What does the US anti-corruption shift mean for Latin America and compliance?

US President Donald Trump's recent executive order suspending the enforcement of the Foreign Corrupt Practices Act (FCPA) for six months is set to reshape corporate compliance and anti-corruption efforts abroad. While the administration argues this move will boost US competitiveness, it also raises concerns about its impact on global business practices, particularly in Latin America.

The FCPA, in effect since 1977, has been a key tool in combating corporate bribery, with violations resulting in over US$24bn in fines over the past decade. With its temporary suspension, US enforcement will likely shift focus from corporate misconduct to transnational criminal organizations, potentially altering oversight in regions like Latin America.

Michel Sancovski, a partner in the anti-corruption & compliance practice at Tauil & Chequer Advogados, a Brazilian law firm associated with Mayer Brown, speaks to BNamericas about the implications of this decision, the risks of relaxed enforcement and how it may influence corruption trends in Latin America.

BNamericas: How does President Donald Trump’s executive order suspending the enforcement of the FCPA affect US companies operating in Latin America, as well as local businesses?

Sancovski: This executive order puts FCPA enforcement on hold for six months. At the same time, the US government has asked the attorney general to issue internal guidance to the Department of Justice [DOJ] to establish new enforcement guidelines for the law. We'll have to wait for these new guidelines to see, in concrete terms, how they'll impact companies subject to the FCPA, whether they're foreign or local.

For now, we already know that the DOJ's usual focus on tackling corruption involving foreign public officials will shift toward prioritizing foreign corruption cases tied to criminal cartel operations and transnational organized crime. From that perspective, Latin American countries will be in the spotlight.

Trump's reasoning for suspending the FCPA – and reviewing how it's enforced – was to promote US competitiveness and security while ensuring federal resources are used efficiently. In his view, American companies have been at a commercial disadvantage since the FCPA prohibits improper payments to public officials.

The FCPA, in place since 1977, was the world's first anti-corruption law and has generated significant revenue for the US government through settlements with companies that violated it. Over the past decade, fines imposed for FCPA violations have totaled more than US$24bn.

By suspending such a major anti-corruption law, even temporarily, this could be seen as an open invitation for US companies to engage in misconduct abroad. The question is whether they'll actually take that risk. There are several factors to consider. First, the DOJ isn't the only authority with the power to enforce the FCPA. The SEC [Securities and Exchange Commission] also has jurisdiction, especially regarding companies listed on US stock exchanges, ensuring compliance with internal controls and accurate record-keeping. 

Second, US policy positions can shift unpredictably. What's being relaxed today could be tightened again in the future – meaning any violations committed now could still be punished later. Lastly, statutes of limitations can extend beyond a single presidential term, so misconduct today could lead to investigations and penalties under a future administration with a different stance on the FCPA.

In any case, based on Trump's statements, it's likely that, at least for now, the DOJ won't investigate FCPA violations committed by US companies. However, over time, there might be a stronger focus on prosecuting non-US companies or those based in countries considered adversarial to US economic and security interests.

BNamericas: So, does this mean US companies now have a free pass? Can they become more competitive and aggressive in foreign markets?

Sancovski: It's not that simple. We'll have to wait for the attorney general's new guidance on the issue. What we know for now is that the DOJ's enforcement priorities are shifting away from what's historically been done under the FCPA.

It's also important to note that Trump's executive order only applies to the DOJ's actions. It doesn't change how the SEC operates. If companies violate the FCPA by failing to maintain proper internal controls or accurate financial records, the SEC can still investigate and impose penalties.

BNamericas: Looking at the broader corruption landscape in Latin America – a region that was heavily impacted by Brazil's Lava Jato anti-corruption operation a few years ago – how would you describe the current business environment in relation to corruption?

Sancovski: Despite the criticism of Lava Jato, one undeniable positive outcome was its lasting impact on corporate integrity and compliance programs.

Before, corporate integrity wasn't much of a concern for businesses. Today, many companies have compliance programs in place.

Interestingly, Brazil's anti-corruption law doesn't actually require companies to implement compliance programs. What it does say is that if a company has an effective compliance program in place when a violation occurs, it may qualify for a reduced penalty. However, the market has essentially self-regulated – companies now expect their business partners to have integrity programs. It's almost impossible for a medium-sized or large company to do business with another company of similar size without one.

BNamericas: Brazil recently dropped in Transparency International's 2024 Corruption Perceptions Index. What’s your take on that?

Sancovski: It's definitely not good news that Brazil's ranking fell. But we need to be cautious when analyzing this index – it measures perceived corruption, not corruption itself.

Corruption perception is closely tied to the visibility and stringency of government efforts to combat it. In other words, the more corruption cases and investigations we see, the worse the perception may be.

I like to compare this to walking into a messy, dark room. If you only have a small flashlight, you won't see much of the mess, so the room might not seem that bad. But if you turn on the full lights, suddenly, the disarray is glaringly obvious.

Brazil went through a period where the lights were fully turned on, making corruption issues much more visible. Naturally, that could cause its ranking to drop compared to countries that haven't gone through the same level of scrutiny and are still being viewed with that small flashlight.

BNamericas: During Lava Jato, many corruption cases were linked to major infrastructure, oil and gas companies, and the government. Where do you see the biggest corruption risks today?

Sancovski: The highest risks are always in sectors with significant public-private interaction, large contracts, and regulatory agencies involved. Those areas require the most vigilance.

That said, we can break this down into federal, state and municipal levels.

At the federal level, we've made a lot of progress in oversight and regulatory guidance, with major contributions from agencies like the CGU [office of the comptroller general]. Some regulations even require integrity programs for public contracts.

At the state and municipal levels, though, there's more vulnerability due to weaker oversight.

BNamericas: Do you think Brazil could see another major corruption scandal on the scale of Lava Jato?

Sancovski: That's hard to predict – it depends on many factors. But I'd say it's unlikely we'll see something of the same magnitude.

As I mentioned earlier, we've made a lot of progress in compliance and have implemented stricter rules and controls to curb these kinds of practices. That doesn't mean the risks are gone – there are still weaknesses in public administration that could lead to misconduct.

Regardless, the private sector can play a big role in reducing these risks by adopting and demanding strong compliance programs and integrity practices. That's key to preventing setbacks in oversight and transparency.