due diligence in Latin America

Why Due Diligence Matters in Latin America

Due Diligence Latin America: Due Diligence Latin AmericaFrom the tip of South America in Argentina, all the way through to Mexico, corruption and bribery have long been of huge concern for Latin Americans. Recent whistle-blower reforms in Argentina, the public denouncement of football match fixing in El Salvador and increases in tax revenues in Mexico are all examples of how Latin America is starting to crack down on the culture of corruption. Despite recent improvements and reforms across countries such as Mexico, Argentina, and Brazil, the corruption has deep roots spanning the entire region- especially prevalent in government, corporations and law enforcement agencies. This article will outline why corruption is hard to get rid of in Latin America and where some of that corruption lies, but more importantly, it will highlight why due diligence is vital for business success in Latin America.   

Due Diligence – The Need for More Whistle Blowers in Latin America

whistle blowers latin america
Brazil saw an increase in tip-offs of 50% between 2014-2015

Among corrupt officials, tax evasion and corporate bribery, local communities need to start being more proactive in decreasing corruption. With much of the corruption occurring on a corporate and government level, it is no surprise that whistle-blowers are not taken seriously. The influential power these organisations make it difficult for regular citizens to play a part in tipping off corruptive acts in their countries. The stigma and social pressures against whistle-blowing keep corruption deeply entrenched in the culture of Latin America.  

However, despite the lack of urgency, change is occurring in policy in order to mitigate Latin American society. This can be seen through Argentina’s extended protection and benefits for people who flag corruption as well as through Mexico’s implementation of the General Law on Administrative Accountability. In addition, Brazil saw an increase in tip-offs of 50% between 2014-2015, demonstrating a cultural shift away from the acceptance of corruption and bribery.

While these regulatory changes are a step in the right direction, these countries continue to see corruption take place in all levels of society. Its trickle-down effect can be seen in businesses large and small. This is why looking into due diligence should be a core business focus to ensure all business operations are financially viable as well as to safeguard the reputation of the business.

Due Diligence Latin America: Tax Evasion

tax fraud latin america
Latin American Tax Evasion totalled USD$340 Billion in 2015

Tax evasion and corruption are on opposite ends of the spectrum in Latin America. In 2015, tax evasion in Latin America was worth US$340 billion. This shocking statistic highlights the need for serious reforms across the 20+ countries and territories forming Latin America. Tax evasion obstructs progressive development in much needed areas like public transportation, quality health services, and infrastructure.

A high level of informal work combined with low personal income tax (1.6% of GDP in Latin America in comparison to 10.7% of GDP in the EU) reduces the amount of money available to the government for public services.

Companies who commence operations with local partners or distributors often find themselves in trouble because they were not aware of previous transactions taken by those who they chose to do business with (legal or illegal). Participating in a takeover in Latin America might mean acquiring more than you have bargained for and can lead to losses that could have been prevented. 

The Future for Latin America & Managing Business Risk

future of latin america corruptionThe future of Latin America is sitting on a knife’s edge. For every improvement or regulatory change countering the cultural embedment of corruption, we find examples of individuals and organisations counteracting this progress. There is no doubt of the huge potential for investment in Latin America whether it be through a company formation or international trade, however, one needs to be aware of the risks in doing business in Latin America due to the high levels of corruption and theft that plagues the region.

Find Out More About LATAM Business Opportunities

Although there are many opportunities for doing business in Latin America, it can sometimes be challenging due to the significant legal and cultural differences you may encounter. If you are considering doing business in one of these promising rising stars, we have a team of local and expat professionals ready to advise you on any query you may have. Our mission is to facilitate the entrance of entrepreneurs and investors into Latin American markets with the help of our experienced teams of accountants and lawyers.

Contact us now to receive comprehensive advice about doing business in your chosen country.

Learn about our team and expert authors.

The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
Craig Dempsey
Craig Dempsey

Craig is a seasoned business professional in Latin America. He is the Managing Director and Co-Founder of the Biz Latin Hub Group that specializes in the provision market entry and back office services. Craig holds a degree in Mechanical Engineering, with honors and a Master's Degree in Project Management from the University of New South Wales. Craig is also an active board member on the Australian Colombian Business Council, and likewise also active with the Australian Latin American Business Council.

Craig is also a military veteran, having served in the Australian military on numerous overseas missions and also a former mining executive with experience in various overseas jurisdictions, including, Canada, Australia, Peru and Colombia.

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