Q&A: Managing and mitigating fraud in Latin America


Financier Worldwide Magazine

July 2016 Issue

July 2016 Issue

FW moderates a discussion on managing and mitigating fraud in Latin America between Tiffany Couch at Acuity Forensics, Kathalin Carvalho at Jabil Circuit, Inc., and Robertson Park at Murphy & McGonigle.

FW: What is your view of general attitudes toward fraud in Latin America, from both a corporate and government perspective? How do such attitudes compare to those seen elsewhere in the international community?

Carvalho: There has been a lot of movement in the anti-corruption and anti-bribery space in Latin America in recent years. Although the perception within the region is that corruption is still latent at all government and private levels, in reality there have been clear efforts not only to mitigate corruption but also to harmonise anti-bribery and anti-corruption laws to the same standards established by the international community. Little by little, and with the influence of international companies typically regulated by the FCPA and UK Bribery Act, Latin American businesses are learning best business practices to combat corporate and government bribery and corruption. This ‘cascade effect’ also translates into further education and greater knowledge for the people who are working for these corporations.

Park: I think there remains a substantial disconnect between the corporate and government attitudes, in parts of Latin America. Governments have increasingly established new fraud laws, emphasising anti-bribery, money laundering and even extending the criminal fraud laws to cover corporate misconduct. This growth in the legal structure has been matched in many circumstances by new prosecution and investigative resources. But industry, at least in many quarters, remains sceptical about whether the new laws and investigative activity will lead to successful individual and corporate prosecutions. This leaves the region still lagging behind North America, Europe and increasingly even the developing world in East Asia.

FW: Have any recent high-profile fraud cases surfaced in the region, which exemplify the challenges facing companies, regulators, investors and the like?

Couch: Richard Bistrong’s fraud, while it was prosecuted here in the US, is an excellent example of a significant violation of the Foreign Corrupt Practices Act (FCPA). The way he tells it, paying bribes is a “cost of doing business” in Latin America. If paying bribes is the cost of doing business in Latin America, or any country for that matter, then companies and their employees working onsite in this country are going to face a number of difficult choices. Companies want to do business in Latin America, whether it’s winning government contracts or working with corporations in the region; and they say they want to comply with FCPA. If the refusal to pay bribes means the difference between a lucrative contract or no contract, then one can see how easy it would be to rationalise paying a bribe – or a ‘fee’ – in order to be competitive. Such challenges cannot be ignored.

Park: Brazil is currently the petri dish – it is very difficult to predict what is going to emerge on the other side of all of the investigations that are currently taking place. The many different investigations reflect all of the challenges faced by a nation which drafted and implemented an aggressive new anti-bribery law, and which is now saddled with dozens of large, unwieldy cases. This is reflected in the ongoing competition among different regulatory and enforcement authorities at local and federal levels. Politics is also directly impacted, because so many of the elected officials are themselves caught up in the investigations. And all of this is taking place in the most public possible forum as the country faces significant economic challenges while preparing to host the Olympics.

Carvalho: The ‘operation car wash’ case in Brazil exemplifies the efforts of one of the most powerful countries within the Latin America region in combating corruption and fraud at the corporate and government level. With the promulgation of the Clean Company Act, many Brazilian companies have been required to reach out to subject matter experts – mostly outside Brazil – to effectively implement corporate compliance programmes in a manner that is fully compliant with local and international law. Also, conducting due diligence on third-party vendors – which is a key aspect of a compliance programme – may become a challenge due to the lack of automation within the region. Therefore, due diligence costs for investors or companies may be higher than due diligence costs in other countries like the US or Canada where public information on individuals or corporations are more automated and readily available when requested. In general, the region has started to develop a new area of professionals who are quickly learning the way of compliance to level up with other international SMEs.

Brazil is currently the petri dish – it is very difficult to predict what is going to emerge on the other side of all of the investigations that are currently taking place.
— Robertson Park

FW: In your experience, are corporate leaders now actively enhancing the anti-fraud policies and procedures they have in place? Does more need to be done to implement more robust internal controls?

Park: I think corporate leaders in Latin America are increasingly moving to upgrade and enhance their anti-fraud policies, whether addressing anti-bribery, money laundering, cyber security or privacy policies – all of which can assist with broad fraud prevention programmes. I think the larger question is whether we will see the dedication of necessary company resources to the expanded legal, compliance and risk needs that better policies and heightened regulatory and enforcement expectations bring. More needs to be done to address institutional inertia, because it is difficult to get management buy-in on the full implementation of best compliance practices when there is very little perceived risk.

Carvalho: Thanks to media and the publicity given to high profile corruption cases within the region, corporate and government leaders are more cognisant of the consequences of non-compliance. Who likes to be the headline story in the newspapers? Who likes to be questioned by the regulatory authorities or have their freedom limited? We are now in a new era, an era of ‘doing the right thing’. Vendors, suppliers and customers have been also impacted by companies and their desire to achieve compliance, so they are learning too. There will always be opportunities to strengthen internal controls, but only experience and practice in the area will demonstrate to corporate leaders the right approach for their company’s services and products, and for that, they must engage middle management in risk control efforts, because this is a team effort.

Couch: There is no shortage of corporate controllers, auditors and investigators attending courses on anti-fraud policies and procedures. However, these individuals also express frustration in terms of the fact that while anti-fraud policies are important to their companies, the people implementing such procedures are seen as hindering the company’s ability to do business. Appropriate internal controls are imperative to any company’s anti-fraud programme. In our opinion, better education on the need for controls is most crucial. The anti-fraud team should be working with sales and operations teams to educate and implement controls that make sense and work within an organisation’s corporate structure.

FW: To what extent is increased fraud regulation and stronger enforcement impacting on companies operating across Latin America? How are companies responding to more stringent standards?

Couch: As the US government prosecutes those in violation of the FCPA, it sends a message to those operating in Latin America that such behaviour will not be tolerated. Both the individuals perpetrating the wrongdoing and the company employing them are being held liable for corrupt practices. They are educating their employees, especially those who are working in-country.

Carvalho: Compliance costs money. All these new standards have financial repercussions for companies as they may need to hire compliance professionals, outside counsel, audit firms, new compliance officers, computers, databases, and so on. However, the resources spent on implementing a compliance programme in a company should be proportionate to the number of employees, types of products and services offered and the geographies where they are present. Compliance officers must understand the business priorities, know the risks associated with the services and products offered and customise their compliance programme with full knowledge of domestic and international laws applicable to what they do. There are plenty of tools available online for corporate and government entities coming from other NGOs. Utilising and leveraging the company’s internal resources is key to the successful implementation of a compliance programme.

Park: I think the new and growing emphasis on enforcement is having a substantial impact on companies within the region. They are moving forward to address compliance and control deficiencies and to upgrade their policies and procedures to meet the new regulatory and enforcement environment. This process is also resulting in the recruitment of increasingly professional and skilled compliance personnel. However, the region remains very much reactive to crisis when it strikes. There remains insufficient appetite to be more proactive and address problems before they occur. An ounce of prevention is worth a pound of treatment.

Risk and compliance units should work together with functional leaders in order to identify challenges and to help mitigating risks.
— Kathalin Carvalho

FW: Is there a sufficient appreciation of the importance of carrying out appropriate due diligence and monitoring fraud risk arising from third-party and cross-border relationships?

Carvalho: Businesses may be blindsided when carrying out appropriate due diligence and monitoring fraud risk due to the costs associated with these tasks. Most businesses would probably understand the purpose of proper due diligence but the cost of doing it may discourage them from executing it. This is when the presence of a compliance officer is key for the company. Providing constant awareness and guidance to the business are key functions of a compliance officer. Corruption has been ever-present in the region; as a result, it has been culturally accepted. Therefore, convincing employees, customers and suppliers that this is no longer the right way to do business may be challenging given the conflict between policy and reality. Usually, company policy does not go hand in hand with the reality in that country, but only a select group of vendors, customers and employees will accept the rules and take the chance of conducting their business in the right way. This is the cost of doing the right thing. Eventually, when the laws are harmonised and all companies are asked to follow similar standards, the cascade effect will begin and those who were trying to circumvent the policy may ended up changing their processes to become more compliant, if they want to win business.

Park: The issue of how best to manage third-party relationships, both the more mundane part which involves the universe of vendors, but also the very challenging concern with joint venture partners, remains the biggest tripwire in efforts to prevent fraud. Increasingly, companies are better able to manage their own employees and the risks they present, but vendors and partners are more difficult. A canvas of fraud investigations, particularly anti-bribery ones, reveals that there is no more common theme than the fraud originating out of an insufficiently managed or supervised third-party relationship. This is an area that any corporate compliance programme must address and that compliance and risk personnel must always keep at the forefront of their thinking.

Couch: More can be done. Education is key. Following through on non-compliance is also important, as is the support of individuals when they uncover fraud or potential fraud, and avoid them as well.

FW: What general advice would you give to companies on ensuring their employees and associates are aware of potential fraud risks?

Park: Undertake a good and comprehensive company risk assessment, which is regularly freshened as company composition, business emphasis and other factors change. Craft clear and simple policies in the code of conduct and in other necessary sub policies which make clear the expectations of employees and the importance that is attached to efforts to root out and prevent fraud. Train your personnel regularly and meaningfully with both in-person sessions and online modules that address the key takeaways for employees in fraud prevention. Finally, be sure that senior management walk the walk and create a clear tone from the top about the importance of ethical behaviour in all business areas.

Couch: We can’t say enough about education. Companies can’t have an anti-fraud policy that they show people on their first day and never revisit. Education can come in the form of simple email blasts, articles on intranet sites, or it could be formal education. The biggest issue we see is with salespeople working to win business or contracts in Latin America and elsewhere. When there is a direct financial benefit to the employee when new business is won, the pressure to pay bribes or commit other acts of fraud can feel insurmountable. Rearranging compensation structures for such individuals may help eliminate this pressure.

Carvalho: Corporate leaders must be there, be present. They must establish effective channels of communication to be able to send the right message to all employees. Everyone in the company must be a risk manager. Every employee knows the risk associated with the job they perform, however guidance, training, monitoring and enforcement must exist to build credibility and trust in the compliance programme. Risk and compliance units should work together with functional leaders in order to identify challenges and to help mitigating risks. Also, it is important that the company provides effective tools to its employees in order to educate them and allow them to report instances of non-compliance. But most importantly, companies must learn from the issues reported and to follow up by establishing effective, corrective action plans.

Fraud happens to companies with the best internal controls and positive corporate cultures – it does not discriminate.
— Tiffany Couch

FW: To what extent are whistleblower hotlines being used to tackle fraud in the region? In what ways can improvements be made in this area?

Carvalho: Whistleblowing is a very interesting topic in the Latin America region, primarily because of the risk of non-confidentiality. In order to effectively implement a whistleblower programme, companies must find meaningful ways to ensure privacy and confidentiality of the issues reported to include training employees on privacy and proper use of confidential information, provide anonymous vehicles for those who do not feel comfortable reporting issues in person and train staff on non-retaliation policy as well as to provide effective ways for reporting, such as via telephone, online or suggestion box. A lot of information, education and communication in this area is still needed.

Park: Whistleblower hotlines are becoming routine, and they are a critical component of a fulsome compliance programme that seeks to discourage fraud and create avenues for employees to report it internally. I tend to view the title of whistleblower as misleading, because the entire purpose of an anonymous hotline – plus other clearly identified reporting channels for fraud – is to capture reports of misconduct internally and resolve them internally, before an employee becomes frustrated and becomes a ‘whistleblower’. Hotlines are crucial, but they must be supported by clear internal investigative procedures that will address the problem and ultimately make the employee feel that she has been heard and that her views are valued.

Couch: The number one way that fraud is uncovered is by tip off. Hotlines are essential to an appropriate anti-fraud programme in companies of any size.

FW: Do you expect to see an uptick in fraud in the region in the months and years to come? What further steps will companies need to take manage and mitigate this risk?

Park: The challenging economic times which face much of Latin America are unfortunately a breeding ground for fraud. Difficult times bring out fraudulent schemes and misconduct. Thus, I suspect there will be more fraud cases that develop in the immediate future. Companies, management and their employees who face their own economic difficulties, thinning markets and depressed share prices have myriad incentives to engage in fraud. This only emphasises the need for good leadership and the clear direction that ethical considerations do not lapse in difficult markets. Such challenges are addressed by having the best practices and policies, and by institutional controls designed to identify problems and issues of fraud as they develop.

Couch: As Latin America continues to be an emerging place to do business, it will be competitive. Fraud happens when there are pressures to succeed, to win business, to financially benefit personally. You have to be vigilant. You can’t assume that “it can’t happen here”. Fraud happens to companies with the best internal controls and positive corporate cultures – it does not discriminate. Educating employees at all levels, implementing appropriate controls and following through when fraud happens – including criminal and civil prosecutions – are important steps to managing and mitigating risks. You can’t be too careful.

Carvalho: As corporations, their employees and local citizens become more mindful of the applicable anti-corruption and anti-bribery standards and risks within their regions, it is possible we may see an incremental rise in the reporting of bribery and corruption cases. Companies should get ready to develop internal procedures to respond to reported risks and to implement effective actions plans to ensure that risks are addressed in a timely manner. Participation in local anti-corruption and anti-bribery corruption forums, as well as subscription to FCPA and UK Bribery Act related information feeds, are ways to stay current with local and international developments in the area of bribery, corruption, privacy, money laundering and other associated crimes.


Tiffany Couch is Acuity Forensics’ founder and principal. Ms Couch has more than 19 years of experience in the field of accounting, with the last 12 years focused completely on forensic accounting related engagements. She has conducted dozens of financial investigations, managed cases involving tens of thousands of documents, and has testified in state and federal jurisdictions. She has worked with local, state and federal officials to support their work in several significant embezzlement cases. She can be contacted on +1 (360) 573 5158 or by email: tcouch@acuityforensics.com.

Kathalin Carvalho has over 10 years of experience working in the areas of BSA/AML, OFAC, regulatory compliance and criminal investigations with governmental and non-governmental domestic and international financial institutions. She is a Certified Anti-Money Laundering Specialist and a Certified Compliance and Ethics Profession (International). Ms Carvalho works as the global compliance manager at Jabil Circuit, Inc. in St. Petersburg, Florida. She can be contacted on +1 (727) 803 5623 or by email: kathalin_carvalho@jabil.com.

Robertson Park is a partner in Murphy & McGonigle’s Washington, DC office. Mr Park joined the firm following 20 years of service in the Fraud Section of the Criminal Division of the Department of Justice. His practice emphasises white-collar criminal matters, enforcement investigations, internal corporate investigations and compliance counselling. He has specific expertise in foreign bribery, financial services fraud, securities fraud and commodities fraud. He can be contacted on +1 (202) 661 7022 or by email: robertson.park@mmlawus.com.

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