This article was republished with permission from FCPAméricas Blog, for which Matteson Ellis is founder, editor and regular contributor.
Unlike many Latin American countries, Chile is known not for bribery scandals, but instead for low corruption risk. In Transparency International’s Corruption Perception Index, the country is consistently ranked year after year on par with the United States for perceived lack of corruption.
But even in a country as clean as Chile, corruption risk can still persist. Consider a recent set of investigations that have potential international reach.
Grupo Penta. Chilean prosecutors have charged the owners and executives of one of Chile’s largest financial groups, Grupo Penta, with tax fraud, bribery and money laundering in a scheme allegedly created to finance the political campaigns of the country’s right-wing party, Independent Democratic Union (UDI), in the 2013 elections.
The investigations grew out of a review in mid-2014 by Chile’s Internal Revenue Service (SII) of SII official Iván Álvarez based on suspicions of illegally altering internal data-storage systems in 2007. According to reports, Mr. Álvarez modified the tax declarations of certain individuals willing to pay “commissions,” which led SII to return more money to them than was due. SII investigated around 122 taxpayers suspected of involvement in the scheme.
One of the individuals involved in the scheme was Hugo Bravo, Penta’s former General Manager. Investigators seized and analyzed his computers, identifying false invoices issued to the wives of Penta owners, Carlos Alberto Délano and Carlos Eugenio Lavín, which in turn helped Penta evade taxes. Mr. Bravo is cooperating with the investigation and has disclosed that Penta illegally financed the electoral campaigns of several members of the UDI party, as well as two former government ministers.
A Widening Probe. The probe continues to spread, with Chilean fishing companies and a mining giant named Sociedad Quimica y Minera de Chile (SQM) suspected of providing illegal financing to political campaigns as well. SII has reportedly submitted lists to the Public Ministry of names of political leaders, government officials and their relatives that issued questionable invoices to SQM between 2009 and 2013. The fact that various sectors appear to be involved has Chileans questioning the ultimate reach of the wrongdoing.
Potential International Implications. Could these allegations of improper political financing have effects beyond Chile? Of note, SQM is a publicly listed company in the United States, which makes it directly subject to the FCPA’s accounting provisions, no matter where it does business. As discussed in greater detail here and here, the FCPA’s accounting provisions require subject companies to maintain books and records that accurately, fairly and in sufficient detail reflect transactions and disbursements of the company’s assets and to devise and maintain a system of internal accounting controls that ensures transactions are executed in accordance with management’s authorization. When companies that are publicly listed in the United States, including non-U.S. companies with ADRs in the United States, fail to do so, they can be subject to FCPA enforcement action, as demonstrated here.
The fishing company Blumar, also reportedly under investigation, has a subsidiary in the United States. If its alleged wrongdoing involved any acts in furtherance of bribery in the United States, such as meetings in the United States or the use of U.S. bank accounts, that company could also be subject to enforcement of the FCPA’s anti-bribery provisions
These developments suggest that Chile’s government is getting serious about addressing misconduct. As FCPAmericas previously discussed, the country has already put in place a strong anti-corruption regime based in part on its commitments under the OECD Anti-Bribery Convention. Unlike some countries in Latin America, Chile seems keen on actually enforcing these new laws, too. As is playing out in numerous other corruption matters throughout Latin America, these types of investigations are rarely limited to the countries where the improper conduct occurs. Investigations these days can have important international components as well.
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