Tue, Jun 15, 2021

The Engel List: A Look into Central America’s Corruption Risks

In late June, the Biden administration will provide U.S. Congress with the Engel List, containing names of corrupt Central American public officials to be targeted with a range of anticorruption measures.1 The Engel List is a key component of the U.S.-Northern Triangle Enhanced Engagement Act. The bill, passed by the U.S. Congress in December 2020, also required the U.S. Secretary of State and the Administrator of the U.S. Agency for International Development (USAID) to develop a five-year plan to advance prosperity, security and democratic governance in the Northern Triangle.2 At the center of these efforts will be the fight against local corruption, according to Ricardo Zúñiga, the U.S. Special Envoy for the Northern Triangle. Local corruption is the main obstacle to attract foreign investment to Central America, while Biden administration officials regard private sector investment as critical to promote economic development and prosperity in the region.3,4

The U.S. government considers a range of measures against those on the Engel List, including revocation of U.S. visas for individuals and their relatives, inclusion in the Office of Foreign Assets Control (OFAC)’s Specially Designated Nationals and Blocked Persons List (SDNs), and the imposition of sanctions pursuant to the Magnitsky Act. Additionally, the Biden administration is considering creating an anti-corruption task force composed of officials from the U.S. Department of Justice (DOJ) and other government agencies to support Central American prosecutors in certain corruption cases.5,6,7

In May 2021, U.S. Congress published a list of 16 current and former public officials from El Salvador, Honduras and Guatemala regarded by the U.S. State Department as credibly suspect of engaging in or facilitating corruption.8 The list had no legal ramifications but was described by El Faro, a Salvadoran investigative newspaper, as a precursor to the Engel List.9 It included Carolina Recinos, Cabinet Chief of Salvadoran President Nayib Armando Bukele Ortez (“Bukele”) (June 2019 – present), among other high-profile individuals.10,11

El Salvador Developments Highlight Corruption Risks in Central America

In January 2021, Transparency International indicated that the increasing concentration of power in the Salvadoran executive branch contributed to an explosion of corruption cases related to public procurement for COVID-19 supplies,12 including a $12 million contract to acquire overpriced medical supplies awarded by the Salvadoran Ministry of Health to a Spanish auto parts company.13,14,15 Another high-profile case was the Ministry of Health’s purchase of $225,000 worth of personal protective equipment from a company owned by a relative of the Salvadoran Minister of Health, Francisco Alabí (“Alabí”).16,17,18

The aforementioned May 2021 list of corrupt Central American officials published by U.S. Congress included Rogelio Rivas Eduardo Rivas Polanco (“Rivas”), a former Salvadoran Minister of Justice and Public Safety (June 2019 – March 2021).19 According to the document, Rivas awarded a construction company he owned overpriced, noncompetitive and unadvertised contracts to build police stations and other buildings that fell under his portfolio of responsibilities.20 El Faro has reported on other allegations of corruption against Rivas. Between 2015 and 2017, a company owned by a former business associate of Rivas reportedly won noncompetitive public contracts valued at $120,335.89 issued by the City of San Salvador. At the time, Rivas was an advisor to Bukele in the latter’s capacity as mayor of San Salvador.21

In May 2021, Bukele leveraged his supermajority in the Salvadoran National Assembly to pass a law that grants immunity to public officials and businessmen against allegations of corruption related to procurement contracts for COVID-19 related supplies.22,23 A few days earlier, the Salvadoran National Assembly had passed a vote to dismiss the members of the Constitutional Chamber of the Salvadoran Supreme Court and the Salvadoran Attorney General, Raúl Ernesto Melara Morán (“Melara”). The judges had blocked the implementation of certain pandemic-related measures proposed by Bukele’s administration. Melara was investigating several members of Bukele’s cabinet for corruption related to their management of public funds during the pandemic.24,25,26 The dismissals were condemned by the international community, including the Organization of American States and the Inter-American Commission on Human Rights.27

The situation in Guatemala and Honduras provides further evidence of Central America’s corruption risks. In April 2021, the Guatemalan Congress refused to ratify the re-election of Gloria Patricia Porras Escobar (“Porras”) to the presidency of the Guatemalan Constitutional Court for a third five-year term, alleging procedural issues in her re-election process.28 According to The Economist, Porras has a reputation for independence due to her track record. For example, she helped block a congressional proposal to provide amnesty for crimes against humanity.29

Two of the three candidates in the November 2021 Honduran presidential election have been accused of corruption.30 Nasry “Tito” Asfura Zablah (“Asfura”), candidate for the National Party of Honduras and mayor of Tegucigalpa, has been accused of embezzling public funds and money laundering by the Honduran Anti-Corruption Prosecutor’s Office (UFERCO).31,32 Yani Benjamin Rosenthal Hidalgo (“Rosenthal”), candidate for the Liberal Party of Honduras, was sentenced to 36 months in prison by a New York federal court in December 2017 for laundering drug proceeds.33 In addition, in June 2020, the Honduran Congress passed a new criminal code that includes reduced sentences for corruption crimes, among other controversial measures.34,35

How to Mitigate Central America’s Corruption Risks: Basic Recommendations

Businesses and individuals interested in investing in Central America can take steps to mitigate corruption risks in the region, including conducting adequate due diligence on local business partners and investment targets. A few things to consider when assessing the legitimacy of a potential partner, include:

  • Check compliance and sanctions databases to minimize the risks of partnering with close business associates or relatives of Central American officials targeted by U.S. anticorruption measures, including the Engel List.
  • Assess the potential partner’s reputation among local industry participants to uncover any allegations of improper political ties, corruption and other areas of concern.
  • Consult official corporate registration databases and other government websites to verify the potential partner’s status and credentials.

The above steps are some examples of measures investors can take to prevent the reputational and financial risk associated with engaging with corrupt business partners in Central America. Kroll can provide due diligence and other risk management solutions to help clients navigate and mitigate the corruption risks of operating in Central America. For more information, please contact us.

Sources
1https://www.reuters.com/world/americas/exclusive-us-targets-central-america-officials-possible-sanctions-over-2021-05-05/
2https://foreignaffairs.house.gov/2020/12/engel-u-s-northern-triangle-enhanced-engagement-act-passes-congress
3https://www.state.gov/announcement-of-ricardo-zuniga-as-special-envoy-for-the-northern-triangle/
4https://www.state.gov/briefing-with-special-envoy-for-the-northern-triangle-ricardo-zuniga-on-ongoing-diplomatic-efforts-to-address-the-root-causes-of-irregular-migration-from-central-america/
5Ibid.
6https://www.usnews.com/news/world/articles/2021-04-22/us-weighing-anti-corruption-task-force-for-central-america-envoy
7https://www.reuters.com/world/americas/exclusive-us-targets-central-america-officials-possible-sanctions-over-2021-05-05/
8https://torres.house.gov/media-center/press-releases/torres-list-corrupt-officials-shines-light-dark-secrets-n-triangle
9https://elfaro.net/en/202105/el_salvador/25489/State-Department-Names-Bukele%E2%80%99s-Chief-of-Cabinet-in-List-of-Corrupt-Officials.htm
10https://torres.house.gov/media-center/press-releases/torres-list-corrupt-officials-shines-light-dark-secrets-n-triangle
11https://www.washingtonpost.com/world/2021/05/18/central-america-corruption/
12https://images.transparencycdn.org/images/CPI2020_Report_ES_0802-WEB.pdf
13https://www.elfaro.net/es/202011/el_salvador/24977/Presiones-y-documentos-alterados-en-Salud-para-pagar-$126-millones-a-una-empresa-de-autopartes.htm
14https://www.elsalvador.com/eldiariodehoy/empresa-espanola-venta-insumos-covid19-gobierno-el-salvador-no-rinde-cuentas/732418/2020/
15https://www.transparency.org/en/blog/el-salvador-bloated-budgets-and-little-oversight-a-recipe-for-disaster
16https://gatoencerrado.news/2020/07/11/ministro-alabi-compro-225-mil-en-botas-para-medicos-a-empresa-de-su-familia1/
17https://www.elsalvador.com/noticias/nacional/ministro-salud-alabi-compro-insumos-medicos-familia/732087/2020/
18https://www.elfaro.net/en/202009/el_salvador/24796/Series-of-Corruption-Allegations-Stains-El-Salvador%E2%80%99s-Promise-%E2%80%94-What-Political-Impact-Will-It-Have.htm
19https://elsalvadorinfo.net/rogelio-rivas/
20https://torres.house.gov/media-center/press-releases/torres-list-corrupt-officials-shines-light-dark-secrets-n-triangle
21https://elfaro.net/es/202007/el_salvador/24688/Una-empresa-con-cinco-a%C3%B1os-de-contratos-p%C3%BAblicos-a-la-sombra-del-ministro-de-Seguridad.htm
22https://www.efe.com/efe/america/politica/gobierno-salvadoreno-defiende-ley-que-da-inmunidad-a-gestores-de-la-pandemia/20000035-4530266
23https://www.swissinfo.ch/spa/el-salvador-parlamento_la-asamblea-de-el-salvador-decreta-inmunidad-penal-en-el-marco-de-la-pandemia/46594112
24https://www.france24.com/es/minuto-a-minuto/20210502-destituci%C3%B3n-de-jueces-en-el-salvador-enciende-alarmas-sobre-autoritarismo-de-bukele
25https://www.dw.com/es/bukele-desaf%C3%ADa-a-eeuu-y-afirma-que-despidos-de-jueces-son-irreversibles-en-el-salvador/a-57514482
26https://insightcrime.org/news/pandemic-immunity-el-salvador-corruption/
27https://nacla.org/news/2021/05/07/bukele-international-criticism-technical-coup
28https://www.plazapublica.com.gt/content/gloria-porras-regresare-guatemala
29https://www.economist.com/the-americas/2021/04/22/guatemalas-top-tribunal-comes-under-pressure
30https://www.celag.org/honduras-elecciones-primarias-y-las-crisis-permanentes/
31https://expedientepublico.org/las-turbias-transferencias-del-alcalde-de-tegucigalpa-tito-asfura/
32https://www.tunota.com/quieres-trabajar-en-estados-unidos-hay-oportunidad-de-empleo-para-hondurenos-con-estos-perfiles
33https://www.justice.gov/usao-sdny/pr/former-honduran-congressman-and-businessman-sentenced-36-months-money-laundering
34https://www.wola.org/analysis/honduras-anti-corruption-efforts/35https://es.insightcrime.org/noticias/analisis/codigo-penal-criminales-honduras/

The Engel List: A Look into Central America’s Corruption Risks /en/insights/publications/compliance-risk/engel-list-look-into-central-americas-corruption-risks /-/media/kroll/images/publications/featured-images/crd-engel-list.jpg 2021-06-15T00:00:00.0000000 publication {A3EB9E2E-8783-4B02-B2B2-343CD13039FB} {2DEEE4D2-8278-4C50-B3FF-1563BB257804}

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