Compliance: Will It Enhance Risk Management?

Now more than ever, compliance is crucial in Latin America, where more regulations are being approved regarding the prevention of illicit activities. Compliance now involves monitoring a constantly changing legal landscape to maintain a solid reputation with clients and within the industry. Compliance encompasses issues like corruption, money laundering, bribery, and risks associated with politically exposed persons (PEPs), along with the potential consequences, such as fines and criminal sanctions for non-compliance.

Compliance programs are not that recent. They began in the 1970s with the enactment of the Foreign Corrupt Practices Act (FCPA), which prohibits U.S. companies from bribing foreign public officials. Non-compliance leads to penalties ranging from fines to court-ordered liquidations for the companies involved, and this law is still in effect today.

The prevalence of corruption scandals in Latin America is alarming, as evidenced by the 2018 Corruption Perceptions Index (CPI) from Transparency International. With 10 countries in the region scoring poorly, including Venezuela at 168 out of 180, it’s clear that effective compliance programs are essential, not optional.

Maximizing Risk Management Through a Compliance Strategy

In Mexico, where corruption is deeply embedded in the public sector, robust compliance programs are imperative. The establishment of the National Anti-Corruption System in 2015 aimed to combat corporate malpractice, but the decline in Mexico’s CPI ranking indicates that legislation alone is insufficient without effective implementation.

To navigate these challenges, businesses must seek solutions that verify the entities and individuals they engage with. This need highlights the importance of a comprehensive database that integrates various international information sources. Such resources enable thorough due diligence, allowing organizations to identify specific risks — legal, reputational, and operational — associated with their partnerships. 

Building a solid foundation for compliance involves utilizing these data resources to gain insights into potential partners’ governance and social responsibility metrics. This deeper analysis helps organizations assess risks beyond basic financial factors, verifying the integrity of partners and ensuring alignment with trustworthy entities. Understanding the ESG landscape empowers companies to make informed decisions that support corporate responsibility and enhance long-term value.

To fully leverage compliance efforts, companies should adopt a strategic approach that emphasizes in-depth risk assessments and continuous monitoring. This allows for timely adjustments and optimizations to enhance overall effectiveness. By employing advanced technologies, businesses can achieve greater precision in their compliance strategies, facilitating real-time evaluations and immediate enhancements based on emerging trends.

The Role of Technology in Compliance Enforcement

Technology plays a crucial role in enhancing compliance efforts. Advanced tools empower organizations to conduct thorough due diligence. With the vast amounts of data available, leveraging technology allows companies to streamline their processes and improve decision-making capabilities.

The integration of risk management with technological tools can transform compliance from a reactive necessity into a proactive strategy. For instance, implementing specialized software that tracks and analyzes supplier compliance with governance and social responsibility metrics allows organizations to identify potential red flags early on, such as labor practices that don’t align with corporate values.

Additionally, automated risk assessment tools streamline the evaluation of partners against compliance benchmarks specific to the Mexican market, considering local regulations and industry standards, enabling swift decision-making. This targeted approach strengthens compliance efforts but also supports broader corporate responsibility initiatives, ensuring organizations remain accountable in a complex regulatory environment.

Ultimately, as compliance programs have evolved since the FCPA's enactment, the urgency for effective measures has become clearer, especially in light of the corruption scandals plaguing Latin America. The Corruption Perceptions Index serves as a stark reminder that businesses must invest in comprehensive compliance frameworks to navigate the challenges ahead.