Tracking the "C" Word

Catherine Dunn

Corporate Counsel

2012-08-01 00:00:00.0

If executives needed a wake-up call about the dangers of corruption in Latin America, it arrived with a sonic boom in April, when The New York Times unearthed a bribery scandal that implicated the Mexican division of Wal-Mart Stores Inc.

In the wake of that report, a survey of corporations throughout Latin America—and also including the United States—found an increase in the adoption of compliance measures and greater awareness of the U.S. Foreign Corrupt Practices Act. But it also highlighted the perception at companies that effective laws and enforcement are wanting.

The latest "Latin America Corruption Survey" was led by two U.S. firms based in Washington, D.C., Miller Chevalier and Matteson Ellis Law, in partnership with 12 other law firms in Latin America. It took stock of anticorruption efforts at both multinational and regional companies. The 439 respondents hailed from 14 countries in the region in addition to the United States.

First, the good news. There were clear signs that corruption is on the corporate radar. In 2008 the previous corruption survey found that "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 3 percent think their company is not subject to the FCPA, and 19 percent 'don't know.' " Respondents also indicated that internal corporate policing is no substitute for anticorruption enforcement by government authorities, coupled with greater transparency in the public sector.

Getting down to specifics, the survey noted that 85 percent of respondents said that their company's management "has taken steps to protect the organization from corruption risk"—up from 77 percent in 2008. Among the top measures that are being implemented by management, according to survey respondents: anticorruption policies (81 percent); procedures for providing gifts, travel, and entertainment to government officials (nearly 70 percent); and anticorruption training (61 percent).

There's also an indication that the measures are working. The survey found that 44 percent of the respondents 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.

But the news wasn't all cheery. Overall, 51 percent of the respondents believe that "they have lost business to competitors that have made illicit payments," while a whopping 72 percent say the anticorruption 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 that the laws in those countries are effective.)

On the whole, multinationals outpaced local and regional businesses on the implementation front. "For example, just 35 percent of respondents from local/regional companies say their business has anticorruption training, compared to 76 percent of multinationals," the report states. Meanwhile, publicly traded companies—whether in the U.S. or elsewhere—were nearly twice as likely as private companies "to cite significant corruption-protection measures undertaken by their management" for doing business in the region. And 82 percent of public company respondents said they have anticorruption training, compared to just 46 percent of their counterparts at private companies.

Companies that are listed in the U.S. posted even larger numbers. Fully 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.

"Overall, respondents say enforcement and public accountability are the most effective tools for addressing corruption," 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.' "

Still, many do seem to be adopting internal measures. More than half of the firms surveyed said that they've adopted voluntary policies designed to attack corruption. Between 50 and 60 percent of the respondents reported that management at their companies has undertaken each of the following: anonymous reporting mechanisms, preacquisition due diligence, and anticorruption audits and assessments.