Argentina is experiencing a political and economic renaissance that’s drastically changing its business landscape. There’s a new focus on open markets, transparency and accountability in both the public and private sectors.
Capital and currency controls, along with restrictions to international trade and investment, have been reduced or lifted — and the country has begun actively promoting foreign infrastructure investments worth tens of billions of dollars.
In tandem with these initiatives, Argentina has implemented new anti-corruption regulations, with a focus on credible enforcement — and the stated goal of elevating compliance to standards advocated by the Organization for Economic Cooperation and Development (OECD).
For all these healthy and positive signs, the transformation of an economy — and of a market with a relatively persistent history of corruption — doesn’t happen overnight. So what should US companies doing business in (or thinking of entering) Argentina be focusing on? How might the regulatory regimes of both countries work together — and what will that mean for these companies’ anti-corruption programs?
To find out, I turned to a distinctive panel of experts to weigh in on these critical questions.
These experts included: Laura Alonso, Argentina’s Secretary of Public Ethics, Transparency and Fight Against Corruption; Patrick Stokes, the former Foreign Corrupt Practices Act chief at the Department of Justice, and now a partner with Gibson Dunn; Martin Umaran, the Chief of Staff of Globant, a global IT and software development firm founded in Argentina and an SEC registrant; and three PwC Forensics colleagues whose practices are focused on anti-corruption and Argentina — partner Jorge Bacher and directors Vanessa Salinas Beckstrom and Andres Sarcuno.
Here are the key points that emerged from our discussion:
- Argentina’s anti-corruption regime is complex. The anti-corruption office is an agency of the executive branch, responsible for policy but with limited powers of investigation. These powers largely rest with the prosecutor’s office, which is independent of the judiciary. There are also individual special prosecutors charged with investigating money laundering and administrative corruption.
- The Argentine government is advancing new corporate liability legislation. These laws would permit prosecution or administrative and civil enforcement actions against entities, not just individuals — a goal long sought by the OECD and other transparency advocates.
- The proposed legislation is said to include a so-called “compliance defense.” This would provide a company with a defense against corporate-level prosecution if they can demonstrate compliance with required standards.
Today the U.S. works very closely with a number of countries and partners in investigating corruption. I believe in the fight against corruption we will see a growing atmosphere of trust and enhanced teamwork as the U.S. and Argentina begin to work more closely together and better understand each other’s legal systems and traditions. Cross-border collaboration is here to stay and the new normal is real-time transnational cooperation which helps the authorities build better cases.
The takeaway for U.S. companies? Continue to hew to the stiffer standards of the FCPA, wherever you do business — but in particular in this dynamic, rapidly evolving market.
Finally, here are six compliance tips for U.S. companies operating in Argentina that emerged from our discussion:
1. Define your business model — and identify all of your third parties. Are you planning on selling directly in Argentina, or through intermediaries? Can you identify the entire population of third parties and “fourth parties” (subcontractors and the like) who will be doing business with you, or on your behalf?
2. Segment your risks. On either the sales or the operational side including your supply chain, how are you and your third parties interacting with potential government entities? Historically, DOJ and SEC have focused on the adequacy of third-party due diligence as well as the relevant financial controls as any deficiencies can serve as hidden conduits for paying bribes to government officials or sanctioned parties.
3. How much due diligence is required? Determine the appropriate level of scrutiny based on the risks you identify across these various business segments. Issues such as reputational risk to your brand, understanding the ownership and shareholder structure, and government touchpoints are all relevant here. Pay special attention to customs agents, as Argentina has specifically flagged this as an area of scrutiny.
4. Compliance monitoring. Once you’ve vetted, selected and contracted with your third parties, it’s time to drill down into their level of compliance — both at the program level and at the transaction level. What kinds of compliance and training programs (if any) do they have, and how thoroughly do they vet their own subcontractors? Who makes payments on your behalf and where — and are you evaluating those transactions periodically? What “red flags” would cause you to exercise your contractual third-party audit clause? Then, take a step back and determine how your strategy demonstrates “effectiveness” on a cross-functional basis.
5. Remediation and retraining. If you uncover bribery involving a third party, it’s essential to get underneath the incident and understand how it happened. What disciplinary action did you take? If you decide to reject a third party, do you have the controls in place to ensure they’re no longer getting paid? Other remediation steps you can take include retraining, and entering into specialized audit clauses where there were none. US law enforcement closely monitors and receives information from other jurisdictions regarding third parties, and expect audit clauses to get triggered as needed.
6. Take whistleblowers seriously. In Argentina’s new era of transparency, whistleblowers are more eager to report corruption, and the national Congress has extended certain benefits and protections to whistleblowers. Be proactive — promote a hotline, and pay attention to any reports you receive.
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In my frequent visits to Argentina, I’ve found senior management engaged and serious about how to address the critical issue of compliance in ways that are appropriate and credible to both Argentine and U.S. regulators. They’re focusing in particular on how to align their go-to-market approach with their compliance strategy and programs including their internal controls
Argentina has taken several salutary steps to open itself to foreign and domestic business, and while the local legislative and enforcement backdrop is still a work in progress, there is a keen focus and purpose on gaining OECD admittance to enhance their international commerce. I believe we will see a new era of cooperation between the two countries — a positive sign for the future of this dynamic and increasingly attractive market.
You can hear more about this team’s perspectives on these issues here.
Manny Alas, pictured above, is a Partner in PwC’s Forensic Services and serves as the firm’s U.S. FCPA Practice Leader.