Corporate compliance – not enforcement – is combatting corruption, regional survey reveals.

LATINVEX SPECIAL
Miller & Chevalier

Miller & Chevalier’s 2024 Latin America Corruption Survey, developed in partnership with leading law firms throughout the region, distills insights from more than 1,000 professionals throughout Latin America and the United States and builds on findings from our surveys in 2008, 2012, 2016, and 2020. Respondents represent numerous industries and types of companies, from publicly traded multinational corporations to local and regional companies, and include lawyers, risk directors, compliance officers, and a range of other senior executives.

Overall, the survey reveals that corruption in the region remains pervasive and that corporate compliance, not enforcement, has been the key driver for addressing it. More companies are adopting increasingly nuanced compliance strategies: for the first time since the 2008 survey, a significant percentage of organizations report having third party due diligence policies, anonymous reporting mechanisms, full-time compliance personnel, anti-corruption audits and assessments, and compliance procedures in place for charitable and community donations, political contributions, facilitating payments, and merger and acquisition (M&A) due diligence. Countries with the most substantive compliance incentives embedded in local laws have seen positive changes with companies in those countries addressing corruption risks through increased compliance efforts.

On the enforcement side, the survey reveals a disconnect between awareness of corruption prosecutions (75% of respondents regionwide say they are aware) and perceived effectiveness of local anti-corruption laws in the countries where respondents work (only 40% say laws are effective to a moderate or significant extent). Respondents appear to be recognizing government efforts, including legal reform and high-profile investigations, to address corruption. At the same time, they might see enforcement as a set of isolated events and not sufficiently systemic to mitigate the specific corruption risks their companies face. These gaps in local enforcement further highlight the importance of corporate compliance programs in many countries.

Notably, for the first time, sample sizes from El Salvador and Nicaragua were so low that they were not statistically significant, suggesting that corruption and retaliation against government critics may be so endemic that business leaders there see little upside to participating in our survey. The 2020 survey received responses from these jurisdictions, suggesting the situation is getting worse, not better.

Corruption remains entrenched throughout Latin America.

The perception of widespread corruption is solidly embedded among businesses operating in Latin America, despite the burst of enforcement efforts during the 2010s (e.g., Lava Jato in Brazil) and new anti-corruption laws and incentives for compliance programs that have been adopted in key jurisdictions over the past decade.

Nearly half of all respondents say that corruption is a “significant obstacle” to doing business, a response level that has remained mostly static since 2012. Overall, more than four in 10 respondents (41%) regionwide — and a majority in over half the countries surveyed — believe their companies have lost business to competitors that have made illicit payments.

To some, this result might not come as a surprise. When corruption is so entrenched and influence peddling is perceived as a necessary way of doing business, it will take time for legal and enforcement regimes to mitigate the historical tendency of business executives and government officials to engage in improper conduct. At the same time, one would expect (and hope) that sustained efforts to criminalize, investigate, and prosecute such conduct could create a deterrent effect.

The data also suggests slight movement in a positive direction. The percentage of respondents who think their companies have lost business due to corruption has steadily decreased over the years: 60% in 2008, 52% in 2016, 47% in 2020, and 41% in 2024.

Respondents rank political parties and municipal/local governments as the most corrupt areas in the countries where they work.

For political parties, this is relatively consistent with responses in 2020, where 77% of respondents ranked them as significantly corrupt (compared to 72% in 2024).

These findings should come as little surprise as dysfunction and instability in government institutions (a common trait in some Latin American countries) can enhance the power of political parties and, in turn, opportunities for related corruption.

The level of significant corruption perceived in municipal/local governments also saw a five-percentage point increase (up from 62% in 2020 to 67% in 2024), followed closely by the executive branch (65%) and legislative branch (64%). The close ranking of municipal/local with the executive and legislative branches is surprising given that national government institutions are typically subject to more controls, such as national anti-corruption laws and transparency initiatives for public procurement. When it comes to the police, perceived corruption levels (60%) have remained relatively consistent with prior surveys.

When considering government dispute resolution and prosecutorial mechanisms, 49% of respondents perceive significant corruption in the judiciary and 41% say as much for prosecution services or investigators. This is contrasted with arbitration proceedings, which are viewed as the least corrupt area, with only 15% citing significant corruption, perhaps given the significant involvement of market and private sector actors in these proceedings.

There are some positive signs for local anti-corruption enforcement.

Regionwide, anti-corruption laws are perceived as more effective now than they were four years ago: 40% of respondents say such measures are effective in the country where they work to either a moderate (30%) or significant (10%) extent — up 10 percentage points from 2020. Only 26% believe they are not effective at all, versus 37% in 2020.

There is also more regionwide awareness of prosecutions. Three-quarters of all respondents (75%) report awareness of prosecutions of individuals, companies, or government officials for making or receiving improper benefits, up from 64% in 2020 and about the same as in 2016. Over half of respondents believe that an offender is likely to be prosecuted, returning to pre-2020 levels.

But while respondents tend to have growing awareness of prosecutions, this does not necessarily mean they think enforcement regimes capable of mitigating the corruption risks facing them specifically. Consistent with responses since 2012, more than 80% of respondents say they did not report to authorities when they lost business due to corruption. And as in 2020, the top reasons for not reporting to authorities are lack of trust in the judicial branch (54%, compared to 56% in 2020) and lack of trust in prosecution services or investigators (52%, same as 2020).

The impact of strengthened anti-bribery laws is still uncertain.

Latin America has experienced a wave of new and stronger anti-corruption laws over the last 10 years. Eight key jurisdictions (Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, and Peru) have enhanced their anti-corruption laws during that time, introducing corporate criminal or administrative liability for corruption offenses and incentivizing companies to have adequate compliance mechanisms in place.

For the most part, these countries are showing better or stable numbers when their respondents are asked whether they think an offender is likely to be prosecuted. Brazil and Peru are notable exceptions and commentary below offers theories as to why.

At the same time, in only two of eight countries that have strengthened their laws (Colombia and Chile) do we see a positive change in perceptions of effectiveness of anti-corruption laws, and only Chile seems to have established a credible legal and enforcement regime. Even then, with the exception of Argentina, countries that have adopted stronger laws still tend to fare better in this area than others: respondents from Brazil, Costa Rica, Ecuador, Mexico, and Peru still, on average, see their anti-corruption laws as more effective than those of other countries in the region.

It is not clear how stable these results are. When asked to what extent enforcement of the U.S. Foreign Corrupt Practices Act (FCPA) or other anti-corruption laws has helped mitigate the risk of corruption, all countries that have strengthened their laws (except Mexico) have fewer respondents in 2024 reporting that corruption risk is mitigated “to a moderate or significant degree” than in 2020.

Addressing corruption has remained a top priority for companies over the last 15 years.

Despite the risks outlined above, or perhaps because of them, 80% of respondents say their companies’ management has taken steps to protect the company from corruption risk. This response remains consistent with the findings in our 2020 survey.

When asked where dealing with corruption risk ranks within their companies’ priorities, responses are also almost the same as 2020, with 56% of respondents regionwide stating it is a top priority. In fact, in every survey since 2008, between 55% and 58% of respondents have considered dealing with corruption risk to be a top priority.

More companies are embracing nuanced compliance program elements.

As in years past, most respondents (nearly 80%) say that basic compliance program elements exist at their companies, in particular anti-corruption policies, contract terms, training, and procedures for gifts, travel, and entertainment (GTE).

Yet for the first time, a second category of compliance program elements has emerged as standard in the region, representing notable progress. A significant percentage of respondents now report that their companies have procedures for charitable and community donations, political contributions, and facilitating payments, as well as third-party due diligence policies, anonymous reporting mechanisms, full-time compliance personnel, anti-corruption audits and assessments, and M&A due diligence. These elements are now being implemented by 65-75% of companies regionwide, compared to only 40-64% in 2020 and similarly low numbers in prior surveys.

Slow and steady focus on corporate compliance is also detected when respondents were asked if the importance of preventing corruption has increased over the last five years. About 65% of respondents regionwide answered in the affirmative.

This is an excerpt from Miller & Chevalier’s 2024 Latin America Corruption Survey. Republished with permission.

 

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