The prospect of sustained economic growth in certain Latin American countries has continued to attract the interest of international investors. However, the region's well-chronicled history of public corruption has caused potential investors--particularly those from the United States and Europe--to approach such opportunities with a healthy dose of skepticism.
One need not look far into the past to find examples of public corruption investigations by U.S. authorities. In December 2010, the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) reached a $137 million settlement with Alcatel-Lucent, S.A., relating in part to alleged illicit payments to former Costa Rican President Miguel Angel Rodriguez.
In November 2011, Brazil-based aircraft manufacturer, Embraer, S.A., announced that it is cooperating with the SEC and the DOJ in an investigation of potential Foreign Corrupt Practices Act (FCPA) violations involving its activities in several Latin American countries.
In March 2012, Biomet Inc. agreed to pay more than $22 million to settle SEC and DOJ charges relating to alleged bribes to publicly employed physicians in Argentina, Brazil and China.
And in the most high-profile example in recent years, Wal-Mart announced in May 2012 that the SEC and DOJ would investigate possible FCPA violations relating to alleged payments by Wal-Mart de Mexico in connection with permits and licenses necessary to facilitate the growth of its business in Mexico.
While U.S. authorities have perhaps been the most aggressive--and most vocal--in their pursuit of anti-corruption investigations around the globe through enforcement of the FCPA, the United States does not stand alone. The UK's Bribery Act of 2010, which prohibits bribery of foreign officials as well as commercial bribery, promises to usher in a new era of anti-corruption enforcement by UK authorities. Many countries in Latin America have recently responded to this global trend and are considering new legislation, or enhancing existing laws, to bolster anti-corruption enforcement.
In Brazil, for example, lawmakers have been debating--and are likely to enact--legislation that would permit the government to bring criminal charges against companies for bribing public officials. Current law only permits the prosecution of individuals. As another important step, Brazilian legislators have also approved the Ficha Limpa Law, which prohibits politicians with criminal convictions from running for office for eight years. In Peru, the government recently formed a new High Level Anti-Corruption Commission, to promote government transparency and combat corruption among public officials. And Argentina recently adopted legislation to close loopholes in its anti-money laundering and terrorism financing regulations, demonstrating a renewed commitment to fighting the flow of corruption-tainted capital.
In addition to national laws, most Latin American countries have adopted international treaties, such as the OECD Anti-Bribery Convention, the U.N. Convention Against Corruption, and the Inter-American Convention Against Corruption, that require member countries to establish protections against public corruption. International bodies, such as the Organization of American States, charged with overseeing countries' treaty obligations, have been aggressively pressuring members to abide by their commitments, further increasing the pressure on Latin American countries to adopt meaningful anti-corruption reforms.
The shift among Latin American countries towards more reliable anti-corruption enforcement is a positive development for foreign investors. Nevertheless, when evaluating opportunities in Latin America, investors should continue to proceed with caution. Each country in the region has approached anti-corruption reform differently and, accordingly, investors must analyze anti-corruption issues as part of a tailored, risk-based due diligence process. A careful evaluation of anti-corruption and other regulatory risks should not be left for the final step.
Rather, subject matter experts should be incorporated fully into the process in order to identify risks early and develop, to the extent possible, strategies for mitigating those risks. Due diligence should focus in particular on the specific country involved, its political will towards combating corruption, the sector of the investment, the reputation of local partners and their principals, and the extent to which the contemplated structure would provide the investor with voting control, management control or board representation.