Latin America doesn’t need more anti-corruption laws, it needs to do better at enforcing the solid legal frameworks it already has in place. That was the message from practitioners at Latin Lawyer and Global Investigations Review: Anti-Corruption & Investigations Brazil last month.
White collar crime lawyers from leading firms across the region spoke on a panel moderated by Ropes & Gray LLP partner María González Calvet at the Rosewood in São Paulo on 23 October.
"We have most of the legal framework that countries in the Organisation for Economic Cooperation and Development (OECD) or the Financial Action Task Force (FATF) are pushing forward," says Ricardo Cacho, counsel at Von Wobeser y Sierra SC in Mexico, continuing: “And we have good evaluations on our framework, but we have a very bad assessment on their efficiency and efficacy."
Despite waves of legislative reforms addressing a broad spread of white-collar crimes, from tighter anti-money laundering (AML) laws to enhanced whistleblower protections, companies and individuals across the region have continued to be complicit in corrupt practices with minimal fear of consequences. This is largely due to weak enforcement of that legislation, say partners.
The AML enforcement vacuum
This enforcement gap is most prevalent in AML prosecutions, with Mexico providing a striking example of a problem that also continues to plague other parts of the region, say panellists.
"There is this sense that there hasn't been a single conviction for money laundering cases in Mexico in the past 10 years," Cacho says. He notes that while the government does implement measures like asset forfeiture and account freezing, "they all crumble in the judicial process."
Instead of addressing its enforcement failures, Mexico has responded to the issue by introducing a flurry of new regulations which neglect to resolve the underlying issues. These reforms have tightened beneficial ownership requirements, which means companies must identify individuals who own controlling shares. Meanwhile, mandated automation of AML systems now requires banks and businesses to use digital resources to auto-detect suspicious transactions. With these efforts, Mexico has also widened the powers of its financial crime investigation agency so it can now participate in court cases and trials, rather than just providing intelligence to prosecutors.
The country has even introduced negligent money laundering offences, which hold individuals liable for handling suspicious money without double-checking its origin, even if there was no criminal intent. That development "has scared a lot of the financial system and our compliance officers," Cacho says.
Despite all these efforts, however, lawyers remain sceptical that the constant stream of new rules will solve what is fundamentally an institutional problem with enforcement. "We keep doing reforms and making new ones and new ones," he adds.
Argentina faces similar challenges despite having an AML regime in place for nearly two decades. Maximiliano D'Auro, managing partner at Beccar Varela, explains that the country recently enhanced its system after the Financial Action Task Force – an intergovernmental organisation founded by G7 countries – repeatedly threatened to include it on its grey list of countries with weak AML systems.
“They basically increased penalties under the law. They included some new reporting entities like us as lawyers, for example," D'Auro says, explaining that firms now feature among the list of businesses legally required to monitor clients’ transactions for suspicious activity, which has strengthened AML rules in the country.
In spite of Argentina’s efforts to overhaul anti-corruption legislation, enforcement continues to be inconsistent. There has been some enforcement activity, for example, when the country's financial intelligence unit Unidad de Información Financiera (UIF) imposed a US$10 million fine against Merrill Lynch Argentina for failure to report suspicious transactions and breaches of AML controls. However, D’Auro notes that these efforts stem more from international pressure rather than a commitment to enforce anti-corruption legislation on home soil. The question that remains is whether meeting international standards translates to actual domestic enforcement.
Putting theory into practice
It is not just weak enforcement that is preventing anti-corruption laws from being applied effectively in the region, but businesses facing corporate criminal liability rules have also stood in the way.
When Bolivia enacted its corporate criminal liability law in 2021, for example, "this was something that was considered very shocking," says Lindsay Sykes, co-managing partner at PPO Indacochea. "It was seen as an attack on the business community, and just another way for the state to target private enterprises."
Sykes largely attributes this to the fact that government allegations of corporate crimes usually arise when a business is already in a dispute with the state about an unrelated matter. That can leave a sour taste, as “it’s kind of seen as a piling on, that is an additional pressure point that the government can exert on the company,” the partner explains.
In Bolivia, companies don’t need to be convicted of crimes like fraud or bribery before facing money laundering for proceeds from those alleged offences. This lower threshold creates significant unpredictability in the system, with authorities using interpretations that Sykes describes as “quite broad, and I would even say creative” to pursue money laundering accusations in corporate criminal liability cases. While the law was supposed to make prosecutions easier, authorities have often abused it, demanding that companies provide an explanation for big profits, without evidence that the money came from any illegal activity in the first place, meaning that: "Arguably, what they are pointing out could just be a debatable accounting concept,” according to Sykes
To mend the damaged trust between local authorities and businesses in corporate criminal liability cases, Sykes says, “we need more predictability in the system. I think it's going to take time," emphasising the need for training so authorities can "understand how to implement it in an institutionalised way."
Recent developments in Peru have provided an example of how to ensure that companies take heed of the importance of corporate criminal liability law. There, enforcement remained sluggish until two developments this year changed the game: the first conviction of a company under the law for money laundering, and the securities regulator's first technical review of a compliance programme.
"Considering these two factors, I think that companies are now taking this seriously," says Liliana Calderón, partner at Peruvian firm Benites, Vargas & Ugaz Abogados. However, Peru’s higher emphasis on corporate liability has been met with a split response – varying based on the size of organisations. Unlike big corporations, smaller businesses can go under the radar and therefore feel less at risk of corporate liability enforcement – leading them to take a more relaxed approach.
While large companies are demonstrating their willingness to co-operate with the law by investing in compliance programmes and appointing officers with “real independence,” as well as allocating budgets, and maintaining updated risk maps, smaller companies are cutting corners by "copying policies and holding one generic training a year,” Calderón explains.
To overcome these enforcement challenges, law firms need to help companies build compliance programmes that deliver results rather than half-hearted efforts that merely tick boxes.
Calderón summarises that, as a result, white-collar crime partners should steer clients to be stricter on corporate accountability so that they are “moving from a formal compliance programme to a functional one.” The Benites Vargas partner concludes that this will not be possible without incorporating “governance, budget and independence testing” into those frameworks to make them airtight.