Latin American Corruption and Corporate Fraud

Don’t Accept Supposed Cultural Norms


By Diego Cano

2010-MarchApril-Latin Corruption 

A few years ago, when many international companies began business units in Argentina, a renowned American corporation acquired an Argentine company that manufactured metal structures. The operation seemed like a gold mine because of the high profit margins. There was just a minor detail, which wouldn’t have been relevant had it not been a Latin American country: public works contributed to about 60 percent of the company’s gross income.

The agreement between the corporation and the company included installing the former owner, an Argentine native, as president of the metal structure company. The company’s owner was famous for his ability to establish good business relations with people in the government. But he had also lived and studied in the United States, which helped to create trust and forge a close relationship with the representatives of the American corporation.

The corporation completely trusted the new president. It didn’t place any limitations on him and didn’t modify its rules for control and auditing to fit the new situation. The agreement only established that U.S. headquarters’ representatives would conduct simple quarterly on-site audits with just the president. They didn’t ask him any tough questions, and all seemed in order. The profit margins remained high and the headquarters’ bosses were happy, so the corporation didn’t place any further controls on the company. That was a big mistake.

When revenues unexpectedly shrunk, the company discovered that the president had embezzled more than US$3 million and had bribed federal officials so he could acquire lucrative public works contracts. And in the process, the U.S.-based corporation had unwittingly violated the U.S. Foreign Corrupt Practices Act (FCPA).

 

 


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