1. What are some common forms of corruption in the Colombian market?
Corruption in Colombia takes two basic forms: public corruption and corruption created by insurgent groups. Public corruption generally includes contributions to political campaigns, with the expectation of obtaining an advantage.
Colombian campaign financing still lacks transparency, despite the 2013 passage of a law requiring candidates to report the names of donors and how campaign money is spent. Even so, in 2014, 60 per cent of legislative candidates had failed to post their campaign financing. With its ability to finance campaigns, the business community in Colombia has substantial influence over politics, as do drug cartels and paramilitary groups. For example, a drug cartel funded the presidential campaign of Ernesto Samper, who was elected in 1994.
- presence in Colombia of insurgent and paramilitary organizations, such as the Revolutionary Armed Forces of Colombia (FARC), has been a continuous source of corruption. These organizations often demand illegal payments from companies in exchange for their continued operation or to provide protection for their investments. Allegations have surfaced that FARC has sought income through corruption in the healthcare industry and public works. There also have been links between numerous politicians, and drug traffickers and emerging criminal groups – who frequently gain and retain power through fraud and corruption.
2. How are foreign businesses typically affected by these corruption risks?
The TRACE Matrix, which measures business bribery risk, ranks Colombia 43rd out of 197 countries and gives an overall moderate risk score of 46 – mainly due to strong enforcement of anti-bribery laws and relatively high levels of governmental transparency.
Nevertheless, business bribery remains a challenge. A 2015 survey by Externado University and Transparencia por Colombia, noted that 91 per cent of private companies saw bribery as a common practice and companies reported paying an average of 17.3 per cent of the total value of a contract to secure its award. According to a World Bank survey of business managers and owners in Colombia, 53 per cent of companies see corruption as a major constraint to doing business.
3. Which business sectors are most vulnerable to corruption?
Colombia is the fourth-largest coal exporter in the world; the fourth largest oil producer in Latin America; and produces 90 per cent of the world’s emeralds. Although Colombia has supported initiatives to trace revenue and royalties generated by the extractive industries, this sector remains highly vulnerable to corruption. In a 2015 bribery case, two former executives of U.S. company PetroTiger Ltd. allegedly made payments to an official with Colombian oil company Ecopetrol to secure a USD $39.6 million oil-services contract.
Businesses that contract directly with the government are more vulnerable to corruption. Colombia plans to spend USD $100 billion on infrastructure from 2014 to 2022, and to invest USD $1.5 billion in defense and security over three years. The potentially large contracts available through these initiatives create risks for bid-rigging, kickbacks and bribes. In the World Bank survey, approximately 43 per cent of business managers and owners in Colombia said companies were expected to give a gift to secure a government contract. Foreign companies have faced allegations of corruption in public procurement. For example, Ferrostaal AG allegedly made between EUR €625,000 and €850,000 in payments to officials in the Colombian Navy and Ministry of Defense to secure a EUR €28-million vessel contract for another German company.
4. Generally speaking, how can foreign companies protect themselves from corruption risks?
Anti-corruption policies and compliance programs are crucial. The Externado University survey found that only 22 per cent of companies were familiar with anti-corruption laws in Colombia, and 71 per cent of companies have not implemented a compliance program to counter corruption.
Foreign companies should thoroughly vet potential business partners or third-party agents to offset the risk of potentially dealing with terrorist organizations. Companies should also monitor those third parties to ensure they are not violating any anti-bribery laws.
Policies concerning political contributions should also be implemented. The Externado University survey also found that political contributions are one of the most frequent forms of bribery in the business sector. Only 10 per cent of those surveyed said their companies had a mechanism to assess conflicts of interest and only four per cent accurately accounted for political contributions.
Companies can also work with TRACE Certified companies, which have completed a rigorous due diligence process based on international standards, including training and continuous daily monitoring of international sanctions and enforcement lists.
5. What anti-bribery compliance support is available in Colombia?
The Colombian anti-corruption statute, Law 1474 of 2011, requires that each government entity have an ethics office where all corruption allegations can be reported. Also, most government entities have websites that allow anonymous reporting of ethical misconduct. The Colombian Attorney General’s Office created an online anti-corruption website as a platform to share information about corruption.
Non-governmental organizations, such as the Chamber of Commerce of Bogota and the local chapter of Transparency International, provide valuable resources on anti-corruption matters. Organizations such as TRACE, Transparency International and the Business Anti-Corruption Portal also provide companies with access to resources on anti-bribery compliance, wherever they are located. Companies may also refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.
6. What else should companies recognize about operating in Colombia?
Corruption in Colombia should not be a deterrent to conducting business there. With a booming economy, Colombia is a top destination for foreign direct investment in Latin America. A closer review of partners and third-party agents would prepare companies to identify any red flags, thereby reducing the risk of violations of anti-bribery laws.
This Q&A article was originally produced for ExportWise.ca, Export Development Canada’s online magazine.