Saturday, January 16, 2021

Analysis: Anti-corruption efforts in Latin America

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The Americas Society/Council of the Americas (AS/COA), in collaboration with risk consulting firm Control Risks, recently published the Capacity to Combat Corruption Index (CCC Index). Now in its second year, the 2020 CCC Index evaluated and ranked 15 of the largest Latin American countries based on the size of their economy, collectively representing 95 percent of the region’s GDP.

At a high level, findings from the 2020 index reveal a worrisome picture. In a live Webcast discussing the results, Roberto Simon, senior director of policy at AS/COA, said the anti-corruption wave that began a few years ago—the Lava Jato (Operation Car Wash) investigation in Brazil, social mobilization against corruption in Mexico, anti-corruption reforms in Chile, and new anti-corruption investigations launched in Argentina—“has lost steam.” Furthermore, in countries like Brazil and Guatemala, “it appears to be dangerously receding,” he said.

In addition, the coronavirus pandemic is exacerbating corruption risk in Latin America. Whenever massive amounts of government resources are being spent at once on emergency needs, often involving third-party intermediaries, “the result is less transparent, less competitive bids, and that is obviously very fertile ground for corruption,” said Geert Aalbers, senior partner at Control Risks.

Thirdly, the economic strain currently placed on both Latin American countries and companies means fewer resources dedicated to anti-corruption enforcement. For some companies, it also means fewer resources dedicated to compliance programs, Aalbers said.

Interpreting the data

The CCC Index assessed 14 critical variables under three subcategories: legal capacity; democracy and political institutions; and civil society, media, and private sector. Each variable was assessed using publicly available data, as well as conducting interviews with three experts in each country from academia, civil society, and the private sector.

Simon stressed that “the CCC index does not measure levels of corruption or economic impact on corruption.” Rather, it assesses the likelihood of each Latin American country to detect, punish, and create mechanisms to prevent corruption, based on how they score in the index, he said.

In all regions of Latin America, “legal capacity” regressed the most. 

This subcategory considered the following seven variables:

  • Judicial independence and efficiency;
  • Anti-corruption agencies’ independence and efficiency;
  • Access to public information and overall government transparency;
  • Independence and resources for the Chief Prosecutor’s Office and investigators;
  • Level of expertise and resources available to combat white-collar crime;
  • Quality of leniency and plea bargain instruments; and
  • Level of international cooperation on law enforcement.
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Under “democracy and political institutions,” the index looked at quality and enforceability of campaign finance legislation; lawmaking and ruling process; and overall quality of democracy. And under the category of “civil society, media, and the private sector,” the index looked at education improvements; quality of the press and investigative journalism; and digital communications and social media.

In the 2020 CCC Index, only one country in each subcategory improved: Peru in the category of legal capacity; Argentina in the category of democracy; and Columbia in the category of civil society—though it still ranked below the average for the region.

Country-by-country scores

Among countries with the highest overall scores in the 2020 CCC Index were Uruguay (7.78 out of 10), followed by Chile (6.57 out of 10) and Costa Rica (6.43 out of 10). These countries scored well above the regional average across nearly all 14 variables.

Screen Shot 2020-06-10 at 2.39.49 PM

Sources: Americas Society/Council of the Americas & Control Risks

Uruguay, for example, benefits from “strong enforcement mechanisms across the public sector and well-established democratic institutions to an active civil society and a vigilant press,” the index stated. Uruguay scored highest among all 15 countries in the legal capacity subcategory, including its efficiency and independence of courts, law enforcement agencies, and anti-corruption bodies.

Money laundering has historically been a big compliance concern. Since Congress passed new controls in 2018, however, the available data puts Uruguay’s anti-money laundering (AML) capabilities ahead of the other countries, according to the index.

In Chile, even though the country “faced an unprecedented wave of social unrest and its worst political crisis in three decades of democracy” from mid-October 2019 until the coronavirus pandemic, the index notes these events appear to have had no significant impact on Chile’s ability to fight corruption. “Chile’s strength in the CCC Index is related to deep institutional achievements, including the quality of its judicial system, the rules governing Chilean democracy and the strength of its civil society,” the index states.

Costa Rica is also a standout in the index, with the “third most efficient and independent court system and anti-corruption agencies, as well as robust government transparency practices, and well-established channels for international collaboration,” the index states. “Congress has recently passed a new corporate liability framework, which could contribute to more transparent relations between the private and public sectors in coming decades.”

The second group of countries that generally scored well across some of the variables is Brazil, Peru, Argentina, and Columbia. In this group, Brazil scored 5.52; Peru, 5.47; Argentina, 5.32; and Columbia, 5.18.

Although Brazil ranked fourth in the 2020 CCC Index, “it displays one of the most concerning trajectories in the region, with a 10 percent decline in its overall score,” the index states. “A perceived decline in the independence of law enforcement agencies and recent judicial decisions that negatively impacted investigations of white-collar crime are the leading causes for the downward trajectory.” This is an area that chief compliance officers will want to watch moving forward.

In Peru, improvements were observed in “Legal Capacity” and “Democracy and Political Institutions.” This reflects “gains in law enforcement capacity and the court system, as well as the importance of anti-corruption in President Martín Vizcarra’s agenda,” the index states.

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In Argentina, the region performs well above the regional average in the “Civil Society, Media, and the Private Sector” subcategory, “particularly regarding the quality of the press and investigative journalism,” according to the index. “The level of white-collar expertise is an issue in Argentina, and most notably perhaps is concern around the independence at the anti-corruption agency.” Compliance officers should be aware that, with Argentina’s vice president, Cristina Fernández de Kirchner, facing multiple graft accusations, some have raised concerns about the independence of its anti-corruption agency.

Columbia is a country that has several ongoing high-profile investigations, including the Odebrecht investigation. For compliance officers and in-house counsel, it will be important to watch how the Office of the Comptroller General—which gained broad new powers and capabilities to conduct investigations in 2019—contributes to prevention of corruption in the region moving forward.

In the third group—Mexico, Ecuador, and Panama—these countries score above average in a few specific areas, but below the regional average in most variables. In Mexico, although President Andrés Manuel López Obrador has promised an end to corruption, “nothing has really changed dramatically,” Simon said. “We haven’t seen big shifts.” In fact, Mexico scores below the regional average in five of seven variables concerning “legal capacity,” including in areas known to be crucial in the fight against corruption, such as judicial independence and the strength of enforcement agencies, he said.

Compliance officers and in-house counsel should also be aware that Mexico’s current administration “has removed controls and increased discretion for government contracts, while pushing forward major infrastructure projects and increasing healthcare spending due to COVID-19,” the index noted. “This combination will further increase corruption risks.”

The 2020 CCC Index for the first time this year also ranked Ecuador and Panama. “Ecuador had some really interesting developments on the enforcement side,” Simon said. “We’ve seen major anti-corruption cases being presented by prosecutors, involving members of the former administration.”

In Panama, President Laurentino Cortizo’s agenda to combat corruption quickly lost steam, due to lack of support from Congress and his own party members. “What we’re seeing now is crucial reforms stagnated in Congress,” Simon said.

Among the lowest scoring countries in the CCC Index are Guatemala, Paraguay, Dominican Republic, and Bolivia. Except for Bolivia, these countries showed relatively strong reforms in civil society. “Certainly, in the case of Guatemala, Paraguay, and Dominican Republic, civil society performed relatively well,” Aalbers said. The same cannot be said, however, for how they scored in the categories of “legal capacity” and “democracy and political institutions.”

In Paraguay, the infiltration of drug cartels in the region pose a high corruption risk. And in Bolivia, which scored second lowest in the CCC Index after Venezuela, “the country is going through rapid changes since the eruption of protests and the ousting of President Evo Morales last year, making its trajectory in the anti-corruption space still very uncertain,” the index states.

With a score of 1.52, “Venezuela is really on a trajectory of its own,” Simon said. “This year we saw further decline of Venezuela’s capacity to fight corruption.” As it concerns the strength of its judicial system, its enforcement capacity against corruption, and even just basic rules governing the relationship between money and politics, Simon added, “the destruction in Venezuela has been so widespread that we are unlikely to see Venezuela catching up to countries like Columbia or Peru anytime soon.”

By at least having this knowledge in hand, compliance officers and in-house counsel can use the CCC Index as an additional resource when conducting risk assessments. It’s also intended to be assessed in combination with other key anti-corruption indices, such as TRACE International’s Bribery Risk Matrix and Global Enforcement Report, as well as Transparency International’s Global Corruption Barometer and its Corruption Perceptions Index.

 

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