Despite more than three-quarters of executives indicating that their country’s anti-corruption laws are ineffective, the recent “2016 Latin America Corruption Survey” by law firm Miller & Chevalier and 13 partner firms based in those countries shows marked signs of region-wide improvement in corporate compliance measures.
"While many of the responses in this year’s survey suggest enduring risks and ossified attitudes in Latin America, we also see signs of improvement in some areas," says James Tillen, member and vice chair of the firm’s international department. "For example, we are observing significant growth in anti-corruption compliance efforts in a number of key markets, as well as a greater number of companies that are aware of the relevant anti-corruption legislation that pertains to them, which is a good sign for the region overall."
“Despite continued pessimism in the region about the effectiveness of local anti-corruption laws, we expect recent headline-catching corruption investigations of individuals —such as the former president of Guatemala, the daughter-in-law of Chile's president, and numerous high-ranking officials in Brazil —to begin to shift opinions about the enforcement of corruption laws over the next several years,” adds Saskia Zandieh, counsel at Miller & Chevalier. “In addition, the recent adoption of new anti-corruption legislation in many countries —such as Brazil, Mexico and Colombia—and continued FCPA enforcement relating to Latin America could also shift opinion.”
In April and May 2016, Miller & Chevalier and 13 Latin American partner firms distributed the survey to corporate executives based in 19 countries working in a broad cross-section of industries. More than 600 individuals completed the survey, which was made available in English, Spanish, and Portuguese.
Generally, the effectiveness of anti-corruption laws was perceived negatively (77 percent of respondents indicate the laws in their country are ineffective). Chile (42 percent), the U.S. (54 percent) and Uruguay (53 percent) are perceived to have the most effective anti-corruption laws of the countries studied. Argentina (3 percent), the Dominican Republic (4 percent) and Venezuela (zero percent) were found to have the least effective anti-corruption laws in the region.
Eighty-nine percent of respondents who believe their company has lost business to law-breaking competitors say they have not reported offenses to the authorities. Even though more than half (59 percent) of total survey respondents believe an offender would likely be prosecuted for corruption, of the 11 percent of respondents who reported corruption, less than one-third indicate that local enforcement authorities investigated the report.
State-owned companies feature significantly in FCPA enforcement actions related to Latin America. Respondents from Venezuela, Honduras, Brazil, and El Salvador rank corruption associated with state-owned companies higher than levels perceived by respondents from other countries. Respondents from the United States and Chile rank it lowest.
Perceptions of risks in state-owned companies are on par with other branches of government, suggesting significant levels of corruption risk despite the fact that state-owned companies often engage in activity that could be considered akin to the private sector. The low percentage for U.S. respondents likely reflects the limited number of state-owned companies in the country, compared with other countries surveyed.
As was the case in 2012, respondents say public accountability and government enforcement are the most effective tools to combat corruption, signaling a continued emphasis on external controls. Internal corporate responsibility and social policing are viewed as secondary and less effective tactics. This may be because government enforcement and lack of transparency in the public sector often make headlines and news clips, while the effectiveness of social policing can be more difficult to detect or appreciate for those not already engaged in such initiatives,” the survey’s authors speculate. “It may also be that the value of corporate compliance is not fully appreciated until the negative consequences to engaging in corruption outweigh the potential benefits,” they wrote.
The report accompanying the survey notes that several countries in the region—including Brazil, Colombia and Mexico—have recently adopted or are in the process of adopting legislation that establishes credit for companies that have anti-corruption compliance programs in place. It remains to be seen, however, how these new laws will affect companies' commitment to compliance in the long term.
The percentage of companies using certain types of compliance safeguards has been consistent over the past four years in the region. Safeguards include anti-corruption policies, gifts/travel/ entertainment procedures, charitable and community donations, political contributions, audits and assessments, anonymous reporting mechanisms, and full-time compliance personnel. Training has experienced an increase since 2012 from 61 percent to 70 percent of respondents, suggesting a slight transition in the region from static compliance efforts, such as written guidance, toward more dynamic programs reliant on communication mechanisms.
Efforts by regional and multinational companies to manage corruption risks in third-party relationships, traditionally one of the highest areas of bribery risk under the FCPA and similar anti-corruption laws, have notably increased region-wide. More companies are implementing due diligence incorporating contractual safeguards into their agreements with third parties. The number of respondents indicating company use of third-party due diligence increased nearly 10 percent since the 2008 and 2012 surveys. It increased significantly for private companies (39% in 2012; 52% in 2016) and at a more measured rate for publicly traded companies. The use of anti-corruption contract terms has also gone up, from 59 percent to 66 percent since 2012; 34 percent of companies say they monitor the activities of third parties, an activity that was not tested in 2012.
Of respondents who work for companies publicly listed in the U.S., the largest increases in compliance efforts from 2012 to 2016 are in the areas of anti-corruption contract terms, anti-corruption audits and assessments, and full-time compliance personnel (from 64 percent in 2012 to 74 percent in 2016). There were slight decreases in procedures for facilitation payments (from 65 percent in 2012 to 60 percent in 2016), possibly reflecting the drop in companies that still them. M&A due diligence metrics also showed a decline, from 72 percent in 2012 to 64 percent in 2016, possibly reflecting a slowdown in activity.
For local/regional companies, compliance efforts have increased in anti-corruption training, full-time compliance personnel, anti-corruption contract terms, gifts/travel/entertainment procedures, and anti-corruption audits and assessments. Similarly, multinationals saw increases in anti-corruption training, anti-corruption policies, anti-corruption contract terms, gifts/travel/entertainment procedures, anti-corruption audits and assessments, anonymous reporting mechanisms, and full-time compliance personnel.
"Given the number of headline corruption issues in Latin America, it is not surprising that few respondents see a noticeable improvement in their country’s anti-corruption programs," said Miller & Chevalier Member Matteson Ellis. "Between Brazil’s Petrobras scandal and Lava Jato investigation, and well-publicized misconduct in other countries like Colombia, Chile and Mexico, we see a clear need for increased anti-corruption legal action in the region. Recent developments like the new Mexican anti-corruption system are long-awaited steps in the right direction."