Major trend: Battling Systematic Corruption

After the 2018 electoral cycle, new administrations in Latin America are taking a strong stance against corruption.

In Transparency International’s recent 2018 Corruption Perception Index (CPI), Latin America ranks as the most corrupt region with the three worst countries being Venezuela, Haiti, and Nicaragua.

Some recent actions include:

  • Mexico recently approved new legislation that categorizes corruption and electoral fraud as major crimes worthy of prison. The new legislation does not allow culprits to pay bail for their crime.
  • Former Argentine President Christina Fernández de Kirchner is currently undergoing a trial for evidence that surfaced under the investigation of “Los Cuadernos de la Corrupción” (“The Notebooks of Corruption”). The evidence suggests that the former president led an illicit organization used for collecting bribes and other forms of questionable money.
  • Ecuadorian President Lenin Moreno announced the creation of a new International Anti-corruption Commission and has taken the first steps in creating this independent body. For more details, see our recent alert.
  • Brazil continues to collaborate with American and European prosecutors in all of their multinational money-laundering cases and is starting to take a stricter approach against systematic corruption.

Even though some countries are taking strong and determined steps to end corruption, several seem to be treading water. For example, last year the Financial Crimes and Enforcement Network (FinCEN) issued an advisory warning against proceeds from government officials in Nicaragua as they may likely be from corruption. The Financial Action Task Force (FATF) also named Trinidad and Tobago as a jurisdiction with strategic deficiencies in anti-money laundering and combating the financing of terrorism.

Venezuela: A Storm of Political Uncertainty

The regime of Nicolas Maduro is going through tumultuous times, facing both external and internal pressures. Following the U.S. Government’s formal recognition of Interim President Juan Guaidó as the legitimate President of the Government of Venezuela, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 22 individuals, 28 entities—including Petróleos de Venezuela (PdVSA) and one aircraft – and issued nine new General Licenses (GLs); amended two GLs; published 15 new Frequently Asked Questions (FAQs); and revised and amended five FAQs. President Trump also issued a new Executive Order (E.O.) 13850 – “Taking Additional Steps to Address the National Emergency with Respect to Venezuela.

The U.S.’ recognition of Guaidó’s legitimacy has garnered the support of most countries in the region. Both Grupo Lima and the Organization of American States (“OAS”) have not only shown their support by recognizing Guaidó’s appointed representatives but also have sent humanitarian aid to the people of Venezuela. In response to Maduro’s orders to burn trucks with humanitarian aid on February 23, the member states of Grupo Lima signed a declaration demanding the immediate exit of Maduro from power and asked the International Criminal Court (“ICC”) to consider the recent actions of the regime a humanitarian crisis. Additionally, the U.S. Government asked neighboring jurisdictions to freeze “chavista” or “Madurista” officials’ assets.

On February 28th, Brazil announced that it would support Venezuela in anything it needed to rebuild its economy and return to democracy.

Furthermore, the United Nations (U.N.) Security Council held hearings on the situation in Venezuela but has been unable to reach a resolution. At the moment, the United States and Russia are holding opposing views on solutions and support for the regime.

According to recent reports, over 500 members of the Venezuelan military and national police have deserted the Maduro Regime and fled to Colombia.

For more details, see our recent posts on Venezuela.

Brazil: Changing Old Ways

President Jair Bolsonaro announced at the World Economic Forum that Brazil will open its door to foreign investment. Bolsonaro’s plans are reportedly aimed to reduce and simplify taxes, privatize State-owned companies, and provide prosecutors with the right tools to tackle systemic corruption and money-laundering.

Recently, Brazil has been subject to major corruption and money-laundering scandals across a range of industries, such as construction (dam collapsing in Brumadinho and Odebrecht), oil & gas (Petrobras bribery and kickback allegations), and the infamous Lava Jato (Operation Car Wash) case which was embedded in all levels of power and across different jurisdictions and industries.

On February 27, Rodrigo Garcia Berkowitz — a former Petrobras oil trader — pleaded guilty in a U.S. money-laundering case. He was charged with taking part in a corruption scheme involving commodity companies Vitol SA, Glencore PLC, and Trafigura AG. Accordingly, the funds were laundered through U.S. financial institutions and the European banking system. It is apparent that the United States and Brazil have developed a strong collaboration in money-laundering investigations.

Colombia: Paving a New Path

Colombian President Ivan Duque accompanied by Chilean President Sebastian Piñera and Brazilean President Bolsonaro have stood together as strong supporters of President Guaidó and Venezuela’s transition to democracy.

In addition, President Duque is leading an initiative with President Piñera in forming a new pro-democracy organization called PROSUR. The official roll out is scheduled to occur in Chile during the month of March. The organization will work towards regional coordination and cooperation in public policy, the defense of democracy, promotion of the separation of powers, and the fostering of market economies among South American nations. To date, the government of Nicolas Maduro has not been invited to participate; whereas on February 27th, President Piñera extended an invitation to President Guaidó to be part of this new coalition.

President Duque envisions PROSUR as a South American version of the EU through the potential implementation of cross-border fiscal policy.

President Duque’s administration has been fostering a greater market economy and has been working to attract more foreign investment.

Mexico: A “Free Zone”

On January 1st the President of Mexico, Manuel López Obrador, launched a new economic plan called “Zona Libre” (“Free Zone”). The plan aims to cut sales taxes by half (from 16% to 8%), reduce rent taxes by 10% (from 30% to 20%), double the minimum wage, and reduce gas, water, and electricity prices. According to President López Obrador, the private sector has agreed to the new plan.

According to the Mexican government, the Zona Libre is already being implemented in 43 municipalities located in six of the northern states of Mexico, where both foreign and national investment are amongst the highest in the country.

On February 24th, President López Obrador announced the launch of this same program in the southern border beginning in the state of Quintana Roo. However, the President also stated that he first wanted to analyze how well the Zona Libre was working in the north before implementing it in the south.

Nicaragua: Dialogue 2.0?

The regime of Daniel Ortega decided to reconvene the national dialogue that had begun last year in May and which was suspended a month later due to lack of an agreement and increase in governmental repression. The new dialogue officially began on February 27. In the midst of the negotiations, the government released 100 political prisoners under parole.

The negotiating parties include representatives of the government, bishops of the Catholic Church, representatives of the private sector, and members of the opposition coalition. President Ortega has not been present in the negotiations. No international organization is present in these negotiations.

In 2018, the talks failed due to the lack of compromise which led to an escalation of government crackdowns on any dissenting opinions. These actions resulted in new sanctions by OFAC under the Global Magnitsky Act, the issuance of E.O. 13851 – “Blocking Property of Certain Persons Contributing to the Situation in Nicaragua”, and a new law that was passed – the Nicaragua Human Rights and Anticorruption Act of 2018 (NICA Act).

While no designations have yet occurred under the NICA Act, if the national dialogue fails to reach a peaceful resolution that will address democracy, rule of law, and the economic crisis – as the NICA Act suggests – new sanctions could be imposed.

Cuba: A Potential Tsunami of Litigation

On March 4thrd, the U.S. Department of State announced that it would extend the suspension for another 30 days but allow for claims to be filed against Cuban entities or sub-entities identified in the State Department’s Cuba Restricted List.

The Helms-Burton law passed in 1996, allows U.S. nationals holding claims to confiscated Cuban property to sue any “person” subject to U.S. court jurisdiction who “traffics” in that confiscated property in the United States.

When Helms-Burton entered into force, this aspect of the law (Title III) was immediately suspended by President Clinton for six months. That suspension has been continually renewed by presidents of both parties for more than 20 years.

However, in January, President Trump and National Security Advisor John Bolton indicated they might let the suspension lapse on March 18, 2019 instead of continuing the suspension for another 6 months.

“Trafficking” is defined very broadly, including to “engage[s] in a commercial activity using or otherwise benefitting from confiscated property.” “Person” means “any person or entity, including any agency or instrumentality of a foreign state.” Under Title III of Helms-Burton, persons who “traffic” in confiscated property can be held liable for up to treble the value of the property that they have allegedly been trafficking in.

If Helms-Burton is not further suspended in April 2019, litigation is expected to follow.