Today’s post is from Debevoise attorneys Andrew Levine, Matthew French, and Nestor Almeida. (See here for a version of this post with footnotes).
In recent years – and notwithstanding encouraging windows of progress – economic difficulties, political shifts, and the pandemic’s lingering effects have undercut anti-corruption efforts in Latin America. The fourth annual Capacity to Combat Corruption Index (“CCC Index”), published in June 2022, reflects these recent challenges. Most countries in Latin America experienced declines in their assessed anti-corruption capabilities, with only a few demonstrating stability or improvement.
With the relative easing of the pandemic and several key elections taking place, 2022 may be an inflection point for regional anti-corruption efforts. Perhaps as a prelude, following the June 2022 Summit of the Americas, the American chapters of Transparency International called on Latin American leaders to reaffirm the 2018 Lima Commitment to fight corruption. Their open letter warns against the concentration of power in executives and the intimidation of anti-corruption agencies, and it encourages leaders to allocate greater resources to strengthening anti-corruption efforts.
Despite persistent and seemingly unavoidable challenges, Latin America also has seen some notable anti-corruption progress in the first half of 2022. For example, Honduras’s newly elected president successfully campaigned on an anti-corruption platform and has begun implementing legislation to increase transparency. The Chilean government recently proposed anti-corruption-focused amendments to its constitution. And, in July, Brazil issued a new decree to regulate its Anti-Corruption Law (rapidly approaching its ten-year anniversary), supplanting the decree issued in 2015.
In parallel, U.S. anti-corruption enforcement continues to involve substantial activity in Latin America. Notable recent actions demonstrate ever-increasing cooperation between U.S. and local authorities, including crediting penalties in coordinated resolutions:
- In April, Stericycle, a waste management company, entered into a three-year deferred prosecution agreement with DOJ and agreed to pay over $84 million to resolve investigations by U.S. and Brazilian authorities. At the direction of an executive in its Latin America division, Stericycle employees allegedly made hundreds of bribe payments to officials in Brazil, Mexico, and Argentina. In addition to the parallel Brazilian resolution, DOJ reported that authorities in Brazil and Mexico assisted with its investigation.
- In May, Glencore, a Switzerland-based commodities trader, settled with DOJ for $1.1 billion on account of its alleged payment of nearly $100 million in bribes to government officials in various countries. The company admitted to approximately $147,202 in corrupt payments to officials in Brazil and over $1.2 million in corrupt payments to officials in Venezuela. Glencore also reached a resolution with Brazil’s Public Prosecutor’s Office (Ministerio Publico Federal or “MPF”).
- In June, the SEC settled with Tenaris, a Luxembourg-based manufacturer, for $78 million to resolve FCPA charges. Tenaris’s Brazilian subsidiary allegedly paid $10.4 million in bribes in connection with bids for business from Brazil’s state-owned oil entity, Petrobras. The SEC reported receiving assistance from Brazilian, Panamanian and Italian authorities in its investigation.
Below, we highlight noteworthy anti-corruption developments – both progress and setbacks – in Latin America since the start of 2022.
Following years of robust enforcement in Operation Lava Jato and its progeny, Brazilian authorities – including MPF, the Attorney General’s Office (Advocacia-Geral da União or “AGU”), and the Comptroller General’s Office (Controladoria-Geral da União or “CGU”) – continue investigating and prosecuting corruption. Last month, Brazil’s executive branch promulgated Anti-Corruption Decree No. 11,129 (“Decree 11,129” or the “Decree”), which regulates the implementation of Brazil’s Anti-Corruption Law and replaces previous guidance issued in Anti-Corruption Decree No. 8,420 of 2015. And, earlier this year, Brazil was invited to accede to the Organisation for Economic Co-operation and Development (“OECD”), which may yield anti-corruption reinforcements as Brazil works toward admission.
At the same time, growing distrust in democratic institutions and perceived futility in the government’s ability to prevent corruption have weakened certain aspects of Brazil’s anti-corruption capabilities. In a recent example, after the former Brazilian Minister of Education’s arrest in July on corruption charges, evidence emerged that President Jair Bolsonaro allegedly attempted to interfere with the investigation. Such challenges are reflected by Brazil’s score on the CCC Index, which declined for the third consecutive year, falling from 5.07 in 2021 to 4.76 in 2022.
Legal and Policy Developments
On July 11, 2022, Brazil’s executive branch promulgated Decree 11,129, modifying as of July 18, 2022 certain aspects of the enforcement of Brazil’s 2013 Anti-Corruption Law (or Clean Companies Act). The most notable changes include: (1) codifying and enhancing the preliminary investigation and administrative liability proceeding (processo administrativo de responsabilização or “PAR”) processes; (2) altering the sanctions calculus, including with fine reductions for effective compliance programs; and (3) providing additional guidance for leniency agreements.
First, the Decree formalizes the procedures applicable to both preliminary investigations and PARs, which in significant part already exist in practice. Under the Decree, when an authority learns of potential corruption, it can initiate a confidential, non-punitive preliminary investigation to substantiate the allegations. At the end of the investigation, a report is sent to the competent government authority, which then decides whether to initiate a PAR or dismiss the action.
The Decree also codifies and enhances PAR procedures previously promulgated by the CGU in 2019. Under the Decree, PARs resulting in administrative charges must include: a clear and objective description of the alleged misconduct and relevant circumstances; proof that supports the relevant authority’s position; and the legal framework supporting the allegation.
Relatedly, just days after the Decree took effect, CGU announced Ordinance No. 19/2022, which provides for the option of a negotiated settlement – as opposed to a leniency agreement – for companies that admit to liability in PARs initiated by CGU. While the precise contours of such a settlement remain unknown given the novelty, Ordinance No. 19/2022 provides for the potential of reduced sanctions for companies that resolve a PAR in this manner.
Second, Decree 11,129 establishes various factors that may aggravate or mitigate sanctions under Brazil’s Anti-Corruption Law. For example, a fine may increase by up to 3% where a company’s directors or executives knew of the misconduct. On the other hand, the Decree allows for the reduction of up to 5% of a fine’s value where a company can prove it had a satisfactory compliance program in place. The Decree accordingly provides guidance for compliance programs (similar to guidance from U.S. and other authorities), such as requiring: (1) a top-down commitment from company executives, including through the allocation of sufficient compliance resources; (2) periodic risk assessments and subsequent risk management; and (3) adequate due diligence of third parties, sponsorships and donations.
Third, Decree 11,129 extensively regulates leniency agreements, which are a staple in Brazil’s anti-corruption toolkit. The Decree requires that companies seeking to enter into leniency agreements should: (1) cooperate with the government; (2) have fully ended their involvement in any misconduct; (3) admit liability for misconduct; make efforts to repair the harm caused; and (5) forfeit any benefit received. The Decree also requires leniency agreements to include an element of the conditions of monitorship by CGU, which may be waived with certain less injurious violations, and allows the amendment of leniency agreements if the relevant agency determines that doing so is in the public interest. Of further note, the Decree sets rules for cooperation and joint resolutions between CGU and AGU, and it permits damages paid to other authorities to be credited against penalties imposed under a leniency agreement, where both violations stem from common underlying facts.
In addition to resolutions coordinated with U.S. authorities in the Stericycle and Glencore matters (as discussed above), Brazil’s CGU, AGU, and MPF have concluded several other actions in the first half of 2022, primarily through leniency agreements:
- In May, MPF announced that Allied Technology signed a leniency agreement with MPF and a civil non-prosecution agreement with the Public Prosecutor’s Office of the State of São Paulo in connection with a bribery investigation.
- In June, Hypera Pharma – one of Brazil’s largest producers of over-the-counter medicines – entered into a leniency agreement with CGU and AGU in connection with illegal contributions to politicians. The agreement included an 18-month compliance program mandate and a fine of R$ 110 million (roughly $20 million), which the company’s shareholder founder agreed to pay.
- In July, Brazilian federal law enforcement officers in seven states launched an operation called “Golden Greed” to investigate the alleged use of cryptocurrency to launder money in illegal gold mining and sales.
The immediate future of anti-corruption enforcement in Brazil may hinge in part on the upcoming October 2022 presidential election, which pits incumbent President Bolsonaro against former President Luiz Inácio “Lula” da Silva. Former President Lula, who himself was convicted on bribery charges that were overturned in 2021 by the Brazilian Supreme Court, is currently leading in the polls by a significant margin.
Like Brazil, Mexico’s score on the CCC Index also decreased in 2022, continuing its decline since 2019. Although Mexican President Andrés Manuel López Obrador was elected in 2018 after campaigning on a strong anti-corruption message, his administration has been criticized for failing to fulfill the potential of Mexico’s National Anti-Corruption System (“SNA”) and enact anti-corruption reform more generally.
Legal and Policy Developments
In January, President López Obrador’s administration publicly raised the possibility of removing the SNA’s Executive Secretariat, a key leadership body within the SNA. And, in April, the administration closed an important anti-narcotics unit that was trained by and collaborated with U.S. officials. The unit played an influential role in combating drug cartels, a significant source of corruption in Mexico.
Encouragingly, in May, U.S. and Mexican officials convened a Strategic Dialogue on Illicit Finance, wherein they agreed to establish a working group focused on anti-money laundering efforts and targeting the financial networks of criminal organizations, echoing the U.S. administration’s broader anti-corruption strategy.
And despite proposals to wind down SNA’s Executive Secretariat, Roberto Moreno Herrera assumed leadership of the body as its newly elected Technical Secretary in June and has pledged to augment tangibly the SNA’s anti-corruption efforts.
Amidst the potential weakening of anti-corruption institutions in Mexico, anti-money laundering enforcement remains comparatively robust. In July, the Attorney General of the Republic (Fiscalía General de la República or “FGR”) opened an investigation into Alejandro Moreno, the current leader of the Institutional Revolutionary Party (Partido Revolucionario Institucional, or “PRI”), for money laundering and other financial crimes. Just weeks later, FGR announced an investigation into former President Enrique Peria Nieto – also of Moreno’s party, PRI – for money laundering. And earlier this year, the head of Mexico’s Financial Intelligence Unit (Unidad de Inteligencia Financiera or “UIF”) signed an institutional agreement with FGR to strengthen the fight against money laundering and corruption.
While anti-corruption enforcement in Mexico remains more limited, it is noteworthy that DOJ recognized Mexican authorities for their assistance in the Stericycle investigation (discussed above), suggesting that Mexican prosecutors are strengthening relationships with enforcement agencies in the United States and other countries.
According to the CCC Index, Argentina saw the most significant decline of all Latin American countries in its anti-corruption capacity last year. Primary reasons for this decline include the decreasing independence and efficiency of anticorruption agencies. Nevertheless, Argentine authorities continue to investigate some allegations of corruption, frequently involving high-profile politicians. And, in February, Argentina was invited to begin the OECD accession process, which could encourage strengthening of its anti-corruption legislation and related enforcement, though serious economic and other challenges may make that less likely in the near term.
Legal and Policy Developments
A sweeping judicial reform package comprising key anti-corruption measures remains stalled in Congress despite efforts by President Alberto Fernández and his administration to advance the legislation. A principal aim of the package is to depoliticize the judiciary and subsequently limit judicial interference in corruption investigations. Other recent legislative proposals yet to be enacted include amendments to Argentina’s Public Ethics Law, with the aim of creating a National System of Integrity and Public Ethics and other mechanisms designed to increase transparency.
Despite delays in the legislative process, Argentina recently has implemented a number of new anti-corruption control mechanisms. In April, Argentina’s Anti-Corruption Office (Oficina Anticorrupción or “OA”) approved the System for Monitoring Government Officials’ Private Activities Both Before and After Public Employment (Sistema de Monitoreo de Actividades Privadas y Públicas Anteriores y Posteriores al Ejercicio de la Función Publica, or “MAPPAP”). MAPPAP collates and verifies compliance with ethics regulations for individuals who enter into and leave high-ranking positions in the executive branch, seeking to mitigate the risk of corporate capture on public decision-making as a result of movement between the private sector and the government. And, in May, OA approved the Integrity and Transparency Registry for Businesses (Registro de Integridad y Transparencia para Empresas y Entidades, or “RITE”), an initiative aiming to improve corporate integrity by allowing companies to share voluntarily their compliance programs with one another.
This year, the Cuadernos (“Notebooks”) and Vialidad (“Road Works”) investigations – in which former President and current Vice President Cristina Fernández de Kirchner and her allies are accused of corrupt acts and related misconduct – have progressed, though their outcomes remain uncertain.
- Cuadernos: In February, in a divided ruling, Argentina’s top criminal court rejected Vice President Fernández de Kirchner’s challenge to her indictment for funneling money from a highway project to a company linked to a family friend.43 However, in April, a federal judge acquitted Vice President Fernández de Kirchner and over 100 businessmen and former government officials for “cartelisation of public works” allegations stemming from the same case. Notwithstanding this acquittal, in June, another federal court reactivated a long-dormant Cuadernos-related investigation into allegations of illicit association, through which Vice President Fernández de Kirchner is suspected of collecting bribes from businessmen associated with the construction of public works.
- Vialidad: In May and June, the Argentine Supreme Court rejected Vice President Fernández de Kirchner’s motions for annulment in the Vialidad The plea stage of the Vialidad case began on July 11, and prosecutors have requested a sentence of between five and sixteen years. Former Minister of Federal Planning Julio De Vido and former Secretary of Public Works José López, among others, are accused in the same trial. A verdict is expected before the end of the year, which could influence the upcoming 2023 presidential elections.
Vice President Fernández de Kirchner is not the only prominent Argentine political figure subject to corruption probes in 2022. Former Military Commander César Milani’s trial for alleged illicit enrichment began in July, after he was unable to justify the origin of the money used for his 2010 purchase of a house in Buenos Aires. And, in July, the OA denounced former President Mauricio Macri for allegedly concealing his involvement in bribery and money laundering schemes. The OA claims that former President Macri hid millions of pesos of investment in a trust in July 2013, just 24 days after he granted tax exemptions to benefit a real estate development in which he held property at a negligible price.
Other Latin American Developments
Other countries in Latin America have made progress with legislative and constitutional reforms targeting corruption, while others have faced setbacks. Below are some other recent updates from across the region:
- Chile: On July 4, Chile’s constitutional assembly presented a proposed new national constitution to President Gabriel Boric. Notably, Article 170 asserts that corruption is “contrary to the common good and undermines the democratic system” and establishes that it is the duty of the Chilean state to adopt measures to investigate, prosecute, and ultimately eradicate corruption. Article 171 then sets out the state’s guarantee of protection and confidentiality for whistleblowers, while Article 172 prohibits those who have been convicted of corruption-related offenses from serving in public positions. A nationwide vote on September 4 will allow Chileans to decide whether to adopt the new constitution.
- Colombia: On June 19, 2022, Gustavo Petro was elected in a close runoff race as Colombia’s first leftist president. While Petro has historically been a strong voice against corruption, he has found himself at the center of a number of corruption scandals in recent years. In 2018, a video emerged purporting to show then-Senator Petro receiving and storing stacks of money in his bag, which he defended as standard business activity. More recently, during the lead-up to the elections, President Petro controversially suggested to his Twitter followers that they engage in a cash-for-vote scheme for his benefit.
- El Salvador: In January, the Salvadoran Attorney General’s Office opened an internal investigation into seven current and former prosecutors who oversaw “Operation Cathedral,” a large-scale investigation into alleged corruption involving the siphoning of pandemic relief and public funds to the campaign coffers of government officials. Critics argue this move is an attempt to cover up corruption in President Nayib Bukele’s administration and consolidate its power, especially after he suspended important freedoms in a state of emergency declared in March.
- Guatemala: In February, a former confidante accused Guatemalan President Alejandro Giammattei of negotiating bribes from construction companies to finance his 2019 electoral campaign. The accusation surfaced during court proceedings initiated by the Special Prosecutor’s Office against Impunity (Fiscal especial contra la impunidad or “FECI”) that related to the alleged delivery to President Giammattei’s home of a rolled-up carpet stuffed with cash and over $16 million found in suitcases in another official’s home. U.S. authorities have taken note of Guatemalan Attorney General Maria Consuelo Porras’s apparent abuse of office to engage in politically motivated prosecutions and in May designated her as an individual involved in corruption under the Department of State, Foreign Operations, and Related Programs Appropriations Act.
- Honduras: President Xiomara Castro won a landslide election in November 2021 and took office in January. A large part of her campaign focused on anti-corruption efforts, a marked contrast from the outgoing administration, which reduced sentences for corruption convictions and was tied to numerous corruption scandals of its own. Former President Juan Orlando Hernandez himself was extradited to the United States on drug trafficking conspiracy charges in April. Under President Castro’s new administration, Honduran lawmakers passed the “official secrets law” in March to regulate which public documents can be classified on national security grounds, seeking to promote transparency in the government.
- Peru: Peru was invited in January 2022 to start its OECD accession process, through which it will have to make improvements in five key areas, including combating corruption. Perhaps relatedly, the Peruvian government continued furthering its anti-corruption efforts. On June 28, Spain and Belgium moved forward with the extradition to Peru of former Peruvian Supreme Court Justice César Hinostroza, who fled Peru in 2018 after leaked recordings reflected his involvement in a web of judicial corruption. This scandal, known as the Cuellos Blancos del Puerto (White Collars of the Port) case, has led the National Justice Board (Junta Nacional de Justicia or “JNJ”) to remove public officials in the course of their probe and implement other reforms. Moreover, former President Ollanta Humala’s trial for the alleged receipt of illegal campaign financing from Brazilian construction company Odebrecht began this February. And the trial of former presidential candidate and Congresswoman Keiko Fujimori for money laundering and related charges is set to begin as soon as this year.
As Latin America grapples with difficult institutional challenges, political uncertainty, and economic turbulence, anti-corruption enforcement and the region’s related narrative continue to evolve. In the case of newly implemented policies like Brazil’s Decree No. 11,129 or anti-corruption bodies like Mexico’s SNA that are weathering shifting political tides, it remains to be seen how these developments will manifest. But in a year that has brought – and will continue to bring – new leadership in the region, changing approaches to combating corruption (and related challenges) seem inevitable. And continued U.S. anti-corruption enforcement in the region likewise remains unquestionable.
As the region’s anti-corruption landscape changes, companies should remain abreast of key legislative, political, and enforcement-related developments, so as to tailor their approaches to compliance and risk accordingly. The long-reaching arm of U.S. enforcement and the continuing trend of transnational cooperation in Latin America suggest that the global fight against corruption remains a priority and should remain at the forefront of corporate compliance.
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