Argentina:  Strategic Due Diligence

Argentina: Strategic Due Diligence

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September 09, 2015

spotlight Compliance Champion Spotlight

What is a Compliance Champion? A Compliance Champion is an individual or organization committed to fostering and raising the standards of anti-bribery compliance. TRACE Trends will include posts featuring Compliance Champions from time to time.

We hope you enjoy the following entry from this week’s Compliance Champion, and TRACE Partner Law Firm!

Guillermo Jorge and Fernando Basch are partners at Governance Latam, a Buenos Aires-based boutique law firm that specializes in anti-bribery and anti-money laundering compliance, and in asset tracing and recovery. Governance Latam is the TRACE Partner Law Firm in Argentina, and is actively consulted by international organizations, governments and multinational companies operating in Latin America.


In Argentina, “administrative corruption” – corruption related to licenses, permits, inspections and different government authorizations – remains widespread. Multinational companies have traditionally framed the issue as a supply chain concern, and devoted all efforts to refining corporate vetting mechanisms of local business partners. Improving third party due diligence has so far been mainly about optimizing screening procedures to identify risky contractors and resorting to robust contractual language to improve the company’s leverage in case the enforcement authorities come knocking on the door.

 "[I] n order to seriously attempt to minimize bribery risks in the supply chain, due diligence should no longer be conceived as avoiding working with corrupt business partners; it should be understood, instead, as helping local business partners avoid corruption."

Such response, however, falls short in the current anti-bribery enforcement environment. While most instances of administrative corruption were considered “facilitating payments” until not so long ago, thus falling outside the scope of the FCPA and, therefore, of the top priorities of compliance officers, today it is quite clear that foreign bribery is no longer just strictly about “obtaining or retaining business” (many countries – and companies, for that matter – have adopted a zero tolerance policy that bans all forms of bribery, including facilitating payments). Moreover, in the jurisdictions where it is still an exception, the concept of facilitating payments has largely reduced its scope.

Third party due diligence is today a valuable tool to identify an intermediary too close to the relevant authorities or with a track record of wrongdoing. But it is insufficient to minimize risks posed by systemic administrative corruption. The reasons for this are twofold: first, these administrative transactions may not be flagged by current screening tools – your local attorneys, customs brokers, shipping agents, freight-forwarders, tax advisors or subsidiary employees certainly have well-documented experience, bill formal invoices, charge reasonable fees, and run legitimate businesses, and second, and more importantly, replacing these business partners won’t necessarily reduce your risk – the key to addressing systemic administrative corruption is not about the players, but about the game.

Companies operating in these environments should consider going one step further, and address systematic administrative corruption through what we call strategic due diligence.

What do we mean by strategic due diligence? Let’s start by saying that, in order to seriously attempt to minimize bribery risks in the supply chain, due diligence should no longer be conceived as avoiding working with corrupt business partners; it should be understood, instead, as helping local business partners avoid corruption.

Future posts will further develop the conceptual shift that, based on our experience in Argentina and Latin America, provides grounds to these ideas.

For more on this topic, please see the following resources:

The Bribery Aisle: How Wal-Mart Got Its Way in Mexico
OECD Calls for an End to Facilitating Payments Exception
Facilitation Payments: No Longer Business as Usual

 

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