Understanding local nuances in Latin America is key for compliance

Understanding local nuances in Latin America is key for compliance

January 20, 2017

Recently, members of the compliance community joined experts from Kroll’s Investigations and Disputes and Compliance practices for a webinar, “Operate with Confidence: Responding to the Changing Risk Environment in Latin America.”

Many of the questions during and after the webinar centered on how to identify and understand local nuances that can impact the attitudes and behaviors of clients, partners, and third parties in the region — and more critically, that can undermine a company’s anti-bribery, anti-corruption efforts. 

As companies seek to increase their international presence, there is a growing desire to bolster their ant-corruption compliance programs. However, anti-corruption regulations and enforcement vary across Latin America. As such, the push to become more transparent and vigilant brings it unique challenges.

Common characteristics of the Latin American business environment that expose companies to risk include:

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In many instances, a lack of formality and controls within the Latin American business environment makes it challenging to apply a catch-all compliance framework in the region. Government controls of certain sectors, seemingly decentralized oversight of many bureaucratic operations, and the lack of formal business registers and public records: These all contribute to a fertile ecosystem for hidden payments and unclear connections.

Furthermore, compliance professionals should to be on guard for practical issues and red flags raised by some of the common practices that have evolved to operate in this environment:

The use of consultants with expertise in dealing with a public entity

These individuals are referred to as despachantes (forwarding agents) and carry out a formal job function as a facilitator. They have connections with government officials and expertise in dealing with bureaucratic matters. They can often be a source of improper payments.

The use of “gestores” for getting permits and licenses

Most common in Mexico, "gestores" help facilitate a license or permit from government officials. They can simply be intermediaries who know how to navigate the system, but they can also be directly connected to government officials, facilitating improper payments and benefits to them.

Widespread exceptions to corporate policies (and legal requirements)

Many international companies operating in the region fail to enforce or execute on their global anti-corruption or compliance frameworks through local entities.

Gift-giving is common, and policies are

Gift-giving policies tend to be loosely understood.

No local compliance personnel, or they report to local management

It is common for compliance roles to report into a regional structure with only a dotted line into the global compliance officer or headquarters. In these situations, the team isn’t always able to raise issues and act on red flags with the autonomy and authority it needs.

Inadequacy of internal investigations

Internal investigations are often poorly executed and understood.

Common use of fictitious vendors and invoices, improper payroll outsourcing

Falsifying paperwork is commonly employed to mask illicit behavior, driving the need to screen third parties. While many payroll companies are legitimate, others focus on tax avoidance and evasion or channel money for improper use. These types of companies should be viewed as a red flag and subjected to further investigation before associating with them.

In the face of these complexities, there are things you can do to operate with confidence in Latin America:

1. Conduct purposeful risk assessments to understand your vulnerabilities in the region and put controls in place to protect you from corruption and fraud.

2. Know your third parties — customers, associates, vendors — anyone you are doing business with or who is conducting business on your behalf. The scarcity of public documents and complex business and government relations mentioned above can make it difficult to conduct these assessments. As such, you should partner with a vendor who knows how to navigate the region.

3. Understand local customs in order to reconcile a catch-all compliance program with local operating procedures. For example, the use of gestores and contractors is often required, but there can be a fine line between legal and illegal activity. Among other things, put the proper controls in place around movements of assets to protect you from exposure and make it clear to your associates what is and what is not allowed.

4. Maintain vigilance. Conduct monitoring, training, and communication on a regular basis with third parties.

Businesses operating in countries such as Brazil, Colombia, and Mexico — where more stringent anti-corruption frameworks have been recently enacted — face strict penalties imposed on individuals and corporations who are found guilty of acts of bribery, fraud in public procurement, and bid rigging.

Kroll knows the Latin America risk landscape well and our experts are prepared to help you prevent, respond, and remediate these risks.  Our experts have worked throughout the region for decades. We have the local expertise and on-the-ground resources that can help you identify current vulnerabilities and anticipate areas of risk to support more successful ventures.

Whether you are looking for support in adapting and carrying out your compliance and due diligence programs in Latin America or across the globe, Kroll can act as an extension of your compliance organization through a combination of in-depth subject matter expertise, global research, investigative capabilities, and flexible technology.

Ian Cook Senior Director, Investigations and Disputes

Ian Cook is a Senior Director in Kroll’s Investigations and Disputes practice, based in the São Paulo office. Ian has a wealth of knowledge and experience in the compliance field, with a particularly strong background in the finance sector in Latin America. He is highly skilled at translating best practice guidance into actionable strategies, including the management of policies, procedures, and monitoring activities.

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Ian Cook