Understanding Anti-Corruption Issues In Latin America

Fighting Fraud and Corruption in Latin America: A Guide for Assisting Corporations, Financial Institutions, and Their Officers and Directors

By Michael Diaz Jr.

Latin America and the Caribbean continue to wage a battle against corruption, bribery, fraud, and their direct by-product, money laundering. These unlawful practices have long been tolerated in many jurisdictions throughout the region, with little risk to the participants. Such practices are still prevalent in the region, notwithstanding a strong push from the U.S. and Europe to freeze assets and assess financial penalties on institutions and individuals who engage in this conduct and violate, among other things, tax, anti-money laundering (AML), and anti-corrupt laws. In today’s enforcement-driven environment, it is essential that multinational corporations and financial institutions recognize the serious legal, financial, political, and business risks posed by historically lax local enforcement and compliance practices in the region. Only after understanding the risks that lie in this region, can corporations and their officers learn to identify, prepare for dealing with, and avoid these unlawful practices that could curtail a company’s success.

As a global law firm focused on international transactions, we represent private enterprises, potential investors, and financial institutions from China, the Middle East, Latin America, and the Caribbean, as well as Europe and the U.S. In the past two years, we have seen a strong upturn in clients from Mexico, the Asia/Pacific region, as well as the Middle East. This regional trend is likely the result of the depressed economic conditions in the U.S., coupled with increasingly robust Sino-Latin American trade and investment. These regions, which are mainly comprised of developing nations lacking tough regulations, have also become the breeding ground for corruption and fraud.

The global economic crisis has created a new class of victim. Corporations, financial institutions, and even government entities have fallen victim to increasingly sophisticated schemes to defraud. Not only have these entities been directly defrauded, they have unwittingly become pawns in the schemes to defraud third parties. This is especially the case with financial institutions, whose account holders have been stripped of their holdings by the perpetrators of Ponzi schemes and other fraudulent activities. Although Fighting Fraud and Corruption in Latin America these entities may lay claim to the title of “victim,” they have also been labeled villains by the very account holders that have seen their assets depleted due to lax compliance and enforcement policies. There is a line where negligence turns criminal, and institutions that fail to acknowledge the important role they play in protecting against fraud and corruption risk crossing that line. Since 2008, our firm has seen a significant increase in cases involving entities seeking relief as direct victims of fraud while, at the same time, seeking to defend against allegations that they permitted frauds to be perpetrated against third-parties.

Between 2009-2010 our firm has been involved in numerous cases involving alleged violations of the Foreign Corrupt Practices Act (FCPA), codified at 15 U.S.C. §§ 78dd-1, et seq., the USA Patriot Act, Pub. L. No.  107-56, 115 Stat. 272 (2001), and certain rules and regulations enforced by the U.S. Office of Foreign Assets Control (OFAC), see, e.g., 31 C.F.R. §  515.201 (2009) (Cuba) and 31 C.F.R. § 560.204 (2009) (Iran), which polices commercial dealings with nations considered unfriendly to the U.S., including Cuba, Iran, and North Korea. In addition to specific violations of these various enforcement regimes, U.S. authorities regularly tack-on money laundering charges to FCPA and OFAC violations, as such violations may constitute the type of specified unlawful activity that can turn transactions into money laundering.