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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. [email protected] 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.

[email protected]

1 anticorruption
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 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
    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
    Geographic distribution of FCPA Actions 2000-2006 Activity


    Source: Kroll Global Fraud Report. FCPA, June 2007

    Source: Kroll Global Fraud Report. FCPA, June 2007

    Trends in fcpa enforcement sec activity
    Trends in FCPA Enforcement -SEC Activity 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 trends 3 increased penalties
    FCPA Trends Activity3. Increased penalties

    FCPA Trends4. Parallel Litigation Risks

    Oecd convention enforcement
    OECD Convention Enforcement Activity

    G-7 countries

    Latin America foreign corruption investigation

    • Peer review mechanism

    • Tour de table mechanism

    How are companies facing these new risks
    How are companies facing these new risks? Activity

    • 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
    How are companies facing these risks? Activity

    • 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
    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
    2. Anti Money Laundering Risks programs

    • 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
    Anti-money laundering risks programs

    • 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.

    Conclusions programs

    • 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! programs