Due Diligence in Latin America – Taking Baby Steps to Get Rid of Corruption
Corruption has always been a bane in any nation’s progress. History taught us well how corruption brings any civilization, regardless of power and wealth, to its demise. Such cancerous system excuses no one, and it affects developing regions like Latin America the most. While it’s quite improbable to eradicate these actions in one swift blow, we can still take small steps. Exercising due diligence in Latin America is just the action we need to work on, but it’s easier said than done.
Fortunately, many countries have been pushing the envelope to crack down on the culture of corruption. Examples include the current whistle-blower reforms in Argentina, the public criticism of football match-fixing in El Salvador, and increases in tax revenues in Mexico.
Despite these recent improvements, the corruption still has deeper roots to pull out, straddling the entire region. It is actually rampant in government, corporations and law enforcement agencies. We will discuss how practicing due diligence in Latin America can impact the nation positively and resolve its problems in the long run.
We Need More Whistle Blowers in Latin America
Local communities may start being more hands-on in reducing corruption by discouraging extortion methods, tax evasion, and corporate bribery, However, this poisonous system deeply occurs on a corporate and government level, and whistle-blowers are not taken seriously. Sometimes, these people are even at risk of grave danger.
These organizations possess an influential power which makes it tough for regular citizens to express outwardly for their countries. There’s also an underlying stigma and social pressure against whistle-blowing which keep corruption ingrained in Latin America culture.
However, the future is not too bleak for the rest of us. Slowly, due diligence in Latin America is seen in policy changes that at least mitigate such dooming fate. For instance, the Argentine has stretched out its protection and assistance to people who report corrupt actions to the authorities. Further, Mexico implements the General Law on Administrative Accountability which entails regular, transparent, and prudent monitoring of companies.
Moreover, Brazilian citizens have been tipping off more frequently than ever. In fact, there’s a 50% increase in corruption reports between 2014-2015. All of these actions demonstrate a cultural shift from acceptance of corruption and bribery to distaste for such practices.
These regulatory changes are actually a big leap in the right direction. However, it’s still not adequate, since corruption takes place in all levels of society. This is the reason why we must follow these nation’s acts of due diligence in Latin America. Essentially, businesses should consider it a core focus to ensure all operations are financially feasible and objective. This will also safeguard the reputation of the company.
Due Diligence in Latin America: Tax Evasion
Viewing reality, it’s painful to conclude that tax evasion is apparent in Latin America. Tax evasion impedes progressive growth in much-needed areas like public transportation, quality health services, and infrastructure. In 2015, Latin America’s evasion cases collectively amounted to US$340 billion.
There may be two factors that cause this issue: A high level of informal work and low personal income tax (1.6% of GDP in Latin America versus 10.7% of GDP in the EU). Companies who begin operations with local partners or distributors may also find themselves in a bind due to lack of awareness with previous transactions.
This information may be shocking to know, but this requires an immediate remedy. Putting up thoughtful reforms across 20+ countries and territories in Latin America can alleviate the situation. Sadly, this takes too much time. It’s considerable to note that governments should play their part in exemplifying due diligence in Latin America. Avoidance of corruption means more income for citizens. This leads to lesser tax evasion cases as the people will learn to appreciate goodwill.
The Future for Latin America
Latin America’s future is not the brightest in the world, but certainly, there’s hope. Every policy or regulation improvement opens new pathways in countering the cultural embodiment of corruption. There’s absolutely huge potential for investment in Latin America whether in company formation or international trade. However, all citizens and sectors must perform due diligence in Latin America, no matter how big or small their actions are.
Hiring professional due diligence services to handle these circumstances can bring peace of mind. It will also lower the liabilities of doing business in Latin America. With proper security amenities, one can control the tax liabilities of a possible partner or distributor when making decisions. If you have questions regarding due diligence, or how to effectively enter and operate your business in Latin America, contact Biz Latin Hub.
