Catch-up & Problem Approach

Transcription

1 BRAZIL, COLOMBIA AND MEXICO: Trade with the Major Latin America Economies without Generating Corruption Liability Alexandre Lira José Francisco Mafla Alejandro García Seimandi Catch-up & Problem Approach Alexandre Lira Latin American countries are important trade partners for U.S. Transborder operations are high-risk for corruption compliance, as well as Latin America is a hazardous environment for FCPA misconducts; Theorem: customs corruption arises from operational mistakes a customs compliance program is the key to avoid bribery in these operations 1

2 2010 The Obama Administration has made it a top priority to improve the conditions that directly affect the private sector s ability to export working to remove trade barriers abroad, help firms and farmers overcome hurdles to entering new markets, and assist with financing. Ten Latin America s largest economies 2014 : U.S. exports to the Ten Latin America s largest econ (in millions of U.S. dollars) Brazil 42,429.4 Peru 10,053.6 Mexico 240,248.7 Ecuador 8,164.4 Argentina 10,825.7 Cuba Coming soon? Colombia 20,106.6 Uruguay 1,605.8 Chile 16,514.6 Costa Rica 6, ,912,90 Exports to LatAm in 2014 USA 1,602,531.9 Total exports in

3 22.27% of USA s exports 3

4 Some FCPA cases in Latin America At least 22.27% of USA s exports are shipped to high risk destinations 4

5 Complicated and complex tariff schemes or customs regulations may be misused by corrupt customs agents to extort exporters and importers into paying bribes. Customs agencies are particularly vulnerable to corruption. In particular, the discretionary power of officials and their monopoly over the flow of persons and goods, combined with weak accountability and difficult supervision make customs particularly vulnerable to corruption (Wickberg 2013). Bribes are extorted from importers and exporters in a variety of ways, mainly taking advantage of bureaucratic red tape and customs officials ability to detain shipments of goods from entering or leaving a country. 5

6 Some FCPA cases related to customs operations Strong Enforcement High Penalties HS Classification FINE Customs Valuation FINE Rules of Origin FINE Strong Enforcement High Penalties HS Classification FINE Customs Valuation FINE Rules of Origin FINE Or worse than it 6

7 Latin America Corruption risks Customs Operations Corruption risks Double high-risk operations Theorem to be proved: Honest mistakes may result on customs bribery Pythagorean Theorem Alejandro García Seimandi José Francisco Mafla Creating awareness on customs operations Customs Compliance. Honest mistakes may be used against the company s integrity. Avoid bribery threats ensuring compliance under regulations and quality maintenance. Fighting cultural drift through effective corevalue enforcement. Raising awareness of local representatives. Risks deriving from customs brokers and logistics operators performance. Preventing customs misconducts. Facing Customs Officials. Setting up procedures to prevent or to handle abuses during Customs clearance. Establishing protocols. Identifying legal measures and understanding the chain of command. 7

8 Customs Classification Bread Lettuce Tomato Ham Cheese Wrong classification may result in seizure plus fines for 100% of the customs value of the goods Customs Valuation Invoice & freight only, right!? NO! $ Global insurance $ Discounts $ Brokerage fees $ Royalties $ Commisions $ Etc. Undervaluation may result in fines for 150% of omitted import duties and prosecuted as counterband. Rules of origin Each FTA sets rules that may lead to different outcomes in similar scenarios. 8

9 Rules of Origin Sure it is Mexican. We bought it here. Great! That will save us duties. I am sending you the NAFTA certificate. Issuing false certificate of origin may be considered a criminal offense. Duty and Tax Each Latinamerican country may have different import duties and taxes. Brasil Colombia Mexico Import duty Sales Tax Excise duties Customs fees ICMS X X PIS X X PASEP X X COFINS X X Filing customs declarations Customs procedures are migrating to electronic. Operations are rigid due to formal laws. Unproper filing may result in formal fines only or even escalate to smuggling. 9

10 Integration of distributors and logistic providers with the corporate compliance program Instructing third parties that the company will neither engage nor tolerate that they engage in any corrupt practice Not using third parties as a means for any corrupt practice Hiring third parties only to the extent appropriate for the regular conduct of the party s business Source: corporate compliance program.jpg Anticorruption clauses Third party knowledge Training programs (distributors and logistic providers) Traceability systems Precautions on POAs Functions Control mechanisms Source: content/uploads/2015/07/powers of Attorney.jpg To whom am I granting power? Anticorruption clauses in commercial agreements Pre contractual and contractual period Reasonable preventive measures to avoid corrupt practices. No undue advantages granted or promised in relation to the Contract to public officials, political parties, or employees of the other Party. Source: content/uploads/citysearchpartners yext power local business listings.jpg 10

11 Raising awareness on the local partners Reputation and local enforcement Integrity Compliance Good practices Reputation Source: to build a great twitter reputation and get more followersand retweets Third party knowledge due diligence Source: content/uploads/2015/04/due_diligence_2.jpg Companies need to ensure that they do not conduct business with those involved in corrupt activities Are there corruption risks associated with the potential business partner? Identification and mitigation of risks Informed decisions Customs Capacity Building Training: knowleadgeble anti corruption staff is essential, due to the complexity of customs regulations. 11

12 Customs compliance audits Audits should facilitate anticorruption policy asimilation. A comprehensive compliance program for Latin American trade operations Reduce administrative burden to companies Accountability programs Identification and follow up of risks Identification of bottlenecks José Francisco Mafla BRAZIL, COLOMBIA AND MEXICO: A snapshot of the Latin leading economies Alejandro García Seimandi Alexandre Lira Position in transparency international rank Customs agencies and administrative structure Customs regulations peculiarities Corruption cases in customs operations 12

13 Colombia Administration and control of compliance with tax, customs, and exchange regulations (import or export of goods and services, and related expenses) Facilitation of foreign trade operations, on conditions of equity, transparency and legality. Colombia Customs classification Colombia Eggs HS Code Chapter Heading Subheading NANDINA subheading Colombian subheading NANDINA code The NANDINA code is the common tariff classification code for the Andean Community 8 digit code Decision 653 of the Andean Community 13

14 Corruption in Trade Colombia Chiquita, 2007: Engaging in transactions with the United Self Defense Forces of Colombia (Autodefensas Unidas de Colombia, or AUC); source: Mexico Mexican Customs Authorities Mexico Servicio de Administración Tributaria Tax Administration Service Collection, audit, customs. Administración General Aduanas Customs General Administration Entry control. Administración General de Auditoría de Comercio Exterior Foreign Trade Audit General Administration Post entry audit Administración General Jurídica Legal General Administration Rulings, administrative appeals. Administración General de Servicios al Contribuyente Taxpayer Services General Administration Importers registry. 14

15 HS Classification Mexico Mexican Tariff is based in the HS Duty and regulations depend on 8 digit tariff items (HS sub heading + 2 digits) Mexico Brazil 15

16 Customs Administration Brazil Same agency handles tax collection and Customs controls Trade Secretariat also holds some of the Customs controls For agricultural and medicine goods, other agencies are involved on Customs controls HS Classification Brazil Harmonized System Chapter Position Sub-position Item Sub-item NCM Mercosur Commom Nomenclature Cloudy Operation : 41, BRL are seized on the house of the involved with illegal imports Brazil On 09/2014, 175 Federal Police Officers performed 07 warrant of arrest and 25 warrant for search and seizure. An order for sequestration of goods worth approximately 10 million BRL and the blocking of values into bank accounts were also performed. The criminal organization was composed of importers, customs brokers, entrepreneurs and the possible participation of government agents is being verified. During the investigations divergences were verified on the import operations, related to: tariff classification, customs value, use of cover up companies between others. The tax assessments may reach the value of 50 million BRL, beyond the prohibition for import and export and the criminal sanctions for smuggling, tax evasion, money laundering and many others. Source: catarina/noticia/2014/09/pf apreende r 41 mil em casa de envolvido na operacao nebulosa.html 16

17 Closing Remarks Alexandre Lira Bribery may be happening without your knowledge A Customs Compliance program is the key for avoiding FCPA liability Corruption hurts the poor disproportionately An effective compliance program to prevent bribery Latin American legal and cultural particularities Interface with the corporation's compliance program To facilitate this assimilation between the programs, the Latin American module shall be tailored following the U.S. Sentencing Guidelines 17

18 COMMITMENT FROM SENIOR MANAGEMENT AND A CLEARLY ARTICULATED POLICY AGAINST CORRUPTION Activities Workshop with the local management board: o Customs regulations and routines; o International anti bribery framework (FCPA, OECD Convention, UN Convention) o Local anti corruption acts o Risks on international trade and customs operations o Procedures to be settled in order to avoid exposures CODE OF CONDUCT AND COMPLIANCE POLICIES AND PROCEDURES Activities Double check policies and procedures related to import and export routines, adding comments in what regard to its strength to prevent mistakes and misconducts. All presentations and comments will always be related to trade and customs operations, in order to increase awareness, making the program really effective. o Workshop withlocalpeople (employees, business partners) o Meetings with the logistic providers management board o Workshop with the logistic providers employees o Documentation stating the trainings RISK ASSESSMENT Activities risk analysis to be performed: o Review of the information provided to Customs on previous operations o Adjustments on customs practices o Assertiveness of customs brokers (verification through entries on Customs Software) o Background check of the customs brokers and other logistic providers (commercial, financial, criminal and other lawsuits) 18

19 Customs Compliance Review Framework Customs Classification Customs Valuation Rules of Origin Paperwork Supply Chain Security Duties & Tax Export Controls High risk shipments TRAINING AND CONTINUING ADVICE Activities capacity building with local people: o Customs compliance and anti bribery workshops o Development of local champions on customs issues o Maintenance of the awareness and knowledge through continuous improvement and training programs THIRD PARTY DUE DILIGENCE AND PAYMENTS Activities: o Review of the relationship of the third parties with customs officials and other governmental authorities o Reviewof the fees paid to customs brokersandotherlogistic providers (the price needs to be proportional to the services and to the market standards) o Development of KPI s to be inserted on the agreements with customs brokers and other logistic providers o Development of anti bribery provisions to be inserted on the agreements with and POAs granted to brokers and other logistic providers 19

20 Annex to the Protocol Amending the Agreement on Government Procurement, adopted on 30 March 2012 (GPA/113) 20

21 Kofi Annan UN Secretary General ( ) "Corruption hurts the poor disproportionately - by diverting funds intended for development, undermining a government's ability to provide basic services, feeding inequality and injustice, and discouraging foreign investment and aid. "Corruption is a key element in economic under-performance and a major obstacle to poverty alleviation and development." BRAZIL, COLOMBIA AND MEXICO: Trade with the Major Latin America Economies without Generating Corruption Liability Alexandre Lira José Francisco Mafla Alejandro García Seimandi 21