Latin American Lens: Corporate Compliance Needs in this Region

Latin American Lens: Corporate Compliance Needs in this Region
By Keith Prager
As businesses continue to expand their presence in Latin America, it is important for multinational companies to understand the challenges in the corporate climate in this region. The level of risk varies by country within Latin America, but, in general, there are some basic levels of corporate compliance to which companies should adhere, and become familiar with, if success in this area is to be achieved.

Learn & Understand

The first and most basic step is often overlooked: learn about the specific region.  Do some basic research on the political climate of the area, the local methods of conducting business and the constantly changing regulations.
For instance, knowing about the currency challenges in Venezuela or the recent military and police uprising in Ecuador will help dictate your exposure in these countries.  Similarly, the political agendas of these countries should be considered. If the anti-U.S. sentiment in Bolivia is systemic, then you may need to strongly reconsider the reasons why your interests are in this country and if the risks outweigh the rewards.

Background Checks

Once you have amassed a general sense of the business fundamentals in any specific Latin American country (from the macro perspective), you need to assess risks on the micro level.  This starts with background checks.
The principals of the company in which you are going to do business should be properly and thoroughly vetted. This should include:

  • identifying other business interests of the principal(s) to ensure there are no conflicts of interest;
  • determining if he/she has been involved in any litigation, financial struggles or criminal behavior that would suggest your interests are at risk;
  • and reading any media attention (positive or negative) received by the company or principal(s) to understand their public perception and avoid any potentially embarrassing issues.

Further, to properly execute these checks, contact should be made with the U.S. Embassy, local law enforcement agencies and civil authorities in the specific region where your interests lay. Because public record information is typically scant in Latin America, these sources, in conjunction with other local industry sources, are crucial to gathering proper intelligence.
The scope of these background checks should also include an assessment of the company’s history of compliance with local regulations, such as payment of taxes, corporate registrations, and appropriate licenses for the particular type of business.

Establish Direct Relationships

When conducting financial transactions in Latin America, it is important to establish a direct relationship with the intended business entity (as in, leave out the middle man). Do not accept payments from or make payments to third parties.
Possible ramifications of third party transactions, depending on the country, include Informal Value Transfer (IVT), Black Market Peso Exchange (BMPE), Money Laundering (Trade based) and violation of the Foreign Corrupt Practices Act (FCPA).  Banks involved in international financial transactions are continually monitoring business and personal accounts for this type of activity.
In Venezuela, IVT is used to circumvent the strict currency controls put in place by the Chavez regime. Colombian and Mexican drug cartels exploit BMPE to launder drug proceeds. FCPA payments sometimes are disguised as commissions or other non-specific reasons for the transactions.
Avoiding vulnerability to these issues is obviously paramount. Assumptions about connections or relationships cannot be made in Latin America; every entity or individual that is involved, in any way, in your deal should be known and vetted.