Combatting Fraud in Latin America

Shannon Henschel

Associate Editor

Loyola University Chicago School of Law, JD 2024

In a recent statement for the Department of Justice (DOJ), Assistant Attorney General Kenneth Polite Jr. shared that the DOJ plans on ramping up enforcement of the Foreign Corrupt Practices Act (FCPA) in Latin America this year. This statement comes after the majority of noncompliance actions under the FCPA in 2022 occurred in Latin America.

What is the Foreign Corrupt Practices Act?

The United States enacted the FCPA in 1977 to criminalize U.S. companies committing bribery of foreign government officials in exchange for business opportunities and favorable treatment. Enforcement of the FCPA falls under the DOJ for both civil and criminal liability, and the Securities and Exchange Commission only for civil liability.

The FCPA places restrictions on U.S. entities engaged in international business transactions to ensure that their dealings are conducted without bribery. The FCPA prohibits bribery and requires publicly traded U.S. corporations to maintain books and records documenting their transactions. Bribery involves offering, giving, soliciting, or receiving any item of value as a means of influencing the actions of an individual holding a public or legal duty. FCPA enforcement actions can result in high penalties for offending corporations, including up to $2,000,000 in criminal fines and $10,000 in civil fines.

Moreover, the FCPA has an expansive scope. Compliance with the FCPA not only applies to U.S. citizens and corporations, but also extends to foreign companies listed on U.S. exchanges, as well as foreign individuals and entities that have substantial contacts in the U.S. Additionally, U.S. parent companies can be held liable for noncompliance committed by their foreign subsidiaries.

Why is the DOJ focused on Latin America?

Over the past several years, Latin America has accounted for the majority of FCPA enforcement actions. From 2017 to 2019, the region was responsible for around half of the actions initiated, and from 2020 to 2022, this amount rose to over 60%. In 2021, the Biden Administration promised to vigorously enforce the FCPA in Latin America by organizing the first ever “Latin American Anticorruption Task Force focused on Central America”, and releasing the “United States Strategy on Countering Corruption” which describes government initiatives to investigate and prosecute FCPA violations.

Possible explanations for why Latin America has had such a high concentration of FCPA noncompliance actions involve the general instability in Latin America. Far-right populism in countries such as Brazil, Bolivia, and Venezuela are a sign of Latin American countries’ susceptibility to corruption, due to unimpeded and concentrated political power. Failing economics due to unstable political regimes additionally lead to high rates of inflation, which might further encourage corrupt business transactions.

What is the success rate for FCPA enforcement actions?

In a recent statement, Assistant Attorney General Kenneth Polite Jr. recognized that the DOJ has successfully prosecuted a high rate of FCPA enforcement actions. He shared that in 2022 alone, the DOJ’s Criminal Fraud Division convicted over 250 individuals, 50 of whom were convicted at trial, as well as entered into seven criminal resolutions with various corporations. Furthermore, he warned that there would be even more enforcement actions in 2023.

Due to both the high number of FCPA violations and the DOJ’s reported high success rate in enforcement actions, Assistant Attorney General Polite Jr. also announced that the DOJ will begin offering increased incentives for companies that self-report potential FCPA violations. Encouraging self-reporting allows companies the ability to demonstrate their willingness to comply with the FCPA, whereas failing to report potential violations will only increase a company’s risk for criminal exposure and monetary penalties.

What does this mean for U.S. companies operating in Latin America?

Companies doing business in Latin America are likely already facing a multitude of operational challenges resulting from the political instability in the region. This, however, is all the more reason to follow FCPA guidelines and avoid a noncompliance action.

Following the DOJ’s statements on ramping up FCPA enforcement in Latin America, U.S. entities that do business in this region should put preemptive measures in place to ensure compliance. Poor documentation processes, lack of anti-bribery policies, and weak leadership may all lead to intentional or unintentional FCPA violations. Effective compliance with the FCPA involves corporations having rigorous internal controls to limit opportunities for bribery, policies in place for documenting all transactions, and effective FCPA compliance programs.

While the largest and most shocking cases of FCPA violations involve political corruption scandals in Latin America, any U.S. company that does business in this region should still be mindful of FCPA regulations. The DOJ appears intent on curbing the upward trend of noncompliance in Latin America in 2023, so even small violations may be subject to strict penalties.