Event Reports

ENGAGING THE PRIVATE SECTOR IN THE FIGHT AGAINST CORRUPTION

by Victoria-Charlotte Browning
As the role the Latin American private sector can play in the fight against corruption is gaining attention, KAS New York has invited representatives of Industry Associations and Chambers of Commerce from Guatemala and Honduras to hold talks with key anti-corruption and good governance experts in New York.

The effects of corruption are deeply toxic for any affected nation and the negative political, social and economic consequences of corruption are well documented. Studies show that corruption directly decreases economic growth, confidence in political systems declines, trust in parties and political efficacy is disrupted therefore resulting in lower political participation. Additionally, corruption is known to increase the cost of doing business. Corrupt governments, political instability and bad business practices obstruct the attraction of foreign investment the region desperately needs. According to Transparency International’s Corruption Perception Index (CPI) most Latin American countries score in the lower half of the index, which ranks 180 countries and territories by perceived levels of public sector corruption. The survey reaches out  to experts and businesspeople. The CPI’s latest measurement revealed that the majority of Latin American states are making little or no improvement in the fight against corruption, while accompanying research shows that journalists and activists in corrupt countries risk their lives daily in an effort to hold compromised individuals and networks accountable. While many Latin American politicians run on anti-corruption platforms, once the hard work of cleansing systems of corrupted individuals and practices actually commences - often with the support of international or regional institutions - a pattern of politicization of the process emerges, often leaving countries divided and unable to overcome the drastic polarization. Two of the countries struggling with the political ramifications of the fight against corruption are Guatemala and Honduras.

After Guatemalan President Jimmy Morales has moved to end the International Commission Against Impunity in Guatemala (CICIG) - a body established by the United Nations in 2007 to help dismantle criminal networks - the country plunged into a political crisis. In the past years, the body has worked with Guatemalan law agencies, supporting prosecutors to indict numerous individuals including the country’s former president. In defiance of a ruling by the Constitutional Court, Jimmy Morales announced in September 2018 that Iván Velásquez, Head of CICIG would not be allowed back into the country alongside other investigators working for the Commission. Although Morales’ presidential campaign in 2015 was based on the promise of political accountability, the country now seems deeply divided as a result of the battle against corruption.

In late 2017 Honduras experienced violent clashes during the nation’s presidential elections.  The close balloting results between now president Juan Orlando Hernandez and opposing candidate Salvador Nasralla had sparked suspicions of widespread irregularities, election fraud and corruption. Shortly after President Hernandez took office in early 2018, the leader of the Mission to Support the Fight against Corruption and Impunity in Honduras (MACCIH) resigned citing hostility from the Honduran government. MACCIH is an institution backed by the Organization of American States working to support the country in combating corruption and impunity. As the neighboring CICIG has had a head start of almost a decade and successfully prosecuted many high-ranking defendants for corruption charges, expectations for MACCIH were immediately high when it commenced its work in 2016. Although the institution convicted 12 people – including former ministers - shortly after its emergence, frustrations began to grow as popular expectations weren’t met. A disconnect between the countries’ anticipations for MACCIH and the investigators ability to take down corrupt networks while facing the governments resistance formed and left the popular opinion divided.

With both Honduras and Guatemala struggling to find a way forward and out of political gridlock solemnly focusing on pro vs. con CICIG/MACCIH, the role of the private sector in mitigating corruption has been gaining prominence. To explore this further KAS New York invited representatives of Industry Associations and Chambers of Commerce from Guatemala and Honduras to hold talks with key anti-corruption and good governance experts in New York.

Talks were held with relevant UN agencies such as the UN Global Compact, UN Board of Auditors, the Department of Political Affairs, the Rule of Law Unit at the Executive Office of the UN Secretary General, the United Nations Development Program and the Department of Economic and Social Affairs as well as with Transparency International, Columbia University’s Center for the Advancement of Public Integrity, various investor alliances, the Council of the Americas, ProPublica, the FBI and the NY Bar Association.

Some key takeaways from the meetings include:

  1. The media – via news reporting and investigative journalism – can produce tangible results in bringing financial and economic crime to the attention of the public and law enforcement authorities. To guarantee the media’s unobstructed ability to conduct its work, it is of upmost importance that efforts to interfere with the freedom of the press be condemned, including by the private sector. The impact of high-quality investigative journalism should be considered a public interest. Impact should therefore be quantified and supported by civil society and the private sector to guarantee follow-up as well consequences for uncovered corruption.

  1. Extra-territorial legal frameworks introduced under national laws to prevent multinational corporations based in industrialized countries to engage in illegal practices in foreign country operations (e.g. Foreign Corrupt Practices Act - FCPA) have become increasingly important in global efforts against corruption. Not only would it be advantageous for more countries to harmonize their extra-territorial anti-corruption laws with those of global leaders (US, Canada, Europe) but also to raise ambitions regarding stronger monitoring and the proper implementation of existing legal instruments.         

  1. Furthermore, strengthening local anti-corruption and anti-bribery laws, which are in some instances weaker than foreign US laws would be vital to give prosecutors in Latin America adequate legal instruments at hand. While many countries in Latin America have sufficiently elaborated regulations against public corruption, but fall short in the case of commercial corruption. As these laws would affect the private sector itself, public calls or even lobbying for new legislation by companies and industry associations would prove their genuine commitment to accountability and transparency.

  1. Bribes and other corrupt practices have often become a daily part of life in most Latin American countries, rendering citizens callous to identifying corrupt practices. In order to enhance sensitization and awareness of corrupt practices educational initiatives for children and youth, inclusion of best-practices against corruption in university curricula (especially for business degrees and MBA’s) as well as trainings for professionals and executives could help to reestablish some degree of conscious resistance against corrupt business practices.

  1. Another cultural change companies can make to take serious steps in the fight against corruption is to know their supply chain. Too often have corporations distanced themselves from corrupt practices or even human rights or environmental violations by relaying responsibility on separate entities within their supply chain. A key element of Corporate Responsibility is thereby Supply Chain Management. Assessing vendors, contractors and other business relationships for integrity and corruption should become an industry standard.

  1. Experts have been advocating for a need for local private sector companies in Latin America to take on a greater role in self-regulating their own activities. The idea of self-regulation is based on the appreciation that companies are closer to and in a better position to not only detect and sanction offenses, but to most importantly prevent them. These incentives would reach beyond foreign-owned multinational corporations and include large local business groups "multi-latinas" (large Latin American-owned and operated companies), small- and medium-sized enterprises (SMEs) as well as state-owned companies. For self-regulation to be successful, a comprehensive compliance culture is of utmost importance. This includes a Chief Compliance Officer (CCO) with a supporting team, ability for the CCO to meaningfully shape the company culture, a code of conduct, whistleblower protection and most importantly an anti-corruption policy that includes clear principles, rules and sanctions.
     

Perhaps the most important take away is that the private sector must be part of the solution and deserves a seat at the table. Public and private sectors are often inextricably linked in many industries, mutually affecting and inflicting behaviors on one another. The private sector furthermore organically shapes culture. A work place where integrity is valued helps to generate social mobilization against corruption trickling down into other spheres of life. Finally, due to the negative correlation between corruption and economic growth, the private sector should be regarded as a natural ally in the struggle against corruption.