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Survey: Latin American Companies Targeted More by Regulators, Daily Business Review

Sunday, April 17, 2016

Reprinted with permission from the February 17, 2016 edition of Daily Business Review© 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. – 877-257-3382 -

More than 40 percent of the chief legal officers at large Latin American corporations reported being the target of regulators over the last two years, according to an annual survey conducted by the Washington-based Association of Corporate Counsel.

Large corporations in Latin America and the Caribbean reported targeting by regulators at a rate 10 percentage points higher than the global average and higher than corporations with smaller legal departments, said James Merklinger, vice president and chief legal officer of the ACC.

The ACC Chief Legal Officers survey also found 27 percent of CLOs in Latin America and the Caribbean anticipate the amount of work they send to outside legal service providers will increase next year.

About 1,300 chief legal officers in 41 countries responded to the survey, which offers a snapshot of the concerns of corporate counsel around the world, Merklinger said. The ACC represents 40,000 members in 10,000 corporate legal departments around the world. The survey didn't ask CLOs to specify which regulators were involved.

More Latin American countries are enforcing anti-bribery laws for a host of reasons. As the number of multinational companies in Latin America has grown, so has the number of jurisdictions that a corporation must navigate on legal subjects ranging from corruption to food labeling.

"The fact that they are doing business in more countries would subject them to more governments and make them subject to more regulations," said Merklinger, who was surprised Latin America had such a high rate.

However, the elevated rate is likely due in part to aggressive enforcement of the U.S. Foreign Corrupt Practices Act by the Securities and Exchange Commission and Department of Justice, said Alison Tanchyk, a Morgan, Lewis & Bockius partner in Miami whose practice focuses on anti-corruption and internal investigations.

"Mexico, Brazil and Chile are all making noise about anti-corruption enforcement, but you haven't seen any major actions coming out of these countries," Tanchyk said. "It pales in comparison to U.S. enforcement. The aggressive regulators are in the U.S."

The survey also found many Latin America respondents were considering adding an in-house position for a compliance lawyer, which could indicate they are expanding internationally, Merklinger said.

"We are seeing companies add a compliance position if they didn't have one already," he said. "In Latin America, 36 percent of the chief legal officers said they were creating new positions for compliance lawyers. If they are expanding business and in a truly more global economy, they are in need of attorneys to help them navigate the various regulations around the world."

Compliance Platform

The top concerns of corporate counsels centered on five areas: regulatory compliance, mitigating and managing risk, cybersecurity, adapting to growth and changing environments, and managing resources and to accomplish the workload, according to the survey.

Tanchyk said an effective compliance program is the single most important thing a company can implement to prevent and detect corrupt conduct and mitigate against the damage it can cause. Companies need to clearly communicate anti-corruption policies and procedures, conduct third-party due diligence and implement an effective audit and monitoring program. Compliance programs are critical because the laws in some countries, such as Brazil and Chile, expressly consider the existence and strength of a compliance program in evaluating penalties.

"The reality of doing business in the Latin American market is you are going to face significant anti-corruption risk," Tanchyk said. "The vast majority of U.S. enforcement actions involve the corrupt conduct of a third-party business partner."

Companies doing business internationally often rely on local assistance and expertise of customs brokers, consultants, resellers, sales representatives, joint venture partners and others depending on the industry type and business practice.

"Because corruption has traditionally been endemic in certain foreign countries, local third-party intermediaries who have operated in that environment have been targeted in U.S. enforcement actions," said Jacqueline Arango, a partner and chair of the white collar crime and government investigations practice at Akerman. "U.S. companies must be hypervigilant in conducting risk-based due diligence of these agents before and throughout the venture to ensure they adhere to anti-corruption compliance."

Even companies making every effort to stay within the law can get caught in the fray, Arango said. Corporations need to ensure that compensation to third parties is consistent with market rates, that there are no unusual payment patterns or financial arrangements, and that all payments are adequately described in the company's books and records.

The study also found that no matter where in the world they were, CLOs cited ethics and compliance issues as the issues most likely to keep them up at night.

"They seem to have more regulatory actions or investigations than other parts of the world and yet they have a higher job satisfaction," he said. "Hopefully that means they find value in their careers. If you're satisfied, I assume you like that challenge.