by Matteson Ellis
Colombia is quietly booming. The size of its economy surpassed Venezuela’s this year and is on track to surpass that of Argentina, which would make it the third largest in South America. Companies and businesspeople from neighboring and troubled Venezuela are flocking to Bogotá, Cartagena, and Barranquilla for opportunities. The activities of the FARC are much reduced, and the paramilitary threat is all but gone.
On the anticorruption front, the country has joined theOECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. In 2011, the government of Colombia revamped a key corruption law (the Estatuto Nacional Anticorrupción). Recent prosecution efforts have resulted in the imprisonment of the former Mayor of Bogotá for corruption-related offenses. Other positive anticorruption developments in Colombia are discussedhere and here.
But Colombia’s economy is still risky. On the 2012 Transparency International Corruption Perceptions Index, it received a score of 36 – similar to Mexico (34), Argentina (35) and Peru (38) – where zero means “Highly Corrupt” and 100 means “Very Clean.” In 2011, the World Bank ranked Colombia in the 25-50 percentile for “Control of Corruption,” on par with Mexico and Argentina. More than 70% of respondents to the 2012 Latin America Corruption Survey with experience in Colombia said that corruption there presents an “occasional” or “significant” obstacle.
FCPAméricas recommends that companies seek local expertise regarding common corruption threats. In Colombia, as in most Latin American countries, public procurements, customs processes, and local regulatory requirements create persistent corruption risks. The following are some other issues that compliance officers should be alert for:
Narco-Terrorism’s Effects. Colombia’s business community has suffered through a long history of bombs, kidnappings and targeted murders linked to the narcotics trade. The country’s security situation has improved dramatically in the last fifteen years, and security threats are now generally limited to rural areas. Nevertheless, compliance officers should be prepared to discuss how to address corruption when personal security may be at risk.
In addition, though drug-related violence has waned, Colombia still has a large and powerful drug industry. The profits from these operations find their ways into the general economy, creating significant money-laundering risks. Drug profits also affect politics, both through corruption and by funding efforts to shape regulations and policies. With these issues in mind, companies should conduct thorough due diligence on counterparties and business associates.
Interactions with the Military. Companies operating in rural areas – such as energy companies conducting resource explorations or telecommunications companies building towers – are subject to increased security risks. To address this, some companies partner with the Colombian military to provide enhanced security. Though such activity does not per se violate the FCPA, whenever companies pass funds directly to government officials, they are increasing their risk of actual and perceived corruption. Companies should apply additional protections to such activity by ensuring that (i) arrangements are memorialized in writing, (ii) funds go to a military entity and not to specific individuals, (iii) the activity is legal under local law, (iv) legitimate services are provided in return for expenditures, and (v) other safeguards are put in place as necessary.
Local Governments/ Social Investments. Due to a combination of geography and local laws, Colombian municipalities and regions operate with a high degree of autonomy. In addition, tribal leaders may serve public functions that could make them foreign officials under the FCPA. Respondents to the 2012 Latin America Corruption Survey with experience in Colombia considered the municipal and local levels of the country to present some of the most significant sources of corruption.
This finding may be related to the fact that local leaders often expect companies, especially multinational ones, to make social investments as a condition of operating in their area. Companies that do not cooperate can face strikes and roadblocks. While building schools and health clinics does not necessarily violate the FCPA, such projects present significant risks – directed donations to local charities can be smokescreens for corrupt payments and have resulted in previous FCPA enforcement.
As above, companies should ensure that the social investments are legal under local law, and should use written agreements to memorialize agreements with institutions rather than individuals. Companies should vet recipient organizations to ensure that they are unrelated to local officials or their relatives and should create oversight mechanisms to ensure that funds are not diverted to leaders’ pockets. To the extent possible, companies should coordinate with national governmental entities to mitigate any appearance of impropriety.
Silver Linings. Compliance officers should be alert for good news as well as risks. In Colombia, one positive consequence of money laundering and security risks is that many Colombian companies have compliance frameworks in place already. Such programs provide an institutional infrastructure that would also support anti-corruption compliance programs.
This article was written by Matteson Ellis and originally published on corporatecomplianceinsights