Anti-Corruption Enforcement in Latin America—The Proverbial One Step Back


Post By: Geert Aalbers

The Capacity to Combat Corruption (CCC) Index assesses Latin American countries’ capacity to prevent, detect and punish corruption. The 2020 edition presents a concerning picture for most of the region as the region-wide anti-corruption push that started around 2014 has lost steam and in some countries is clearly losing momentum. This is particularly concerning given that the COVID-19 pandemic adds an additional layer of complexity and risk, creating new opportunities for fraud and corruption.

The CCC Index was launched in 2019, initially covering eight Latin American countries and expanding in this year’s edition to cover 15, representing approximately 95% of Latin America’s GDP. The index measures countries’ capacity to combat corruption based on three key categories: Legal Capacity; Democracy and Political Institutions; and Civil Society, Media and the Private Sector, which are in turn subdivided into a total of 14 variables.

Key findings

The countries leading the 2020 CCC Index are Uruguay (7.78 out of 10), Chile (6.57) and Costa Rica (6.43). These countries have been deemed more likely to uncover and punish corruption. These three countries also bear a greater resemblance to other countries in the Organisation for Economic Co-operation and Development (OECD) in terms of rule of law and democratic credentials than most of the other countries ranked in the index. These relatively high scores in the index reflect independent and efficient judicial and anti-corruption institutions, government transparency, effective enforcement mechanisms and an active civil society, among other factors.

The lowest performing countries in the CCC Index are Paraguay (3.88), the Dominican Republic (3.26) and Bolivia (2.71), followed in a distant last place by Venezuela (1.52). Venezuela’s score dropped 11% since last year with no perspectives for improvement in the foreseeable future.

Other countries, such as Argentina (5.32), Colombia (5.18) and Mexico (4.55) have stagnated. These countries saw pockets of improvement in a number of variables measured by the index; however, they continue to face a series of challenges particularly related to the Legal Capacity category and, in the case of Mexico, the category of Democracy and Political Institutions.

Brazil (5.52) ranked fourth this year and would have come in second had it not been for this year’s inclusion of Uruguay and Costa Rica. The country continues to demonstrate relatively solid anti-corruption credentials; however, it displays one of the most concerning trajectories in the region, with a 10% decline in its overall score, particularly due to setbacks in the Legal Capacity category, which dropped 14% from last year.

Peru (5.47), on the other hand, is the only country to have improved its overall score in the 2020 CCC Index. This is largely due to gains in law enforcement capacity and the court system and the importance President Martín Vizcarra has placed on the anti-corruption agenda.

What does this mean for compliance officers?

The CCC Index reveals an uneven and rapidly changing enforcement landscape in Latin America. The trends we flagged in the report on the anti-corruption front combined with the potential fallout from the COVID-19 pandemic present significant downside risks to the regional anti-corruption drive. A few of considerations come to mind:

  • When updating risk assessments, make sure to consider political, regulatory and social risks

Political instability, elections, changes in laws and regulations and the ever-present risk of social unrest all have significant potential to shape the corruption agenda in Latin America, and particularly whether and how the problem is tackled. Now more than ever, compliance officers need to broaden their horizons and closely monitor political, regulatory and social risks given how intrinsically these are linked to corruption and enforcement risk.

  • Risks generate crises and crises can generate risks

The potential for fraud and corruption risks to generate major reputational damage and crises for companies is clear to all of us. What is perhaps underappreciated is that crises are also significant drivers of fraud and corruption risk. Companies and executives alike are currently under pressure to generate revenue and are understandably primarily focused on managing the pandemic crisis and business continuity generally. Nevertheless, they should not forget to continue to invest in and reinforce compliance programs and the internal controls environment—particularly given the risks inherent to massive government emergency spending and relief programs and a sudden, unrehearsed and massive migration to remote working.

  • Managing third-party risk effectively is a dynamic undertaking

Third-party programs need to be reassessed and, in some cases, redesigned to enable compliance teams to more rapidly, but responsibly, onboard third parties. This is particularly critical as companies explore alternative solutions and seek new partners as part of their plans to manage the significant supply chain disruption caused by the COVID-19 pandemic. Furthermore, given the volatility of the business environment, third-party programs need to enable an organization’s compliance function to monitor third parties once onboarded. This is also one of the Department of Justice’s key recommendations in its recently updated guidance on the evaluation of corporate compliance programs. Increasingly, compliance teams will need to deploy technology to aggregate and analyze third-party data and automate workflow.

In the current regional environment of simultaneous health, economic and—in several countries—political crises, companies have an even more critical role to play in creating and sustaining a more transparent and ethical business environment across Latin America. Leaders of businesses operating in the region need to reinforce their commitment to ethics and compliance through clear and consistent messaging to their teams and business partners and by ensuring that compliance departments have sufficient independence and resources to implement and maintain effective compliance programs, even in the face of the challenging financial reality many companies face.

Read the full 2020 Capacity to Combat Corruption Index report.

About the author:  Geert Aalbers is a Partner at Control Risks, where he heads its Brazil and Southern Cone business and manages complex investigations into fraud, corruption and other ethics breaches.