By: Rudy Villatoro Molina, Natalia Callejas Aquino
Last April, the United States of America and the United Kingdom, in a united effort to combat corruption in the Northern Triangle (i.e. Guatemala, El Salvador, and Honduras), imposed sanctions to one current and one former Guatemalan government officials for their role in corruption in Guatemala.
On the one hand, the United States sanctioned both Gustavo Alejos Cámbara and Felipe Alejos Lorenzana due to their attempt to interfere the judicial selection process for appointing magistrates to Guatemala’s Supreme Court of Justice and Court of Appeals. According to the press statement issued by the U.S. Department of State, Gustavo Alejos Cámbara ad Felipe Alejos Lorenzana “reportedly facilitated payments to congressional representatives and judges in an attempt to influence the selection process for magistrates to both courts (…)”. Both of them were designated pursuant to Executive Order 13818, which implements the Global Magnitsky Human Rights Accountability Act. As consequence of the imposed sanctions, all of their property and interests in property that are in the United States or in possession or control of U.S. persons are blocked and must be reported to the Office of Foreign Assets Control (“OFAC”).
Moreover, any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked. OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods, or services from any such person.
On the other hand, the United Kingdom designated Felipe Alejos Lorenzana due to his alleged involvement in significant corruption acts. According to a press released issued by the government of the United Kingdom, Felipe Alejos “served as an intermediary for corrupt officials in a largescale corruption scandal involving Guatemala’s Tax Administration”. The designation was made under the UK’s Global Anti-Corruption Sanctions Regulations 2021, launched on April 26, 2021, which is secondary legislation laid under the powers of the Sanctions and Anti-Money Laundering Act 2018. The Sanctions include assets freeze and travel ban: “Felipe Alejos Lorenzana will be prevented from entering the UK, and the UK nationals and companies, wherever they are in the world, will be prevented from dealing with funds or economic resources in relation to him.”
Although these sanctions target individuals and not companies, it does affect perception of our business climate in the region. Traditionally, the Northern Triangle (i.e. Guatemala, El Salvador, and Honduras) has been deemed as an area of high risk due to increased corruption and violence. This reality is forcing many business partners to reevaluate how they do business in our countries and the business partners of choice.
Effective compliance requires a constant monitoring process, one of the main tools for foreign parties that work in our region through local commercial partners is the use of anticorruption clauses that allow for contractually-provided audit rights where parties to the contract exercise said right to take any necessary actions to prevent any legal or reputational damage.
The purpose of conducting these audits includes identifying potential reputational and legal risks to which the client may be exposed to in connection with a specific project in which the client is involved (or could potentially become involved). It also serves to identify prohibited practices by personnel or contractors linked to the project that could damage commercial relationships.
Effective anti-corruption audits must seek to obtain the following:
1. Confirmation that there are no identifiable risks related to practices associated with third parties or the project, which could constitute prohibited practices and / or
2. Publicize the existence of corruption risks, warnings of potential risks associated with third parties or the project.
3. Provide risk mitigation recommendations
In many cases, anticorruption clauses are included in contracts, however, audit rights are not enforced. A periodical enforcement of these rights can serve as a mitigator of potential risks and serves as an effective tool to stretch commercial relationships with local parties as it shows a genuine interest in ensuring that effective integrity standards are complied with.