Progress on the anti-corruption front, which had built up in Latin America in the wake of the 2014 Car Wash investigation, was impacted in 2020 by political developments, economic instability, and the COVID-19 crisis. Nevertheless, significant corruption investigations are underway, and regulators in those countries have not signaled that there will be a decrease in enforcement. For more insight into our Latin America practice and on best practices to follow in conducting investigations in the region, please see our Global investigations guide.

Brazil – pandemic contracts scrutinized

In Brazil, although Operation Car Wash has faded from the spotlight, federal authorities continue to investigate corruption – particularly in the wake of the COVID-19 crisis. Since the Brazilian Congress made public procurement laws more flexible, regulators have paid special attention to misconduct in connection with no-bid and emergency contracts awarded during the pandemic.

For example, in October 2020, the Brazilian Federal Police and the Federal Controller (Controladoria-Geral da União) (CGU) launched Operation Desvid-19 (“desvid” being a play on the Portuguese word desviar, meaning to misdirect). Focused on fraud involving public contracts in the state of Roraima, the investigation has already uncovered over R$20 million (~US$3.85 million) in fraudulent bids. Similar investigations – particularly involving illicit activity in the health care space – are taking place in multiple cities and states, with R$2 billion (~US$385 million) being the estimated cost of corruption on COVID-19-related contracts through November 2020.

Related misconduct identified by law enforcement and regulators has been the retention of companies that were unqualified to provide pandemic-related health care services, the directing of public bids to favored bidders, and money laundering through the use of shell corporations. Multinational clients looking to participate in COVID-19-related bids must be vigilant about the potential for misconduct. Meanwhile, with remote working being the norm during the pandemic, extra care must be taken given the diminished ability to impose physical oversight over stakeholders. Improving the efficacy of internal controls; ensuring that compliance, internal audit, and legal departments are in sync; and providing training and other opportunities for interactions with employees during this period will also mitigate risks of conducting one’s business virtually.

It is important to remember that municipal elections in Brazil took place in late 2020, and presidential, congressional, and gubernatorial elections will take place in 2024. These governments’ efforts – or lack thereof – to address corruption will likely be top of mind for voters, and will put pressure on all stakeholders to continue to uphold the anti-bribery law enacted in 2014, and its heaving enforcement seen under the Car Wash investigation.

Mexico – a focus on officials

Whereas Brazil is arguably starting its post-Car Wash phase in the fight against corruption, it’s the high-profile investigations into public officials that are grabbing headlines in Mexico. In October 2020, the Mexican Supreme Court approved a putative public consultation to investigate public officials’ decisions during previous administrations. Likewise, the Lopez Obrador administration is currently engaged in a far-reaching investigation into corruption among former public officials – many of whom are already collaborating with the government – to uncover significant fraud that could involve some of the past administration’s top officials. Additionally, the Lopez Obrador administration has initiated various investigations into allegedly corrupt companies – mostly in the area of government contracts procedures.

Meanwhile, new legislation relating to whistleblowers inside and outside the government has come into force, incentivizing the public to blow the whistle on corrupt practices by federal government officials. And new rules prohibiting public officials from receiving any gift or hospitality from a private party will provide new fronts for Mexican regulators.

With all of these recent regulations, companies with a presence in Mexico may need to improve their compliance programs, to avoid undertaking potentially illegal activities. It also is important to note that according to the general anti-corruption system established in Mexico in 2017, companies may be liable for activities related to corruption and be subject to severe penalties regardless of any harm to the entities’ reputation.

On another related matter, in November 2020, the Senate amended the Ley de Instituciones de Crédito (Banking Law). This impending legislation gives broader powers to the Financial Intelligence Unit to block private parties’ bank accounts without a prior order from a federal judge, as previously required. This new system is highly relevant since blocking accounts due to corruption investigations has been a common practice of the current administration. The amendments to the Banking Law still need to be approved by the other chamber of the Mexican Congress, and published by the Mexican president, but it is highly likely that these reforms will take place. All of these developments, of course, have taken place against the backdrop of one of the worst national COVID-19 crises, as Mexico has been one of the hardest hit jurisdictions in Latin America, along with Brazil.

Best foot forward

Although Brazil and Mexico are at different stages in their combat against corruption, it is clear that COVID-19 emboldened corrupt actors, and much of 2021 and beyond will be dedicated to identifying and holding to account those who thought they could use the pandemic to revert to “old-fashioned corruption.” The hope is that the civil, judicial, and political spheres will work together to ensure that prior years’ gains are not reversed, and that Latin America continues to march in the right direction.

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