Colombia’s new approach to corruption

September 9, 2014

This is truly a heartfelt grassroots initiative. The latest generation of Colombians is tired of the old stigmas and viral conspiracy theories that place the country as a wild-west mythology of drug cartels and senseless violence. Certainly, the country has always been much more complex than this Hollywood façade.

However, the country has a long way to go when it comes to fighting corruption. Historically, Colombians had other priorities on their agenda. Now, after a steady period of stability, Colombia is putting strong control mechanisms in place to counteract deeply-rooted behaviours, such as passive bribery, political intervention and cronyism. But changing these practices is not an easy job.

The golden years

Colombia is levering on its recent social stability, smooth political transitions and economic prosperity to reposition itself. But this is not misaligned from its material progress and a genuine idiosyncratic shift. Medellin, for instance – a place once known for being the stronghold of drug cartels, outcast by social segregation and the setting of the most macabre novels ever written in Spanish – was last year named the most innovative city worldwide by the Urban Land Institute, impressively beating the likes of Tel Aviv and New York.

The Andean country is also a vibrant place with a solid communitarian environment. No other country in LATAM has so many flourishing NGOs and that large number of volunteers to undertake major communities’ roles. And now, Colombia’s economy is now the third-largest economy in Latin America – ahead of Argentina, despite lacking the large oil reserves its neighbour possesses. Today the country is placed in a solid economic position and is gradually reversing its contribution to regional migration.

Two worlds and a single economy

However, regardless of these changes on Colombia’s perception, corruption is still a remarkable stain on the country’s reputation. Colombia is still listed in a cluster of developing countries that have medium levels of institutionalised corruption. This is no surprise; Colombia’s ‘soft violence’ is its deeply-rooted misuse of power and political patronage. Moreover, the general public has grown cynical as the media has reported a large number of corruption scandals – from fraudulent accounting gimmicks to irregular public tenders at all levels, especially within the health system. This is happening in the midst of the erosion of traditional political parties, a higher criticism on the lack of independence of the judiciary and the poor governance shown by the private sector.

In 2011, 56 percent of Colombians perceived that the level of corruption in the country had increased. More significantly, 63 percent considered that reducing corruption was the most important factor to strengthen democratic institutions; however, only 12 percent considered that it should be a priority to address corruption as a public offence. Alarmingly, 93 percent of Colombian company directors who were surveyed reported that bribes were commonly paid in the course of their business activities.

Recent developments in public administration (including the introductions of the Foreign Corrupt Practices Act and the United Kingdom Bribery Act) have highlighted the social costs of bribery. A growing consensus criminalises, prosecutes and creates provisions against this agency problem. Greater scrutiny from anti-bribery regulators has also pushed for further transparency checks, public procurement platforms and a higher disclosure of public tenders.

Though this all seems like a substantial development, it makes the transition painful for Colombia and other countries that have a high degree of political ‘clientelism’ (where politicians ‘buy’ votes with favours and material goods). Colombians grew up accepting bribes and receiving kickbacks, not only to get the business done but as a prize for loyalty. Corruption was endemic. Then, all of a sudden, new public enforcement mechanisms became available which increased the probability of detection, and the culturally-embedded concept of loyalty suddenly became dysfunctional.

Many people in Colombia are still corrupt, but this now comes with the risk of their corrupt practices becoming public knowledge. As more people find out about these wrongdoings, the risk of public prosecution increases. The aim is for public prosecution to increase to a level where the reward of corruption is not worth the punishment/cost of prestige, but this will only be the case in the long run. What appears in the news is just an exponential increase on the number of prosecutions, which certainly affects the public trust.

The new approach

Increasing the probability of detection is just part of the equation. In 2011, the Colombian Government passed the Anti-Corruption Statute to speed up prosecution and create new criminal liabilities, reform the criminal code, update the public procurement statutes and provide a wider scope of administrative measures.

The Statute is based on a simple yet pragmatic assumption: corruption exists whenever there is a market for it. The Statute hardens its position against irregular governmental dealings and makes it easier to prosecute and probe all sorts of public offences, including institutional parties. It also increases transparency and establishes clear responsibilities on public tenders. Basically, the Colombian Government is increasing the cost of corruption by probing the detected offenders and creating new ways to prosecute them.

Lessons and the way forward for compliance officers

Any businesses looking to expand their operations in Colombia need to give careful consideration to the local administrative penalties and strict liabilities that the Anti-Corruption Statute brings on top of those previously-existing foreign anti-corruption laws that are applicable in their home jurisdictions. ‘Turning a blind eye’ in such markets is no longer acceptable, especially since Colombians have displayed a willingness to make corrupt actions transparent.

It goes without saying that assessing compliance risks, monitoring third parties and strategic partner activities, and investing in close and open business relationships is imperative, especially looking towards the future. Existing policies, procedures and other compliance-related materials need to be adapted to reflect the shifting approach and attitude to corrupt behaviour. Guidance must be tailored to the local market, and must include clear references to examples of crackdowns in Colombia, but also cater for positive reinforcement of the rewards and benefits for good behaviour. Providing incentives is the key for driving cultural change in your business, and such incentives need to have careful consideration of the environment in which your business is operating. Staff on the ground in Colombia, as well as business partners, need to understand and buy into the benefits of ethical business practice.

The Anti-Corruption Statute is a milestone. The Colombian Government has already created a Transparency Secretariat to monitor the growing number of prosecutions. As well as the Statute, Colombia joined the OECD Anti-Bribery Convention in 2013. Meanwhile, the government has shown no mercy with impunity. Recently, Colombian army generals and members of Colombia’s tax administration service were involved in unprecedented corruption scandals, but the government is sticking to principles to make sure the law prevails. The last thing that Colombia needs now is new rent-seeking opportunities. The priority is to curb all incentives for clientelism and, ultimately, for political patronage. Both things are yet to happen, but Colombians at least have grounded reasons to think this might change in the near future.

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