QIL+4 Abogados partnered with Miller & Chevalier for the 13th Latin American 2016 Latin America Corruption Survey

To review the complete survey please see attached file:  

EXECUTIVE SUMMARY

With high‐profile scandals regularly filling headlines, corruption in Latin America continues to undermine confidence in the region’s political institutions and to have a corrosive effect on the integrity of its markets. Most recently, the ongoing Lava Jato investigation – also referred to as “Operation Car Wash” – that centers on the region's largest company, Brazil's Petro bras, casts an unwelcome shadow over the 2016 Olympic Games and the country’s already unstable economy. Dozens of companies and hundreds of businesspeople have been implicated so far,   reaching the highest levels of government. The downfall of top business and political leaders in Brazil mirrors high‐profile investigations in Central America,  where  Guatemala’s former  president was  recently  arrested and charged in a bribery scheme. Large‐scale corruption investigations involving Argentina, Chile, Colombia, Mexico and Venezuela suggest risks are widespread.

In  the  context  of  widespread corruption  scandals,  some  Latin  American  businesses  are adopting stronger compliance mechanisms and embracing modern governance structures. The extent of corruption in Latin America and corporate responses to corruption are among the key themes explored in a survey by U.S. law firm Miller & Chevalier Chartered (Miller & Chevalier) and 13 law firms located throughout the region. The survey polled business executives and in‐house legal counsel who work in Latin America and the United States about the extent of corruption in their home countries and in the countries where their companies operate, the perceived effectiveness of local anti‐corruption laws, and how businesses address corruption risks.

Many responses on perceptions of risk are consistent with the findings of earlier editions of the survey conducted by Miller & Chevalier and partner law firms in 2008 and 2012, suggesting that risks and unfavorable perceptions of enforcement endure and reflecting pessimism about the effect of corruption on government. At the same time, the survey reveals signs of regional improvement in corporate compliance measures, with companies in some countries demonstrating exceptional progress and sophistication in embracing compliance best practices.

SUBSTANTIVE HIGHLIGHTS

• Anti‐Corruption Laws Generally Perceived to be Ineffective: More than three‐quarters (77%) of respondents believe their country’s anti‐corruption laws are ineffective, and about half (48%) say corruption is a significant obstacle to doing business. More than half (52%) believe they have lost business to corrupt competitors; of those, most (89%) say they did not report such misconduct to the authorities. 71% of those who did make reports say the government failed to investigate. These results are highly consistent with responses to the same questions in 2008 and 2012.
   

o   In 2012, 71% of respondents said their country’s anti‐corruption laws were ineffective, and 44% said corruption was a significant obstacle to doing business. 51% said they believed they had lost business to law‐breaking competitors, but 88% said they did not report such misconduct to the authorities. 67% of those who made a report said the government failed to investigate.

o   In 2008, 82% of respondents said their country’s anti‐corruption laws were ineffective, and 48% said corruption was a significant obstacle to doing business. 59% said they believed they had lost business to law‐breaking competitors, but 91% said they did not report such misconduct to the authorities. 50% of those who made a report said the government failed to investigate.
 

• Increased Familiarity with the FCPA:   Almost three-quarters of respondents (72%) in the region are familiar with the U.S. Foreign Corrupt Practices Act ("FCPA"), up from 65% in 2012. 58% of respondents from local/regional companies are somewhat or very familiar with the FCPA, up from 47% in 2012. Even among respondents whose companies do not appear to be subject to the FCPA, almost three‐quarters are very familiar or somewhat familiar with the FCPA, suggesting the law is having a broad impact in the region.
   
• Nearly All Respondents Feel State‐Owned Enterprises and Political Parties Are Corrupt:Unlike in years past, this year’s survey analyzes respondents' perceptions of corruption among political parties and in state‐owned enterprises, such as national oil companies and public hospitals. 92% of respondents associate moderate or significant corruption with political parties, and 93% of respondents say the same about state‐owned companies.
   
• Argentina, Brazil, Mexico and Venezuela Seen as Most Corrupt Large Economies: Of the major economies (over US$100 billion in GDP), Argentina, Brazil, Mexico and Venezuela are seen as the  most corrupt in  the  region, a  finding that is  consistent with attitudes in  2012, where Argentina, Mexico and Venezuela were rated the most corrupt. Brazil has joined this group, unsurprisingly given the major bribery schemes exposed there in recent years.
   
• Companies  Increasingly  Adopting  Tools  to  Mitigate  Third‐Party  Bribery  Risks:  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 in the region. More companies are implementing due diligence and monitoring practices and incorporating   contractual safeguards into their third‐party agreements.
   
• Divergence  in  Countries  Embracing  International  Compliance  Efforts:  The  survey  shows exceptional  growth  in  anti‐corruption compliance  efforts  in  certain  key  markets  (Brazil, Colombia,  Mexico  and  the  United  States),  while  other  markets  lag  behind  in  engaging in international compliance best practices (Bolivia, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Venezuela), signaling the emergence of a diverse array of compliance climates throughout the region. We classify countries' compliance environments as “most developed," "developing" and "least developed" on page 24 and in the Appendix.

SELECTED COUNTRY HIGHLIGHTS

• Brazilians Focused on Corruption.  Responses related to Brazil stand out and show the significant effect that locally driven, headline enforcement actions can have on local perceptions of corruption and on corporate compliance. 93% of Brazilians surveyed are aware of a company, individual  or  government official  being  prosecuted for  making  or  receiving  an  improper payment, gift or other benefit related to obtaining business, compared with 64% across Latin America and up from 88% in Brazil in 2012. 90% believe that an offender is likely to be punished, compared with the regional average of 59%.  Since 2012, the percentage of Brazilian respondents saying there is significant corruption in the executive branch has jumped about 25 percentage points to 86%. Brazil also has the highest percentage of respondents saying that the importance of preventing corruption for their companies has increased over the last 5 years, with 81% saying yes compared with a regional average of 71%.
   
• Mexico Slow at Reform. Mexico is viewed as one of the four most corrupt countries surveyed in the region, which is in line with its risk ranking in the 2012 Latin America Corruption Survey. This year, only 8% of respondents found Mexico’s current anti‐corruption laws to be effective, compared with a regional average of 23%. Mexico has experienced several high‐profile corruption scandals over the past four years, including allegations of a quid pro quo relationship arising from the purchase of a lavish home by the wife of President Enrique Peña Nieto from a significant government contractor. Relatedly, the survey shows a decrease in Mexicans who believe that an offender is likely to be prosecuted locally, from 40% in 2012 to 28% in 2016, compared with a regional average this year of 9%.  Mexico  registers  the  third‐lowest percentage  of  confidence in  local  prosecution;  only  Venezuela  (12%)  and  the  Dominican Republic (14%) have lower confidence levels. Consistent with these finding, promised reforms to the country's anti‐corruption laws have been slow to emerge. The Organization for Economic Co‐Operation and Development has raised concerns about Mexico’s anti‐corruption laws for over a decade, and it was not until July 18, 2016 (after the close of the survey period), that President Peña Nieto signed into law the implementing legislation for the Mexican National Anticorruption System.
  
  
• Hopeful Signs in Guatemala. Recently, Guatemalans have watched as an investigation brought by local prosecutors with the support of the international community has led to the arrest and jailing of the country's sitting President, Otto Perez Molina, and implicated dozens of other high‐ level officials. Evidence shows that officials have been involved in a systemic scheme to use the customs agency to siphon funds to personal accounts. These headline developments appear to have had an effect on Guatemalans' perceptions of corruption. More Guatemalan respondents (95%) ranked customs risk as "significant" than did respondents from any other country surveyed. Guatemalans surveyed consider corruption to be prevalent, with 65% believing that their own companies have lost business to competitors willing to pay bribes, compared with a 52% regional average. The survey also reveals a notable increase in the percentage of Guatemalans who believe an offender is likely to be prosecuted locally, up 29 percentage points to  65%  in  2016from36%  in  2012,  compared with  a  regional average of  59%,  perhaps a reflection of the recent prosecutions.
   
• Venezuela as Most Corrupt Surveyed Country in Region. Continued instability in Venezuela appears to have created an environment whereby local anti‐corruption enforcement is seen as minimal. No Venezuelan respondent believes the country’s anti‐corruption laws are effective, the only country surveyed to receive a 0% response. There has been a decrease in Venezuelans who believe that an offender is likely to be prosecuted locally, down 22% from 39% in 2012 to 17% in 2016.  Less  than a third  (29%)  surveyed  are  aware  of  a  company,  individual  or government official being prosecuted for making or receiving an improper payment, gift or other benefit related to obtaining business, compared with a 64% regional average and down 23% from 52% in 2012. All Venezuelan respondents see "significant corruption" in the executive branch and state‐owned companies in the country, the highest percentages registered among all countries surveyed, perhaps reflecting the broad powers and functions undertaken by President  Nicolás  Maduro's  Administration  and  the  far‐reaching  activities  of  state‐owned companies in the local economy.

Despite continued pessimism in the region about the effectiveness of local anti‐corruption laws, Brazil, which adopted the Clean Companies Act in 2014 and is in the midst of one of the largest anti‐ corruption prosecutorial efforts ever seen, serves as an example of the speed at which local perceptions of corruption can change when countries adopt new legislation and enforcement agencies aggressively apply the law.

Over the next four years, we can expect anti‐corruption efforts to continue to expand in other areas of the region as well, as countries like Argentina, Colombia, Chile, Guatemala, Mexico and Peru continue to reform and enforce their laws. Depending on the seriousness of these efforts, the region could experience broader and more fundamental shifts in perceptions of corruption and governments' abilities to address it. If these efforts are not taken seriously, current long‐ standing attitudes could grow further entrenched. Even if some Latin American countries do not undertake local reform, their companies might still be influenced by extraterritorial enforcement of the FCPA and other international anti‐corruption laws and the awareness of international compliance standards that those laws create. The threat of prosecution by foreign governments of local companies and individuals could help bolster local interest in compliance and other protective measures, working to dislodge what have become frozen attitudes about prevalent corruption risk over the eight years that Miller & Chevalier's surveys have covered.