Widespread Financial Crimes and Corporate Fraud in Latin America: A Spotlight on Brazil and Mexico

In a region marred by significant wealth inequality and extensive corruption, Latin America and the Caribbean continue to battle pervasive malfeasance at both geopolitical and local levels. With the COVID-19 pandemic further exacerbating the issue, unprecedented governmental powers, procedural shortcuts, and extraordinary expenditures have given rise to unprecedented financial crimes.

Brazil: Persistent Corruption and Money Laundering

Brazil, with its $2.4 trillion projected economy—representing over 40% of Latin America’s economy—has become a significant center of concern due to rampant corruption, money laundering, and organized crime.

Prevalence of Financial Corruption

Brazil has been severely impacted by high-profile leaks such as the Panama Papers (2016), Paradise Papers (2017), and a more recent leak in 2021, unveiling substantial offshore holdings linked to public figures and their tax-avoidance tactics.

• Money laundering: Most prevalent form of financial corruption
• Trade-based money laundering (TBML): Second most common form

Impact of Drug Trafficking

Prevalent corruption is fueled largely by drug trafficking, which thrives in the tri-border region shared by Brazil, Argentina, and Paraguay. Criminal organizations like the Primeiro Comando da Capital (PCC) deal with drug shipments, robberies, kidnappings, and suspected ties with other global criminal organizations like FARC and Hezbollah.

Mexico: Anti-Corruption Efforts and Challenges

Mexico, the third largest economy in Latin America, faces similar challenges with regards to financial crimes and anti-corruption.

Anti-Corruption Strategies

Despite some reforms, major challenges persist due to:

• Extensive organized crime
• Suboptimal functioning of institutions
• Stubbornly low levels of prosecutions and convictions

Financial Integrity and Money Laundering

Financial and political corruption in Mexico is predominantly found in money laundering activities, originating from criminal enterprises and business profits, as well as terrorism financing.

• Criminal proceeds totaling US$25 billion to US$62 billion per year
• Money laundering amounts to US$18 billion to US$44 billion annually

Vulnerabilities in Mexico’s Anti-Money Laundering and Anti-Corruption System

There are still vulnerabilities within Mexico’s anti-money laundering and anti-terrorism financing system:

• Limited communication and coordination between government bodies
• Limited understanding of TBML
• A focus on seized assets instead of tracking the long-term impact of anti-corruption efforts

The Role of Businesses in Combating Financial Crimes

Lagging government efforts and the complex nature of financial crimes necessitate heightened awareness among businesses operating in the Latin American region. Companies are advised to implement the following steps to mitigate risks:

1. Thorough assessments of business partners
   • Source of wealth
   • Ultimate beneficial ownership (UBOs)
2. Examination of third-party vendors
   • No sanctions
   • No politically exposed individuals in key positions
3. Regular audits of supply chains
4. Stay informed of legislative developments related to risk and anti-corruption

At IntegrityRisk, we provide the expertise, resources, and knowledge to help businesses navigate the challenges of risk and corruption in Latin America. Contact our team to learn more about how we can support your organization in this vital endeavor.