Is Corruption Rampant in Latin America? Part 1 of 3 6:19, November 29, 2016

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Is Corruption Rampant in Latin America? Part 1 of 3

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Perceptions created by headlines from the Washington Post (“Kickbacks, dirty deals and more: The corruption scandals plaguing Latin America,”) and opinion pieces in the New York Times (“South America’s Culture of Graft”) as well as the Petrobras and Panama Papers scandals paint Latin America as a hotbed of corruption. But is this really true? Digging deeper shows a desperately complex situation with a surprisingly simple takeaway for modern compliance programs. This first part introduces what corruption looks like, with the caveat that it isn’t the whole story.

What is Corruption

As we covered earlier when describing the World Bank’s anti-corruption efforts, corruption is the act of using “entrusted power for private gain.” It’s a blanket term that can comprise many acts around the world, such as fraud, bribery, and collusion, involving both private companies and public offices. Mostly, we’re talking about bribery, which is offering a benefit to someone with power in order to improperly influence their decision.

The Perceptions of Corruption

Statistics and fact patterns derived from global enforcement actions provide some insight into the level of corruption in Latin America, which includes Mexico and Central and South America.

Transparency International produces a yearly Corruption Perceptions Index (CPI) that “measures the perceived levels of public sector corruption worldwide.” While it’s hard to encapsulate corruption data about entire continents (a teaser for a point that will be made later), countries in Latin America skew closer to “Highly Corrupt” than “Very Clean” on the CPI scale, with exceptions found in Uruguay, Costa Rica, Chile, and French Guiana. However, Latin America is not alone, as most of Asia (including Russia and China), most of Africa, the Middle East, and Eastern Europe also skew more “Highly Corrupt” than not. Transparency International qualifies the CPI by saying “[n]ot one single country, anywhere in the world, is corruption-free,” despite ranking them in a deliberate fashion.

Actions enforcing the Foreign Corrupt Practices Act (FCPA), a US federal law that has global reach, provide further insight. Data crunched by Stanford Law School “track[s] all FCPA-related actions brought by the SEC or DOJ since the statute’s enactment in 1977” against private companies. The anti-bribery provisions of the FCPA prohibit the corrupt offer, payment, or promise of payment of anything of value to a foreign official to obtain or retain business.

Out of 223 total enforcement actions brought by either the US Securities and Exchange Commission (SEC) or the US Department of Justice (DOJ), Stanford ranked the countries that received the most bribes. Each number represents the action, not the number of total bribes. Here are the top ten:

  • China (45)
  • Nigeria (23)
  • Iraq (20)
  • Indonesia (19)
  • Gabon (17)
  • Mexico (16)
  • India (14)
  • Russia (14)
  • Argentina (13)
  • Saudi Arabia (13).
    ,

Despite the perception of corruption in Latin America, it was Asian countries that appeared the most times (four) in the top ten positions, followed by Latin American, African, and Middle Eastern countries (at twice each). Additionally, so far in 2016, four out of 21 enforcement actions (19%) have involved bribery in Latin American countries. In comparison, a whopping 16 out of 21 enforcement actions (76%) involved Asian countries, particularly China. The fact that these lists don’t include regions like Western Europe and countries like Canada and Australia roughly tracks the public-sphere data compiled by Transparency International.

For an illustration of what kind of conduct leads to enforcement actions, check out our past posts on LATAM Airlines and North American companies Akamai and Nortek.

What Does This Mean?

To most global companies, this data shows the wisdom of doing or operating businesses in certain countries pursuant to a risk-based approach, as strongly recommended by anti-corruption and anti-bribery experts such as the DOJ itself, the United Nations Office on Drugs and Crime (UNODC), the Organisation for Economic Co-operation and Development (OECD), and global law firms (Arnold & Porter is one of many). For example, it is imperative that companies perform due diligence on any new partner or third party, constantly monitor global activity, and identify and act appropriately upon discovered red flags, of which a country with a “high” corruption level is one. Doing business in countries like Mexico or Argentina may require higher scrutiny and attention than doing business in Canada or Western Europe.

A risk-based approach, generally, is sage advice that should be followed by any global company. However, there’s something missing from this cold data and country-featured finger pointing. The next two posts will describe why survey and enforcement data, alone, isn’t enough to inform companies’ anti-corruption and anti-bribery efforts, and how they can better craft compliance solutions. 

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Douglas Kelly
Douglas Kelly is EverFi's lead legal editor. He writes on corporate compliance and culture, analyzing new case law, legislation and regulations affecting US companies. Before joining EverFi, he litigated federal and state employment cases and wrote about legal trends. He earned his JD from Berkeley Law and BBA from Emory University.

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