When Bribery Comes Knocking in LATAM, Do You Have a Compliant Answer?

With compliance becoming more present in corporate discourse, companies should be on the lookout for inappropriate or outright corrupt business practices when operating in any territory, including the Nearshore. Yet, it must be underscored that business integrity is a two-way street. 

Corruption remains one of the most prevalent concerns among foreign investors –particularly from the US, Canada and Europe– with an interest in the Nearshore. And for good reason. Many Latin American and Caribbean nations have well-earned infamy as hotbeds of corrupt practices, a trend recorded for years in Transparency International’s Corruption Perceptions Index (CPI).

From Guatemala, Mexico, Brazil and Jamaica, to more “well-behaved” countries like Chile, Uruguay and Costa Rica, the possibility of being asked directly for a bribe by public officials seems to be a major concern among foreign companies and investors. Though this concern has yet to scare away investor appetite for the Nearshore, the fear remains, and corruption stands at the top of the list among the greater obstacles for the economic development of the region.

“Companies are people. We are companies […] When something like this [corruption] happens, it’s because we’re trying to justify our actions”—Susana Sierra, Executive Director at BH Compliance

The regional corruption debate tends to be framed in a way that puts greater responsibility on the actions of public officials. There’s no denying that government institutions play a major –and maybe even leading– role in preserving the integrity of business practices in any country, but that does not exempt private actors from responsibility whenever they take part in dirty business. 

“We talk about corruption, but we think it’s always a problem in the public sector,” stated Susana Sierra, Executive Director at BH Compliance. “But what I’ve been working on for the last 14 years is making companies understand that they’re on the other side. It is impossible to fight corruption if we don’t do this from the private sector.”

“Companies are people. We are companies. And what happens with people, with us, with our brain?,” Sierra asked during her Nexus 2023 presentation. “When something like this [corruption] happens, it’s because we’re trying to justify our actions.”

The Naughty List

Unfortunately, there’s no shortage of cases in which companies from “cleaner” countries take advantage of the pathways of corruption that exist in any given geo to advance their businesses. The US’s Securities Exchange Commission (SEC) has for years documented the sanctions imposed on such companies under the Foreign Corrupt Practices Act (FCPA).

Some of the names familiar to the Nearshore appear in the SEC’s naughty list. Novartis, which has a strong presence in Latin America and the Caribbean, got hit with a US$112 fine after one of its subsidiaries made “improper payments” to public officials in South Korea, Vietnam and Greece. Cognizant had to pay US$25 million after it was uncovered that former company executives facilitated million-dollar bribes to Indian government officials, which lead to the building of a company campus in the city of Chennai.

SEC charges Cognizant and two former executives with FCPA violations https://t.co/idZWl4jwI7

— U.S. Securities and Exchange Commission (@SECGov) February 15, 2019

The public discourse about corruption tends to focus on the actions of government officials and institutions, with private actors being usually portrayed as “victims” coerced into criminal activity by mere circumstance. The fact has not eluded NGOs like Transparency International, which recently recognized that its CPI “does not capture the extent to which countries facility cross-border corruption [and] just how deeply complicit supposedly ‘clean’ countries really are in enabling globalized corruption and kleptocracy.

Compliance is Simple

Although the avoidance of illegal business practices is something that goes without saying in most business circles, the fact is that these sorts of situations keep happening, particularly in regions like the Nearshore, where incentives and opportunities exist for companies to follow darker paths.

In theory, international initiatives like ESG-compliance programs exist to ensure that corrupt business practices don’t take place anywhere in the world. Nevertheless, at NSAM we’ve documented how irrelevant ESG frameworks are for most Nearshore service providers and their clients. Although ESG compliance is gaining traction in contracts and among bigger, more global players, it is far from being a top priority for executives pressured by macroeconomic trends, rising costs and talent shortages.

“If we’re not able to measure how we’re doing business or if our people are following processes, controls and ways we want to do business, it’s going to be almost impossible for this [corrupt practices] not to happen”—Susana Sierra, Executive Director at BH Compliance

But a compliance program –whether under the ESG umbrella or not– allows companies to steer clear from illegal activity and, perhaps most importantly, from the watchful, long-reaching eye of US authorities.

“If we’re not able to measure how we’re doing business or if our people are following processes, controls and ways we want to do business, it’s going to be almost impossible for this [corrupt practices] not to happen,” Susana Sierra underscored during her Nexus presentation. “

“Any company that has a relationship with the US, no matter if you are a US legal entity or not, the DOJ is going to follow you, and you need to prove that you did anything to prevent corruption,” she added.

Both Nearshore providers and foreign companies/investors should understand their role in the fight against corrupt practices. Compliance, after all, is a two way street, and companies should not lose sight of its relevance for the sake not only of their own operations, but of the integrity of the geos they’re operating in also.

“We are telling them [employees] about ethics and doing business the right way, but the question asked at the end of the day is: show me the money, your sales, your budget, etc,” Sierra commented. “It’s not difficult to have a compliance program. If you worry about how you do business and you’re able provide evidence of how you do things, then you’re going to be able to prove that you were doing good”