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/fcpamericas)FCPAméricasBlogFiveWaysthatConcentrationofWealthandPowerAffectsCorruptionRiskinLatinAmerica(http://fcpamericas.
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2014Author:MattesonEllis(/aboutthecontributors/)English(http://fcpamericas.
com/english/duediligence/waysconcentrationwealthpoweraffectscorruptionrisklatinamerica/)|EspaolEnglishEspaolPortuguês12/9/2014FiveWaysthatConcentrationofWealthandPowerAffectsCorruptionRiskinLatinAmerica|FCPAméricashttp://fcpamericas.
com/english/duediligence/waysconcentrationwealthpoweraffectscorruptionrisklatinamerica/2/3(http://fcpamericas.
com/spanish/cincoformasenlaconcentracionderiquezapoderafectalosriesgosdecorrupcionenamericalatina/)|Português(http://fcpamericas.
com/portuguese/cincomaneirasemcomoconcentracaoderiquezapoderafetaosriscosdecorrupcaonaamericalatina/)(http://fcpamericas.
com/wpcontent/uploads/2014/06/Inequality.
jpg)ThefollowingpostisamodifiedexcerptfromTRACE'srecentlypublished2014HowToPayaBribebook,availablehere(https://www.
createspace.
com/4560192)forpurchase.
LatinAmericaisknownasoneofthemosteconomicallyunequalregionsoftheworld.
By2010,accordingtoUnitedNationsDevelopmentProgramdata,theregionhad18ofthe25countriesintheworldwiththehighestrichpoorratios.
ThroughoutLatinAmerica,itiscommontofindgovernmentandbusinessdominatedbyarelativelysmallnumberofelitefamilies.
Theirmembersmoveinandoutofgovernmentandbusiness,creatingcomplexfinancialandpoliticalrelationships.
Thiselevatescorruptionrisksinseveralways.
1.
UnforeseenGovernmentInteraction:Thelikelihoodthatforeigncompanieswillwindupinteractingwithgovernmentofficialsinwaystheymightnotexpectisincreased.
Thismeansthatcompanies'expenditurescancreatebriberyrisksinwaysunforeseen.
Forexample,IworkedwithaninternationalcompanyusingalocallawfirminCentralAmericaonlytodiscoverthatoneofitspartnersconcurrentlyservedinthegovernmentinawaythatraisedbriberyconcerns.
AnotherU.
S.
companyplannedtopartnerwithaMexicanfirmonlytodiscoverthattheowner'sbrotherservedakeypositioningovernmentvisavisthesameindustry.
Wherealocalcompany'sbusinessstopsandthegovernmentstartsmightnotalwaysbeclearlydemarcated.

2.
Monopolies:Whenpowerisinthehandsofafew,itiscommonforonesinglecompanytodominateanentireindustryinasmallcountry.
Inlargercountries,onecompanymightdominatearegionalsegmentofanationalmarket.
Questionsmightberaisedabouthowthecompanygotinthepositionofdominanceinthefirstplace.
Risksalsoarisewhenaforeigninvestorisforcedtorelyonthemonopolyforitsbusiness.
Tomanagesuchrisks,companiesareexpectedtoconductanticorruptionduediligenceontheirpartners.
Obtainingcompliancecertifications,auditrights,andthelikeisdifficultwhenthepartneristheonlyoptioninthemarket.
Foreigncompanieswilloftenlacktheleveragetodemandcomplianceassurances.
3.
PettyCorruption:Divisionsinwealthhavetheeffectoffacilitatingpettycorruption.
Whenlowlevelgovernmentofficialsarenotpaidenough,theysometimesareforcedtoseekrentbyothermeans.
Briberequestsmightbebakedintotheeconomicorder.
StatisticshighlightthecommonnatureofpettycorruptioninLatinAmerica.
The2012AmericasBarometerStudy,conductedbytheLatinAmericanPublicOpinionProject,polledover40,000peoplein26countriesthroughouttheregion.
Eachcountryinvolvedaminimumof1,500pollinginterviews.
Manyofthequestionsweredesignedtomeasurecorruptionvictimizationbylowlevelofficials,likepoliceofficers,municipalpermittingofficials,andhospitalsandclinics.
Thesearethetypesofeverydaybriberequeststhataffecttheaveragecitizen.
Overall,astartling57%ofrespondentsthroughouttheentireregionsaytheyhadexperiencedoneinstanceoflowlevelcorruptionintheprioryear.
Fortythreepercent(43%)wererepeatvictims.
4.
FamilyOwnedBusinesses:Concentrationofwealthandpoweroftenflowsfrom,andworkstosupport,familyownershipofcompanies,whichiscommoninLatinAmerica.
OnestudyfromtheUniversityofSoPauloconcludedthathalfofBrazil's200largestcompaniesareownedbyfamilies.
Thiscanbeexplainedinpartbystructuralfactors,liketherelativeweaknessoflocallawsdesignedtoprotectminorityshareholderrights,whichmakesitdifficultforfamilycompaniestoattractoutsideinvestors.
Thismeansthatforeignersinvestingintheregionwilloftenfindthemselvespartneringwithcompaniesthatlackcommonaccountingstandards,corporategovernancetransparency,orbasicinternalcontrols.
Itcanbecommonforafamilytopushbackonduediligence,evenifithasnothingtohide.
Therelativeprominenceoffamilyownedcompaniescanhavedirecteffectsoncorruptionrisk.
Forone,foreigncompaniesmakinginvestmentsintheregionwilloftenfindthemselvespartneringwithcompaniesthatlackcommonaccountingstandards,corporategovernancetransparency,orbasicinternalcontrols.
Thiscancomplicatetheabilityofoutsiderstoperformthetypeofanticorruptionduediligencenecessarytomanagecorruptionrisksinmergersandacquisitions.

Moreover,afamilymightfeeloffendedattheprospectofhavingtobevettedforcorruptionissues,evenifithasnothingtohide.
Itmightbereluctanttoopenupitsbooksandoperationstooutsidelawyersandaccountants.
Asaresult,thosenegotiatingthedealmightneedtofactorintimetoexplainwhyanticorruptionduediligenceisnecessaryasanevolvingbusinessrequirementofinternationalwork.
5.
Collusion:Theriskoftherelatedoffenseofcollusionwithinaparticularsectororindustryisincreased.
Thereisagoodchancethattheleadersofprimarymarketparticipantswillbeconnectedtoeachotherinsomeway.
Thiscanfacilitatearrangementssuchaspricefixingandmanipulationofpublicprocurementsaccomplishedthroughclusteredbidquotes,coordinatedunitcostschedules,androtatingcontractawards.