The Biden administration will increase anti-corruption efforts in Central America
Biden campaigned on the promise to refocus anti-corruption efforts across Latin America, particularly in the Northern Triangle. That’s positive in the long term but may create short term tensions.
The Biden administration is going to crack down on corruption in Latin America, particularly Central America. That means there are likely to be more prosecutions of businesses engaging in corruption and greater tensions with governments that are run by corrupt elites.
The US never stopped prosecuting corruption in Latin America over the past four years as the recent FCPA case against Vitol demonstrates. The laws are on the books and the professionals at DOJ and elsewhere in government kept working. However, from the top levels of government anti-corruption was not a priority for Trump’s Latin America policy outside of the locations where the issue was politically convenient (i.e. Nicaragua, Venezuela). At one point, Donald Trump considered eliminating FCPA because of the harm it does to US businesses that need to compete with local firms and Chinese multinationals.
That tone from the top level is going to change in the upcoming administration as Biden and his advisors focus on anti-corruption issues. Anti-corruption is a core pillar of the Central America policy. The CICIG is seen as a relatively successful model and there will be a push to revive international investigation efforts either country-by-country or regionally. The Biden administration is likely to double down on FCPA and other anti-corruption statutes and encourage other countries to adopt similar measures with the long term goal of creating a level playing field where companies cannot bribe their way into contracts.
For those who want to read more, the Wilson Center recently released a report on aid to the Northern Triangle. The incoming Biden administration’s anti-corruption push was also discussed in a recent op-ed from James Nealon and a podcast from WOLA.
Risks and opportunities within the anti-corruption fight
Risk to companies. An increased anti-corruption focus by the US government means companies operating in Latin America are going to want to increase their own vigilance and internal controls. More investigations and prosecutions by the US and partner countries create some risks for companies that operate with local partners in high-risk jurisdictions. As Lava Jato and the Odebrecht investigations showed, one case of corruption can lead to cascading prosecutions as law enforcement agencies dig into corruption networks and witnesses begin to offer evidence.
Opportunities for investors. Banks and other financial firms need better methods for identifying customers tied to corruption and sanctioned individuals without increasing the amount of paperwork and person-hours it takes to do that compliance. Companies that can assist on that front, including those that have access to reputational information outside of normal data sets and those that apply AI to AML, are going to boom in the coming years.
Support for civil society groups is coming. The Biden administration wants to spend money to improve Central America but has few partners in local governments that it can work with while maintaining an anti-corruption focus. This means greater support for journalists, researchers and civil society groups is likely as they look for partners within government with the political will to take on corruption.
Fixing corruption within security forces will be necessary. Central America’s police and military forces continue to have significant corruption challenges. Basic bribery undermines the rule of law and needs to be addressed. However, the real concern is high level infiltration by organized crime. The Biden administration should make an effort to stop criminal organizations from operating under the cover of legitimate security forces, but doing so will be a long term effort that will go well beyond an initial four year term in office. Swift attempts at police reform tend to undermine security in the short term.
Anti-corruption efforts could create regional tensions. A renewed push for anti-corruption organizations and prosecutions may create bilateral tensions with the administrations in Central America. Effectively cracking down on corruption will hurt some very powerful politicians and business leaders. There will be some effort to balance the anti-corruption agenda with other interests, but the next administration is very unlikely to engage in a transactional approach in which they ignore corruption in exchange for support on migration issues or Middle East policy. Local governments may respond to that tension by targeting other US interests including multinational companies that operate in the region.
The Biden administration is also less likely to tolerate the anti-anti-corruption wave. The group of politicians and business interests who have worked to weaken or shut down effective anti-corruption efforts and institutions around the region are going to lose many of their friends in DC. The corrupt interests who took advantage of Trump’s agenda to rollback CICIG and MACCIH may see renewed pressure in the coming year.
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