The Fraud Examiner


Rising Wave: Anti-Corruption Efforts in Central and South America
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A Rising Wave: Anti-Corruption Efforts in Central and South America

By Jaime deBlanc, CFE

October 2015


For months on end, Guatemalans had been protesting in the streets, waving signs condemning the widespread corruption and abuse of power in their government. In particular, citizens were outraged over evidence that implicated their president, Otto Pérez Molina, in a massive customs fraud scheme that allegedly netted him and other government officials millions of dollars.

Pérez Molina had repeatedly denied the accusations and refused to step down from his post. And then, in early September, the president did what many in the country had thought improbable: He resigned from the presidency.

The series of events has come as a surprise in a country where corruption has long been endemic. Transparency International, which publishes the Corruption Perception Index (CPI) — assigning each country a score ranging from 0 (highly corrupt) to 100 (very clean) — gave Guatemala a score of 32/100 last year. The country currently ranks 115 out of the 175 countries measured by the CPI.

And it’s not the only country in the region to receive such low ratings. Venezuela, Paraguay, Nicaragua and Honduras all scored lower than Guatemala, while Bolivia, Mexico, Argentina, Ecuador and the Dominican Republic each earned scores of less than 35/100. Transparency International notes that, in Latin America, “[C]orruption is part of the everyday life of citizens. Both bribery and political influence in the justice system — which includes the police, the judiciary and the penitentiary system — lead to widespread impunity and diminished trust in some of the key pillars of democratic political systems.”

So when Guatemalans took to the streets to lobby for the ouster of their president, they were pushing back against a “business as usual” attitude toward corruption not only in their own country, but in Latin America as a whole.

Guatemala’s efforts to address corruption coalesced not only in the streets but also in the upper levels of government. On September 1, the Guatemalan Congress unanimously voted to lift the president’s immunity from prosecution. Then many of the country’s top business leaders called loudly for Pérez Molina to resign. When Pérez Molina finally resigned, a judge sent him to prison to await his hearing after deeming him a flight risk.

It’s a series of events that has caught the world’s attention — and the attention of other countries within Latin America. In Honduras, citizens have held similar protests, holding signs that read, “Enough is enough” and demanding accountability from the government. Hondurans are calling for an independent investigation into their government and the resignation of President Juan Orlando Hernandez, who is also implicated in a massive fraud scandal.

Other countries are mobilizing to address the issue of fraud and corruption. In early 2015, Chile released a new set of rules requiring politicians to release their financial information before they can run for office. Soon afterward, Mexico created a National Anti-Corruption System to address bribery issues within the country. Colombia has adopted a new anti-corruption statute, which imposes penalties for bribing both local and foreign officials. And in Argentina, the Supreme Court has created a task force of experts to help judges prosecute anti-corruption cases.

Although legislation represents a step in the right direction, experts predict that the real challenge will come in actually implementing such legislation — prosecuting public officials and fulfilling promises of “cleaning up” government. In that respect, public pressure might continue to play a crucial role, as it did in March of this year, when millions of Brazilians took to the streets to protest the Petrobras kickback scandal.

So what do all these changes mean for anti-fraud professionals? Experts predict that compliance — both within Latin America and internationally — will become a bigger issue. Companies that do business in Latin America should expect to see increased focus on their anti-corruption programs. The Kroll Global Fraud Report recommends the following preventive steps for companies doing business in the region:

Undergo proper risk assessment. Companies need to properly identify risks and related exposures in each country where they conduct business, and create procedures and controls to address them.

Perform third-party due diligence. Companies should investigate transactions and related third parties (e.g., agents, suppliers and joint-venture partners) to ensure that third parties are not offering bribes on their behalf. It is essential to examine the third parties’ reputations and business practices.

Thoroughly vet local investment targets. Investors should thoroughly review the anti-corruption policies of any investment targets, as well as the tone at the top in the company, and the company’s overall reputation.

Require training regarding local and international bribery laws. Often, employees lack a complete understanding of local and international anti-bribery laws. Management should implement comprehensive training programs (which would ideally include employees of third parties as well) to ensure that all employees are aware of guidelines and the consequences of noncompliance.

While it’s uncertain what the long-term effects of Latin America’s recent anti-corruption efforts will be, Recaredo Romero, managing director and head of Kroll’s Bogota office, says one thing is clear: “[C]ompanies should certainly expect a higher number of corruption-related prosecutions in Latin America than those observed in the past. Companies that do their homework will be better prepared to prevent incidents, or seek more lenient treatment from the authorities and other stakeholders, should an incident occur.”



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