Recent global events have tested companies’ ability to respond to emergencies and crises, as well as our capacity for adaptation. The crisis and emergency response phase has not yet passed, but companies are beginning to plan for the reopening phase of their businesses, which brings with it new challenges that will be important to address.
Central America is a complex region composed of 7 countries that, while individually each country does not represent an attractive market for investors, as a bloc, the region is a gateway for business between North America and South America.
The discipline of compliance is one that has been gradually introduced into Latin American markets. However, in Central America, there is still scarce regulation and a lack of a compliance culture that requires the implementation of compliance programs, with the notable exception of certain regulated industries.
Although there is a lack of a legal requirement to implement compliance programs in the different countries, commercial compliance obligations do exist. Companies’ compliance obligations extend to labor, environmental, anti-corruption, corporate, and competition regulations, among other regulatory matters specific to each business’s industry.
Some of the most important challenges we face in the region are that the economies of Central American countries have a high informal component, which makes it difficult for government authorities to monitor compliance with regulations and reduces their scope of action to focus exclusively on the activities of formally established industries, making them the focus of investigation and sanctions.
The trend throughout the Central American region is an increase in government activity to apply sanctions and investigate companies’ compliance with labor, health, and safety regulations, and especially anti-corruption matters. Governments in the region are gradually introducing new regulatory provisions and health and safety protocols weekly, which require rigorous action within companies’ legal departments to avoid additional costs from sanctions.
The risks of non-compliance are high, including both reputational risks and financial risks derived from possible sanctions for non-compliance. Therefore, it is important that management groups increase their compliance efforts, for which we make the following recommendations:
- The development of a compliance culture comes mainly from the commitment of senior management to maintain a line of integrity and compliance despite any existing financial pressures. This commitment must be clearly communicated to all staff and reinforced through virtual training and dialogue between compliance officers and staff.
- Financial pressures will bring with them the temptation to be more flexible in sales procedures. It is at this moment that the company must reflect on opportunity costs—what might save costs today could be highly sanctioned and costly in the future. Difficult decisions must be made about the continuity of operations in areas with a high risk of non-compliance, so the values and strategic plan of companies must provide a solution to tensions over employee actions.
- The identification of risks derived from the crisis is important to determine the weak areas in the production chain that may result in subsequent sanctions for a lack of due diligence by companies.
- Technological tools will help in the investigation and monitoring of compliance protocols. If it is possible to invest in this, it will save investigation costs for external auditors.
- Updating public and industry-specific regulatory policies is fundamental to reducing the risks of non-compliance. There are multiple resources to stay up to date, one of which is the advice of third-party experts in the different regulatory areas.
At Aguilar Castillo Love, we believe that part of our role as advisors is to provide you with compliance tools that support you in this work. For this reason, we offer a resource for constant monitoring for corporate lawyers specifically related to dealing with the Pandemic, which you can access from our portal: www.aguilarcastillolove.com.