This section of the manual provides an overview of the corruption landscape, the socioeconomic and political environment, and the legal framework in Latin America and the Caribbean (Latam). This article will focus on six of the biggest economies in the region (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), including a comparison of the current legislation in these countries to allow a better understanding for organizations and compliance professionals who are considering corruption risks associated with their operations in Latam.
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) published yearly by Transparency International (average risk score according to 2018 CPI is 41.5). 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.
|Country||Change in Score: 2017–2018||CPI Score 2018||CPI Score 2012||CPI Score 2007|
|Saint Vincent and the Grenadines||=||58||63||61|
|Trinidad and Tobago||=||41||43||34|
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 2017 Transparency International report “People and Corruption: Latin America and the Caribbean” :
Most people in the region saw the level of corruption increase over the previous 12 months
Police and politicians were perceived as the most corrupt public sectors
More than half of the people said that their government was not successful in fighting corruption
Almost a third of public service users paid a bribe in the previous 12 months
The highest bribery risk in public services was in the healthcare and education sectors
Only 9% of bribe payers reported corruption, and 28% of those who reported corruption were retaliated against
Most people (70%) felt that ordinary people could make a difference in the fight against corruption
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, Latin America and the Caribbean has the most income inequality of any region in the world.
In the early 2000s, Latam enjoyed an economic boom which 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.
When doing anti-bribery and corruption (ABAC) 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.
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 (IACAC) . Interestingly, it was the first international convention to deal with corruption worldwide.
Then came other international treaties such as the Organisation for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention)(signed in 1997) and the United Nations Convention Against Corruption (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 which 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 arise in Latam—including Operation Car Wash (Lava Jato)in Brazil, which implicated high-profile individuals in several countries in the region. These scandals, together with an increased promotion of enforcement actions derived from foreign corruption laws like the U.S. Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act, have prompted a second wave of anti-corruption legislation in the last decade, but this time focused on creating a more robust legal framework.
Below are the principal laws and regulations relating to bribery and corruption in each of the countries under review:
|Argentina||Argentine Criminal Code, anti-corruption provisions amended by Law 25,188 (enacted in 1999); Law 24,759 enacted in 1997 (adopting the Inter-American Convention Against Corruption); Law 25,319 enacted in 2000 (adopting the OECD Anti-Bribery Convention); Law 26,097 enacted in 2006 (adopting the UN Convention Against Corruption); Law 27,401 enacted in 2017 (criminal liability for legal entities); Decree-Law 1023/2001 (regulating public procurement)|
|Brazil||Federal Constitution of 1988; Brazilian Criminal Code; Decree-Law 2,848 enacted in 1940 as amended by Law 10.467 in 2002; Law 8,666 enacted in 1993 (Public Procurement Law); Decree 3,678 enacted in 2000 (adopting the OECD Anti-Bribery Convention); Law 12,846 enacted in 2013 (Clean Companies Act); Decree 8,420 enacted in 2015|
|Chile||Chilean Criminal Code, anti-bribery provisions amended in 2002 by Law 19,829; Law 20,393 enacted in 2009 (criminal liability of legal entities); Law 21,121 enacted in 2018|
|Colombia||Colombian Penal Code; Law 1,474 (Anti-Corruption Law) enacted in 2011; Law 1,573 enacted in 2012 (adopting the OECD Anti-Bribery Convention); Law 1,778 enacted in 2016 (criminal liability for legal entities)|
|Mexico||Federal Criminal Code and State Criminal Codes, General Law of Administrative Responsibility (GLAR) enacted in 2017; OECD Anti-Bribery Convention, entry into force July 1999|
|Peru||Peruvian Penal Code, as amended by Decree-Law 1243 in 2016; Law 30,424 enacted in 2016 and Decree 1,352 enacted in 2017 (criminal liability for legal entities); Law 27,815 (Law of Ethics in Civil Service)|