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Corporate Compliance and enforcement trends Anticorruption & Anti Money Laundering in Latin America. Guillermo Jorge Partner Jorge & Dassen Consulting Sao Paulo, Brazil, May 9, 2008. 1. Anticorruption. OAS Anticorruption Convention

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Corporate Compliance and enforcement trends

Anticorruption & Anti Money Laundering in Latin America

Guillermo Jorge


Jorge & Dassen Consulting

Sao Paulo, Brazil, May 9, 2008.

1. Anticorruption

OAS Anticorruption Convention

  • Assets Disclosure policies for public officials

  • Access to public information

  • Loosely conflict of interests laws

  • Financing political parties

  • Anticorruption offices

  • Some updates in criminal offences

  • Most remain “in the books”

  • Enforcement of criminal law or administrative fines has been random or “politically” exercised

  • The shift brought by the global anticorruption campaign

    The end of the “geographic morality” rule

    • Corruption and bribery are wrong, but inevitable / unavoidable in the South

    • A citizen of the North can engage in acts of corruption in the South, without any moral or legal condemnation to those acts in its jurisdiction

      Market oriented version (Nye, 1967)

    • Corruption might help with capital formation

    • Corruption might help to cut red tape

    • Corruption might encourage entrepreneurship

      Political version (Merton, 1968)

    • Corruption allows the integration of groups who

      otherwise would not be able to participate in the political process

    New Northem Approach to corruption





    The OECD


    The Business



    1994: 5 chapters

    1997: 49 chapters

    Civil society / TI chapters

    New Democracies

    Trends in FCPA Enforcement: Criminal Charges – DOJ Activity

    • Increasing aggressive investigations

      • Over Foreign subsidiaries

      • Over foreign and domestic subsidiaries of a foreign parent corporation

    Source: Sherman & Sterling FCPA Report 2008

    Geographic distribution of FCPA Actions 2000-2006


    Source: Kroll Global Fraud Report. FCPA, June 2007

    Source: Kroll Global Fraud Report. FCPA, June 2007

    Trends in FCPA Enforcement -SEC Activity

    • 2. Increasing Regulatory sanctions

    • Against a company because of its distributors’ conduct (InVision).

    • Books and records charges if the business purpose requirement is not satisfied. (Bristow Group Inc).

    Source: Sherman & Sterling FCPA Report 2008

    FCPA Trends3. Increased penalties

    FCPA Trends4. Parallel Litigation Risks

    OECD Convention Enforcement

    G-7 countries

    Latin America foreign corruption investigation

    • Peer review mechanism

    • Tour de table mechanism

    How are companies facing these new risks?

    • Implementing Effective Compliance Programs

      • System of internal controls –aligned with existing internal auditing controls!

      • Establish ethics policy and procedures –and enforce them!

      • Senior management involving –not only in the books!

      • Apply the program to agents, consultants, representatives and other intermediaries –without exceptions!

      • Ongoing training of personnel –aligned with HHRR incentives!

      • Implement a whistle blowing system –and protect those who makes disclosures!

      • Implement a “Red flag” system

      • Include “termination provisions” in written agreements if other parties fail to comply

    How are companies facing these risks?

    • Perform specific anti-bribery due diligence

      • In relationships with intermediaries

      • In any M & A process –avoid successor liability!

    • Respond quickly to potential violations

      • Have an Effective crisis management plan

        • Notify appropriate internal parties immediately

        • Begin an internal investigation and a fact finding process

        • Stop payments to suspected involved parties

      • Hire independent counsel

      • Preserve business reputation

    5. Deferred prosecution in exchange of improving compliance programs

    Incentives to increase compliance

    6. Voluntary Disclosure following internal investigations

    M & A Due Diligence


    Source: Sherman & Sterling FCPA Report 2008

    Source: Sherman & Sterling FCPA Report 2008

    2. Anti Money Laundering Risks

    • Unlike anticorruption efforts, Latin American countries are more prepared to detect transactions involving proceeds of (any) crime.

      • FIUs networks –Egmont Group

      • STR systems –Increasing compliance with reporting requirements

    • In addition, USA Patriot Act Section 319

      • US Banks must respond DOJ, DOT and regulatory authorities including

        • Foreign deposits

        • Deposits at foreign branches or subsidiaries even in any currency

      • Deposits into foreign banks are considered deposits into any bank account the bank may have in the US

        • Freezing orders can be made in a US bank against the equivalent of funds deposited in an overseas account of a foreign bank that maintains a correspondent account in the US.

        • Example: X deposit R$ 100,000 in a Brazilian bank in Sao Paulo. The Brazilian bank has a correspondent account in USD with the Brazilian branch in New York. The US Government can restrain equivalent amount in dollars from the NY branch.

    Anti-money laundering risks

    • OFAC programs

      • Blacklisted terrorists, traffickers -and all their front companies!

      • US Banks main responsibility for compliance with OFAC policies

        • Brazilian company A instructs its local bank to wire USD 1 million to a Thailand supplier’s bank account at “Thai First National Bank”. Local bank instructs its correspondent in NY to make the payment.

        • The NY correspondent bank FREEZE the transaction because while Thailand is not a blocked country, it is believe that “Thai First National Bank” is believed by OFAC to be a front company of the Burmese Government, blacklisted under OFAC.

        • The funds may remain frozen in spite of allegations nobody was involved in illicit activity.

        • The US correspondent bank is prohibited from advising the Brazilian company that the transfer may face OFAC problems.


    • In spite of Latin American modest progress in the area of anti-corruption, there are serious legal, commercial and damage-reputation risks associated with improper payments to public officials

    • Anti-money laundering institutions have been growing fast and healthy in Latin America.

    • Financial information is no longer secret or beyond law enforcement

    • Sound compliance programs & “effective crisis management plans” have been the most effective respond to these new challenges.

    Muito Obrigado!

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