Corruption: Major Business Obstacle

BY CHRONICLE STAFF

Corruption is a significant obstacle for doing business in Latin America, resulting in lost business for law-abiding companies, according to a new survey among more than 200 executives in the region.  Just as bad: Nearly 82 percent believe anti-corruption laws in Latin America are not effective.

“Survey responses reflect both a high level of concern in the private sector about corruption and a cynicism about meaningful enforcement of the anti-corruption laws adopted to implement the OAS Convention,” Homer E. Moyer, Jr. from the U.S.-based law firm Miller & Chevalier said in a statement. He was referring to the 1996 Inter-American Convention Against Corruption from the Organization of Americas States, which groups all nations in the Western Hemisphere except for Cuba.

Miller & Chevalier and six Latin American law firms conducted the new survey among 201 corporate executives at U.S. and Latin America-based companies. The Latin American law firms were Brazil-based Demarest & Almeida, Argentina-based Estudio Beccar Varela; Mexico-based Rubio Villegas y Asociados; Colombia-based Brigard & Urrutia; Peru-based Rodrigo, Elías & Medrano Abogados and Chile-based Claro y Cia.

AMCHAM SURVEY

The results come after another survey - among American Chambers of Commerce in Latin America - also shows that corruption is a major concern. When asked what they believe is the key issue affecting the future of democracy in their country, 31 percent ranked corruption as the “most important.” In terms of reducing corruption, 48 percent of respondents ranked transparency and accountability in public institutions as the most important step that needs to be taken, while 31 percent cited fighting corruption as the most important next-generation reform for the region. The survey was conducted in August and September among 813 respondents from 22 countries in Latin America.

A clear majority of respondents in the Miller & Chevalier survey – 59.1 percent - believe they have lost business to competitors who made illicit payments. Fully 82 percent of Peruvian respondents believed that was the case. Among Brazilians, the share was 69 percent. In Mexico and Argentina, more than 40 percent of the respondents agreed. And in Chile “only” 29 percent felt they had lost business due to corruption.

FCPA IMPACT

More than half – 53 percent – of the respondents in the survey work for a U.S. multinational and are thus obligated to follow the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits U.S. companies from corrupt payments to foreign officials for the purpose of obtaining or keeping business.

A frequent complaint by U.S. firms operating in Latin America is that they are unfairly weakened by the FCPA when it comes to competing with companies from the region or other areas which don’t have to comply with FCPA-type regulations. The new survey confirms the dissatisfaction. Fully 74 percent of U.S. respondents say they have lost business due to corrupt practices by competitors.

But after losing business, only 9.4 percent of the respondents actually reported their concerns to authorities, demonstrating a lack of faith in corruption laws, Miller & Chevalier points out. And with good reason: The government investigated only half of the cases, according to respondents who had made the reports. 

So how significant a problem is corruption in Latin America for companies doing business there? Nearly half – 48 percent – say it’s significant.  The worst off were Peruvian companies, with 73 percent of respondents reporting corruption as a significant obstacle. The results of the survey, which was conducted in September, comes as Peru recently coped with a major corruption scandal that forced half its cabinet to resign.

Also executives in Colombia (56 percent), Argentina (50 percent), Mexico (38 percent) and Brazil (34 percent) say corruption represents a significant obstacle for them to do business. Only 14 percent of Chilean executives felt that way. Meanwhile, a third – 32 percent – of U.S. executives see corruption as a significant obstacle.

IMPUNITY

In fact, more than a third – 34.5 percent – of those surveyed don’t think a company, individual, or government official will be punished for making or receiving illicit payments related to obtaining business.  The results vary from country to country, with Mexican an Argentine respondents more skeptical about persecution that their counterparts in Chile.

Nearly two-thirds – or 69 percent – of Mexican respondents believe that an offender is unlikely to be punished. More than half – 55 percent -- of the Argentine executives in the survey agreed. In Brazil, 36 percent shared that view, whereas Peruvian and Colombian executives were more optimistic, with only 23 and 16 percent believing offenders acted with impunity. In Chile no one believed an offender wouldn’t be punished.

Fully 54 percent of Mexican respondents are not aware of anyone being punished for

making illicit payments related to obtaining business. In Argentina that number was 48 percent. Meanwhile, 29 percent of Colombian and 21 percent of Brazilians executives shared the same opinion. In Peru and Chile, the number fell to 18 and 14 percent, respectively.

These results coincide with surveys from Germany-based Transparency International showing Chile as the most transparent country in Latin America.

INEFFECTIVE LAWS

Only 18.3 percent think anti-corruption laws are effective in the country where they work, versus 8.17 percent that believe the opposite.

More than half – 55 percent - believe that dealing with corruption risk is a top priority of their companies, while an even larger number – 66 percent - believe that the importance of preventing corruption has increased for their companies over the last five years.

Of those respondents at companies that have taken action, almost all – 91 percent -- say their companies have instituted anti-corruption polices and procedures. ”Despite the low opinion of the effectiveness of anti-corruption laws in the region, or possibly because of it, many companies (77 percent) say they have taken actions to protect themselves from corruption risk,” the statement says.

Foreign multinationals are typically more aggressive when it comes to anti-corruption efforts than their regional or local counterparts in Latin America, the survey shows.  “The survey revealed a disparity in compliance efforts between regional companies and multi-national companies, possibly attributable to the fact that multinational companies are more likely to implement measures and protect themselves against the aggressively prosecuted FCPA,” the report says.
 
When asked to rank perceptions of corruption in 12 countries, respondents say Bolivia, Venezuela an Ecuador are the most corrupt, while the United States, Chile an Costa Rica are the least corrupt. Mexico ranked right behind Ecuador and ahead of Argentina, while Brazil ranked among the least-corrupt countries, the survey shows. Fully 71.8 percent of respondents say corruption is a significant obstacle in Venezuela versus 3 percent in Chile.

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