil and Mexico, framed their political campaigns around the fight against corruption. Time will tell the impact of these political changes. Financial challenges and income inequality will likely increase in the region due to the impeding economic problems related to the COVID-19 pandemic, and some governments may consolidate power and eliminate checks and balances with the excuse of tackling the crisis. The predictions for the region resulting from the pandemic are not hopeful, and the crisis may undermine the progress made in certain countries over the last decade. According to an article published by the Brookings Institute, “the longer-term implications of the crisis are grim, and the social, political, and economic consequences could be dramatic.”^[6]

Legal Framework and International Commitments

Plagued with corruption for decades, Latam countries realized that corruption had damaging effects in democracy, economic development, and citizens’ lives. In 1996, many of the region’s countries came together as signatories of the Inter-American Convention Against Corruption.^[7] Interestingly, it was the first international convention to deal with corruption worldwide.

Then came other international treaties such as the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions^[8] (Anti-Bribery Convention), signed in 1997, and the United Nations Convention Against Corruption,^[9] signed in 2003, which have been ratified by many of the countries in Latam.

It was these international efforts, together with the spread of democracy and economic development, that pushed legislators to create the first wave of anti-corruption legislation in the late 1990s and early 2000s.

Despite the development of anti-corruption legislation, stronger democratic institutions, and greater awareness of corruption among citizens and governments in the region for decades, the fight against corruption has suffered numerous setbacks. Corruption scandals involving national leaders or people related to them, prominent businessmen, or key government institutions continue to happen in Latam—including Operation Car Wash (Lava Jato) in Brazil, which implicated high-profile individuals in several countries in the region.^[10] These scandals, together with an increased promotion of enforcement actions derived from foreign corruption laws like the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act, have prompted a second wave of anti-corruption legislation in the last decade, this time focused on creating a more robust legal framework. It is uncertain if this trend will continue in the upcoming years due to conflicting priorities resulting from the COVID-19 pandemic.

The following are the principal laws and regulations relating to bribery and corruption in each of the countries under review.