By Catherine Dunn
How are companies combating the risk of corruption when doing business in Latin America? A new survey of corporations throughout the region reports an increase in the adoption of compliance measures and greater awareness of the U.S. Foreign Corrupt Practices Act—while also illustrating the persistent sentiment that effective laws and enforcement are wanting.
Led by U.S. firms Miller Chevalier and Matteson Ellis Law, and in partnership with 12 other law firms in Latin America, the latest “Latin America Corruption Survey” [PDF] took stock of anti-corruption efforts at both multinationals and regional companies. A total of 439 respondents from 14 countries in the region, in addition to the United States, took part.
The survey respondents clearly identified how corruption impacts their companies: 44 percent agreed that corruption presents a “significant obstacle to doing business”—down from 48 percent who thought that way in 2008, the last time the survey was administered.
Overall, 51 percent of respondents believe “they have lost business to competitors that have made illicit payments,” while 72 percent say the anti-corruption laws in their country are not effective. (Chile and the U.S. stand out as exceptions on this point—76 percent and 70 percent of respondents, respectively, believe the laws in those countries are effective.)
The good news, according to the authors, is that 85 percent of respondents said their company’s management “has taken steps to protect the organization from corruption risk”—up from 77 percent of respondents in 2008.
The top measures that are being implemented by management, according to respondents, are: anti-corruption policy (81 percent); procedures for gifts, travel, and entertainment for officials (nearly 70 percent); procedures for charitable and community donations (62.6 percent); and anti-corruption training (61 percent).
Between 50 and 60 percent of respondents also said management is undertaking each of the following: anonymous reporting measures, anti-corruption audits and assessments, pre-acquisition due diligence, procedures for political contributions, due diligence policies for third parties, and anti-corruption contract terms.
On the whole, multinationals outpaced local and regional entities on the implementation front. “For example, just 35 percent of respondents from local/regional companies say their business has anti-corruption training, compared to 76 percent of multinationals,” the report states.
Meanwhile, publicly traded companies, whether in the U.S. or elsewhere, are nearly twice as likely as private companies “to cite significant corruption-protection measures undertaken by their management” for doing business in the region, according to the report. Again, take anticorruption training—82 percent of public company respondents said they have it, compared to 46 percent of private company respondents.
Respondents from companies that are publicly listed in the U.S. posted even bigger numbers: 90 percent said they have anticorruption training; 92 percent said they have a formal anticorruption policy; and 72 percent said they have due diligence policies for third parties.
By the same token, the survey found greater awareness of the FCPA among those to whom the anti-bribery law “clearly” applies—i.e. companies that are either publicly listed in the U.S., or are affiliates of a U.S. multinational.
In 2008, “30 percent of the respondents whose companies were clearly subject to the FCPA did not recognize that their companies were covered by the law,” the report notes. This year, however, “just three percent think their company is not subject to the FCPA and 19 percent ‘don’t know.’ ”
Yet respondents also indicated that internal corporate policing is no substitute for anti-corruption enforcement by government authorities, coupled with greater transparency in the public sector.
“Overall, respondents say enforcement and public accountability are the most effective tools for addressing corruption. Internal corporate responsibility and social policing are viewed as secondary and less effective tactics,” the authors write. “These results suggest that respondents think that steps addressing the ‘demand side’ of the corruption equation are more effective than efforts focused on the ‘supply/self-policing side.’ ”