It is not news that the role of in-house counsel has become increasingly demanding and complex. The flip side to that is that the in-house counsel role has become even more strategic, challenging and stimulating than it was 5 or 10 years ago.

We live in a world which is much more regulated than it was a few years ago, which moves and reacts at a much faster pace than before, in a world where the risks (legal, reputational and others) that general counsel has to help manage, mitigate and protect from are several and diverse in nature.

Below, in summarized form, is an attempt to describe some of the most relevant themes sitting atop of the agenda of general counsel across the country.

Data privacy and cybersecurity issues

The Brazilian GDPR, or LGPD, will soon come into force. At the time of writing, the Brazilian Congress is still debating whether to bring LGPD into force on August 2020 or postpone its enactment to May 2021.

In any event this is a concrete fact in the horizon of all businesses and their legal departments. To the extent these businesses are subsidiaries of companies subject to European or US data protection laws less adaption to comply with local regulations will be required, but at the very least some compliance effort will be necessary.

Beyond LGPD, cybersecurity and electronic fraud in general are increasingly seen as by in-house legal teams, which are called upon to deal with all aspects and repercussions of security breaches of companies’ electronic systems, from a data privacy, consumer and/or criminal law perspective.

Fake news

When we hear the expression ‘fake news’ we usually think of it purely in the political context. The truth is that a number of professionals and business are attacked by producers of fake news everyday with an aim to harm their reputation and gain undue market advantage for competing businesses. In Brazil this huge new problem is compounded by the additional difficulty that the crimes of slander, libel etc and their penalties were designed for a time when fake news would spread by analog means, and thus the potential of harm was smaller. Currently there is a bill of law dealing specifically with the issue of fake news being analyzed by Brazilian Congress and the Brazilian Supreme Court is conducting an investigation on the subject.

Tax Reform

With the Brazilian Federal Government and Congress refocusing on the legislative reform after being sidetracked by COVID-19, the first item on the agenda is the Tax Reform. Each of the Federal Government and Congress have proposed and are supporting different bills of law addressing the tax reform. Until this situation is resolved and a common project negotiated it is unclear if, when and how the reform will shape up.

The new tax rules will be a challenge for everyone until fully understood by market agents and interpreted by the administrative and judicial courts. Some of the changes being potentially contemplated are substantial and can have a significant impact on businesses. The legal and business community are paying close attention to the matter and lobbying for the positions they advocate. The Tax Reform will keep both in-house and external counsel busy for quite a while, before and after the approval of the new rules.

Restructuring

Another challenge/opportunity for in-house counsel is the current situation of financial distress for many businesses provoked by the COVID-19 pandemic. This should allow for exposure on the renegotiation of the company’s debts, and sometimes in the Brazilian processes of Recuperação Extra-Judicial and Recuperação Judicial (respectfully pre-packaged reorganization and court-supervised reorganization), hopefully negotiating with the creditors and approving it with the court, as the case may be, the restructuring plan for the company. Conversely, when in-house counsel is employed by a business that is capitalized and seeking acquisitions/consolidation or debt acquisition opportunities, in-house counsel can exercise their legal creativity to the maximum.

We expect the next couple of years to present plenty of these opportunities, which we know come at a heavy cost for many in-house counsel because it generates the pressure to lay-off part of the team, the fear to lose one’s job and all the mental distress that comes with these situations.

Anticorruption

Since the enactment of the Brazilian anticorruption law in 2013 and the beginning of Operation Car Wash, anticorruption compliance and prevention has been at the forefront of the agenda of most businesses and legal departments in Brazil. This is a trend which came to stay and became part of the day to day of in-house counsel, sometimes adding people to the general counsel’s team and more often simply adding regulatory complexity and responsibility in cases where organizational structures do not provide for a separate integrity/anticorruption function lead by another professional.

The state of ESG (environment, sustainability, governance) in Brazil

The discussion around ESG is still in its very early stages in Brazil, certainly less advanced than in the US or Europe. Nevertheless, after the latest annual letter to investors from the CEO of BlackRock and the endorsements that ESG policies have received by a representative group of CEOs of a number of S&P 500 companies, the finance and business world may be coming to realize the size of the environmental threat not only to our health and planet but also to the economy.

When one recognizes the pressure being exercised on the Brazilian Government in light of the illegal burning and deforestation that is taking place in the Amazon, and the strong reaction of world leaders and private investors – both foreign and domestic – it becomes clear that the environment and sustainable practices, together with good governance, are a much bigger concern than ever before for businesses, their customers and, consequently, the general counsel and her team.

Privatizations, concessions and the new role of the BNDES

Another interesting development we are observing stems from the new role attributed to the National Economic and Social Development Bank – BNDES by finance minister Paulo Guedes.

BNDES in the past would finance, through debt and equity instruments, a huge portion of all infrastructure build-out in Brazil plus virtually all its large corporates. This has changed and BNDES is rapidly divesting of various equity stakes it held in publicly-held companies, state owned or not. The most recent example was a block trade of Vale’s shares for R$8.1bn (approximately US$1.5bn) on 4 August 2020, arguably the largest block trade in Latin America’s history.

Additionally, BNDES is in charge of executing the Federal Government’s privatization program and assists, whenever called upon, Brazilian States and Municipalities with their own privatization, concession and PPPs programs. This is an interesting development which provides in-house and outside counsel alike with ample opportunities.

Similarly, PETROBRAS continues to divest from a number of assets, providing for opportunities both on the acquisition and potential buyers’ finance sides.

New and not so new preoccupations of general counsel

Given the increased pressure to deliver more with less resources, general counsel in Brazil have embraced innovation in general, and technology in particular, from within their own company and also from their vendors, be it a law firm, a legal service provider, a Big Four or a lawtech. Competition has never been so intense, but at the same time there are more opportunities to innovate and create new needs that clients did not know they had.

Diversity is another big item on most general counsel’s agenda. Nothing new, obviously, but relevant, especially in an environment where not only women face challenges, but where the LGBTI+, the black and mulato and purely economically disadvantaged populations are given much less opportunity. It is important to acknowledge that the largest companies and law firms have made good progress in the last few years, which is encouraging. However, there is still a lot to be done.

Two other topics frequently mentioned by general counsels are (i) mental wellness related issues in their companies, in their teams and in the profession, and (ii) pro bono legal work. General counsel are trying a number of measures to keep their people happy and healthy at work and this seems to be a fairly high priority for many of them.

Pro bono became more widespread in Brazil in the last decade and many of the more sophisticated firms run more or less structured pro bono programs. Interestingly, very few general counsel based in Brazil seem to take this into consideration in their hiring decisions compared to their foreign counterparts. We expect this to change and to become more important to them going forward. We certainly hope so as it would be a movement in the right direction.

The changing needs of in-house counsel and the challenges they face inside the company

This article would be incomplete without mentioning the current needs of general counsel and their teams in the challenges they face daily in delivering to their internal clients and other stakeholders of their businesses.

We continue to hear that law firms still tend to think more about what is good for them instead of for their clients. We continue to hear that law firms do not listen, do not innovate and do not engage in true dialogue with their clients as to what their needs are and how they can collaborate together. Conversely and to be fair, we sometimes hear the same speech from managing partners of other firms: that the majority of general counsel do not engage in true dialogue with their firms as to what their needs are and how they can collaborate together.

It seems that someone ought to take the initiative of this conversation. Considering that law firms are the service providers in this relationship and usually well paid to deliver solutions, we are of the opinion that law firms should overcome their old ways and their fear to get in front of the client somewhat vulnerably because they will not have all the answers, venture out of their comfort zone and take the first step. Whoever does that earnestly, consistently and diligently has a much higher chance of success at developing a closer and more meaningful relationship with its clients.  

 

*The author would like to acknowledge the contributions made to this article by his partners, for which he is very grateful.

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See more from Veirano Advogados at: www.veirano.com.br/midia

Regulation is taking over the agenda for in-house counsel across Latin America, according to the results of the 2020 GC Powerlist Survey: Latin America. Almost 70% of respondents reported that the sector in which they are operated is highly regulated – 92% said that their sector was at least moderately regulated.

What’s more, 85% of all respondents said that they expect regulation in their sector to increase in the next five years, with almost half of that number (37% of all respondents) expecting a great increase in regulation. Virtually no respondents expected regulation to decrease in the next five years, and just 14% expected no change at all.

‘The explosives industry is highly regulated and for very good reasons,’ says Jorge Hirmas, general counsel for the Americas at Orica.

‘The regulations in the different countries of the region are similar and of a high standard.  Some important aspects of our industry regulations and the means of implementing them could be improved, however, in most countries there are plans currently underway to address these gaps.’

The numbers reveal a complicated relationship between in-house counsel, their businesses and the regulations that are governing their conduct. Taken as a whole, the in-house counsel that participated in the survey were cold on the prospect of more regulation in their sector: 42% said that they thought more regulation in their sector would be a bad thing, compares to 23% who thought it would be positive. Those who came from highly regulated sectors we most likely to see increased regulation as a bad thing: half of those from such sectors said that more regulation in their sector would be a bad thing, as opposed to just 18% who thought it would be a good or great thing.

‘Regarding regulation, it is required because we owe fiduciary duties and so we are regulated on investment limits and eligibility of investment assets,’ explains Sheila La Serna, chief legal counsel at Profuturo AFP. ‘However, there are always aspects that can be improved in regulation now that we are facing more digital relationships with our clients.’

Overall, counsel reported that their companies were well prepared for the event of a regulatory investigation: 76% said that their company has a response plan for such an event. Predictably, those that came from highly regulated sectors were more likely to have a response plan (89%) as opposed to those who came from sectors with less regulation (66% for those in lightly regulated sectors, 79% for those in moderately regulated sectors).

 

This article contains an overview of the impact that COVID-19 has had around various sectors of the Dominican legal market, as well as some of the legal solutions that have emerged to tackle the crisis that the pandemic has brought with it.

Firstly, it should be recalled that the Dominican Republic has traditionally been characterized at the international level by its strengths in trade, the service sector, the tourism industry and agricultural production, but it has also positioned itself in recent years as the fastest growing economy in Latin America – being at the same time one of the most important economies in all of Central America and the Caribbean according to various indicators. This has been achieved on the back of its industries and the Free Trade Zone sector, which generate about 60% of the country’s exports and have a great impact on local employment.

However, the impact of COVID-19 in the Dominican Republic has been felt in a very negative way in several of the industries that have traditionally served as a pillar for the national economy, especially the tourism sector, which has been the worst hit by the pandemic.

The Central Bank, through the Monthly Indicator of Economic Activity (IMAE for its initials in Spanish) indicated the reality of the various industries in terms of their economic performance for the period January-May 2020 compared to the same period of the previous year, noting that the industries most affected were: hotels, bars and restaurants (-42.6%), construction (-23.2%), mining (-16.3%), transport and storage (-11.0%), free zones (-9.8%) and local manufacturing (-7.8%). On the other hand, the sectors that have established positive markers according to this indicator are the following: health (12.4%), financial services (10.5%), agriculture (5.2%), real estate activities (5.0%), communications (4.1%) and energy and water (2.0%).

In this sense, the Dominican legal community has had several challenges in terms of how to face the crisis and provide the different markets with the relevant legal solutions to mitigate the impact that COVID-19 may have in the various productive sectors of the country.

Labor advisory services have been among the most in-demand legal services today as a response to the uncertainty caused by the unprecedented scenario in which the pandemic has put Dominican workers. In our country, as in most of the international community, telecommuting practices and the suspension of employment contracts have increased, and, consequently, brought a mechanism of legal procedures that allow for the proper management of work in accordance with the law and the established processes.

On the other hand, as far as trade is concerned, there has been an accelerated transition to e-commerce and the use of digital platforms. Both public and private institutions have adapted to the digital trade model, promoting modern tools such as the use of electronic signatures and online payment systems that contribute to the agile development of trade practices without the need for physical contact or transport to the distributor.

An unfortunate aspect of the crisis in the economic and social sphere is the inevitable insolvency of single-owner businesses and small- and medium-sized enterprises due to the lack of liquidity generated by the suspension of business, and the consequent drop in sales. These businesses developed a negative cash flow, paying employees, suppliers and other fixed expenses, without incurring any – or little – income.

Faced with this reality, the first steps that businesses can take are to invest more capital, if possible, or turn to bank financing to help pay for the drop in sales. However, if none of these options is feasible, then corporate restructuring should be considered as a solution so that businesses can reorganize without having to cease operations. In this regard, we count with the Law 141-15 on Restructuring and Liquidation of Companies and Natural Persons that entered into force in 2017, and that availing to its provisions is a highly feasible and currently required option to face the economic crisis, allowing, among other things, the restructuring of businesses facing economic difficulties, with a process leading to a reduction in the liability burden to enable the business to continue its operations, thereby benefiting its creditors and employees.

Finally, with regard to future options in the context of private investment, the Law on Public-Private Partnerships (PPPs) was recently enacted in the country, which seeks to facilitate the development of infrastructure and services of social interest, by channelling private sector funds to finance infrastructure and projects that contribute to the country’s sustainable development. PPPs have the potential to become one of the main mechanisms of support and cooperation for the reconstruction of the country’s economy, as they enable budgetary constraints to be addressed in a more timely manner, the execution and operation of works and services by the private sector, as well as diversifying the range of public services and infrastructures, allowing the incorporation of innovations and new initiatives in the sector, among other advantages.

At EY Law, we have the knowledge, experience and different lines of services aimed at meeting the legal needs that may be had in any of the aspects addressed in this article. We have innovative solutions and proposals that favor the development of an excellent business climate at local and international level, based on good business practices, ethics and responsibility with an integral and multidisciplinary team. 

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See more from EY at: www.ey.com

Introduction

In Latin America, concern for environmental and social issues is high and made more urgent in the Coronavirus era. Scarcely a day passes without newly issued statistics, a newly created ESG (Environmental, Social and Governance) index, investor groups weighing in, or a domestic or international political initiative in the area.

ESG is a complex topic, raising a broad range of issues. In Latin America, a number of these issues are centered on ESG investment. With the region demonstrating the strongest demand for ESG investment globally and an influx of public and private investment to aid in rebuilding economies after the COVID-19 pandemic, raising capital in the form of ESG bonds, green loans, and other similar instruments, is not only compelling to investors, but essential for the development of the region.

What is ESG?

ESG is the consideration of environmental, social and governance factors as a way of looking at the long-term sustainability of an entity, alongside backward looking and more short-term financial metrics. How ESG considerations impact an entity or investment opportunity depends on many investor-, entity-, industry-, country- and region-specific factors:

Environmental: How is an entity performing as a steward of the natural environment, including with respect to energy consumption, water management, pollution, and other material issues? Issues include climate change, protection of natural resources, development of renewable and/or low carbon energy, pollution, including carbon mitigation, control and waste management.

Social: How is an entity managing relationships with its employees, suppliers, customers and the communities in which it operates, as well as pressing socioeconomic disasters, such as the current COVID-19 pandemic? Issues include education, which encompasses human capital development within an entity, product quality, social opportunities, and access to healthcare and retirement benefits

Governance: How is an entity handling important structural, policy and behavioral matters, such as executive pay, board composition, ethics, transparency and shareholder rights? Issues include diversity, pay, ownership and control, and corporate behavior.

Forces Driving ESG Evolution

The environmental leg of ESG investing is one of the driving forces of ESG evolution in Latin America. Motivated by a push towards low carbon energy to address the looming threat of a climate crisis, both internal and external forces have played an integral role in its development. The signing of the Paris Agreement by 23 countries, coupled with the September 2019 public pledge by a coalition comprised of a number of the region’s jurisdictions to generate 70% of their electricity needs from renewables by 2030, has resulted in a wide range of opportunities for investors looking to expand their ESG portfolios.

Another driving force is the social leg of ESG investing, which includes addressing the vast gaps in healthcare that have been further exposed by the COVID-19 pandemic. The urgent need to make investments in the development of better health infrastructure and significantly improve access to healthcare is expected to be another source of ESG investment. As new investment vehicles are created to address these issues, such as the COVID-19 bond, this social need will inevitably continue to influence ESG investment.

Basics of ESG Investment

There is a range of ESG investment products, including bonds and loans. ESG bonds are securities issued to address specific Environmental, Social, and Governance matters. The most common ESG bond is a green bond issued by a public or private entity (including a sovereign) in which the issuer agrees to use the proceeds raised for dedicated ‘green’ purposes, typically environmentally friendly projects. A total of 1,802 green bonds were issued globally in 2019, up by 13% as compared to the previous year (according to the Climate Bonds Initiative’s ‘Green bonds Global State of the Market 2019’), and that growth has continued in 2020.

In the lending space, ESG-linked loans, also referred to as sustainability-linked loans, are any type of loan instrument and/or contingent facility, that incentivizes the borrower to meet predetermined sustainability targets. A green loan, in its strictest sense, is a type of ESG loan that has stringent requirements for the use of its proceeds, requiring that said proceeds be used exclusively to finance or refinance green projects, such as those tied to increased energy efficiency, avoided and/or mitigated carbon emissions, reduced water consumption or other assets that have a positive externality for the environment. Unlike with a green loan, proceeds from ESG-linked loans do not need to be allocated to a specific ESG project, rather proceeds from ESG-linked loans can be used for general corporate purposes.

Where is Latin America in the evolution of ESG?

Key ESG Players

ESG key players include a wide variety of entities, such as institutional investors, NGOs, ISS/Glass Lewis, and ESG standard setting bodies.

The International Capital Markets Association (ICMA) has launched the Green Bond Principles, the Social Bond Principles, the Sustainability Bond Guidelines, and as recently as June 2020, the Sustainability-Linked Bond Principles (collectively, ‘the Principles’). Serving as the Secretariat, the ICMA provides guidance for the governance of the Principles, which have become the leading framework globally for the issuance of ESG bonds. Taking the lead role in disseminating this information to catalyze a pipeline of investments, the investor-focused, not-for-profit, Climate Bonds Initiative focuses on developing a liquid green bond market in order to facilitate the transition to a low carbon economy.

Similarly, in the loan market, the Loan Syndication & Trading Association, the Loan Market Association, and the Asia Pacific Loan Market Association, collectively issued the two highest profile loan guidance documents (and their recently published accompanying guidelines): the Green Loan Principles (GLPs) and the Sustainability Linked Loan Principles (SLLPs). The GLPs and SLLPs each provide four core components, all of which must be satisfied for a loan to be deemed a green loan or an ESG-linked loan. With the sustainability finance market currently remaining largely unregulated, these guidance documents are emerging as the de facto market standard.

One development in the region is the implementation of disclosure standards and indices spearheaded by local regulators and stock exchanges. For example, this past year, Mexico launched the S&P/BMV Total Mexico ESG Index, which uses a rules-based selection criterion based on relevant ESG principles. However, ESG reporting is still voluntary. In Argentina, the Buenos Aires Stock Exchange (BYMA) does not require a public company to submit or publish a sustainability report. Instead, in line with international practices, the BYMA has implemented various initiatives to promote good corporate governance and sustainability practices, such as a Sustainability Index with the IDB that serves to highlight leading ESG companies to investors. Brazil is requiring listed issuers to disclose socio-environmental information in their annual reports. The stated purpose is to encourage issuers to make consistent disclosures on social and environmental issues, and provide the market with comparative information, thereby dependably apprising investors of Brazil’s pertinent ESG information.

Many other countries in the region are developing sustainability standards and are looking to enhance the investment products in the space to further aid in economic development.

Overall, Latin America is actively creating many opportunities for ESG investment and we expect that governments and private sector actors will continue to promote ESG investment in the region.

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See more from Shearman & Sterling at: www.shearman.com

The Promised Energy and Infrastructure Investment Opportunities

In the early months of this year before COVID-19 became a global pandemic, all indications were that 2020 would be another record-setting year for investment in energy and infrastructure throughout Latin America. Significant institutional capital was being raised by debt and equity funds with an increasing appetite for and interest in Latin America. More and more global companies and strategic investors were lining up to pursue the development of renewable energy and infrastructure projects throughout the region. Renewable generation was increasingly cost-competitive with other generation without government subsidies, distributed generation was expanding rapidly, and commercial and industrial (C&I) businesses in Latin America were increasingly interested in direct contracting for renewable power. Governments were proposing new policies and reforms: advancing the evolution and diversification of Latin American energy markets, addressing climate change concerns through various investments, tackling urban congestion and pollution with public-private partnerships (P3s) to increase the electrification of public transportation, and structuring a pipeline of P3s to address other infrastructure gaps. Investment returns were better and opportunities more plentiful in Latin America than in most advanced economies. A growing roster of commercial banks and other lenders offering financing for those projects followed, also drawn, in part, by the better returns.

The Aftermath of the Pandemic

Then, the global pandemic spread to the Americas and led to a rapidly cascading shutdown of economic and human activity across the region resulting in an unprecedented deceleration of ongoing construction and an indefinite pause in new projects and investment. Quarantines resulted in a dramatic drop in electricity demand and substantially disrupted logistics for the construction and operation of projects. Government orders mandating uninterrupted supply of essential services coupled with suspensions of payment to private operators and the overall emergency have led to disruptions across value chains, including widespread force majeure claims, all of which have raised questions about the financial health of companies in these sectors despite mitigating efforts by countries like Brazil, Chile and Colombia. In short, the pandemic has set the region back economically, brought about a number of challenges for private and public sector plans for energy and infrastructure projects, and created uncertainty about the post-pandemic future.

It remains to be seen how these various dislocations will be resolved. Force majeure claims, in particular, have been asserted by parties across value chains and may raise a number of questions given the legal intricacies of the provisions that need to be interpreted, the economic consequences of contract milestones, term extensions, performance metrics and related payments, and the impact of these disputes on future contracts. The litigation generally arising from the pandemic, including claims for increased costs due to the pandemic and for the suspension of private operators’ rights to charge tolls or exercise remedies for nonpayment, will take time to be resolved and may produce outcomes that are inconsistent from project to project. Most importantly, investors will be watching the outcomes of these disputes, particularly those associated with government actions requiring private owners and operators to continue to provide services without compensation, in order to reassess political risks and the strength of investor rights under contracts in the different countries in the region.

The Opportunities Remain with Challenges

As the Inter-American Development Bank stressed in this year’s Development in the Americas report, Latin America and the Caribbean should ‘invest more and better’. Countries there/in the region have historically invested much less in energy and infrastructure than other developing regions and closing that gap will require greater and more effective public and private investment to produce better quality public services. The pandemic may shift aspects of how we live our lives and conduct business – and by extension whether we invest more in technology, media, and telecoms (TMT) and digitalization of services – but the need for investment in energy and infrastructure in Latin America has never been greater. Per IRENA’s Global Renewables Outlook, recovery measures that employ technologies consistent with long-term climate sustainability, like renewable generation, flexible power grids, efficiency solutions, electric vehicles, energy storage, and ‘green’ hydrogen, can help drive socio-economic development and create new private sector investment opportunities while addressing climate change goals.

Certain Latin American governments have already adopted policies designed to attract foreign investment in energy and infrastructure and make it a centerpiece of economic recovery efforts. Chile has introduced major initiatives on renewables, green hydrogen and electrification of public buses. Brazil has even reversed decades of prohibitions on the dollarization of contracts to increase the bankability of projects. Additionally, the United States has expressly made it a foreign policy goal to promote investment in energy and infrastructure in Latin America and the Caribbean in order to encourage a geographic shift in key suppliers to the United States from China and Asia to the Americas.

Further, the fundamental factors that promised opportunities prior to the pandemic – availability of capital, appetite for greater returns and need for investment – remain. There has been a reassessment of risk among investors and lenders and recent reports estimate that only a small percentage of newly raised capital is earmarked for Latin American investments. The International Energy Agency has cautioned that sponsors and investors will find that governments have focused their attention and resources on addressing the immediate impacts of the pandemic. As a result, government sponsorship of projects will be limited and public sector processes, including tenders, permitting and regulatory procedures, will be subject to delays. Moody’s predicted in July that future financing of energy and infrastructure will come from multilaterals and institutional investors given governments’ fiscal constraints and commercial banks’ focus on strengthening their balance sheets. Consequently, financing projects will be more difficult, particularly projects viewed as being riskier.

Nevertheless, from the perspective of Latin American companies, investments to ensure more reliable and affordable supply of electricity and infrastructure are essential to competitiveness and profitability and by extension economic growth. The pandemic has also underscored, if not accelerated, the public’s focus on climate change, ESG and sustainability concerns, including environmental and social costs, the importance of a diversified, reliable supply of energy, and the broad impacts of choices made with respect to infrastructure. As IRENA and OLADE stated in announcing their expanded collaboration this past July, ‘accelerating the development of sustainable energy’ as part of the economic recovery following the pandemic ‘could provide the Latin American region with a long-term strategy to address social inequality, energy access and energy security’. Companies seeking to encourage investment can support broad adoption of renewable generation or contract directly with developers and project owners seeking creditworthy buyers for their electricity. They can also partner with those developers as has happened in the United States to provide capital while mitigating political risks in this uncertain time. Consequently, we remain optimistic that there will be good investment opportunities in Latin America and that Latin American companies with access to industry expertise and seasoned counsel experienced in structuring and negotiating successful investments can play an active role in ensuring these positive changes continue. 

 

Maria-Leticia Ossa Daza is a partner in the Corporate & Financial Services Department and head of the Latin America Practice at Willkie Farr & Gallagher LLP. Jorge Kamine is a partner and Matt Vitorla is an associate in the Corporate & Financial Services Department of Willkie Farr & Gallagher and both are members of the Latin America Practice focusing on the energy and infrastructure sector.

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The belief that strategy is critical to dispute resolution is one of the few things that businesses across Latin America have in common.  Everything else, from an organization’s appetite for conflict, to its preferred method and forum are all up for grabs.

Even on the question of where responsibility for resolving a dispute sits within an organization, GCs are divided: just 61% of respondents to our survey said that disputes were the responsibility of the general legal team, with others saying responsibility should fall either to a dedicated disputes attorney/team (25%), to external counsel (11%).

Given the large range of approaches towards dispute resolution across Latin America, what can be gleaned from the insights of in-house counsel working throughout the region?

Current Disputes

To gauge how much time and attention disputes and contentious issues are taking up on the agenda of Latin American in-house counsel, survey participants were asked  about how their disputes volume has changed over the past two years, and how they felt it was likely to change in the coming months.

Our survey shows dispute volumes have been stable over the past 24 months, with 62% of in-house counsel reporting that their portfolio of disputes has been consistent over this period. Just under a quarter (24%) reported an increase, while only 12% said that the level of disputes within their business had decreased.

However, when asked to look ahead and state their expectations for the future, GCs painted a very different picture. Well over half (65%) of respondents said they expected an increase in the number of disputes that their business would be involved in over the next 24 months, with just 3% predicting a fall in disputes over this period. Around a third (31%) expected no change.

Disputes aside, the impact of current events was clear: 81% of respondents reported that their team had become more likely to be consulted on employment matters within the past twelve months, and it seems likely that employment actions in the wake of COVID-19 was the main driver of this.

Further, 66% of counsel reported that their company has entered into discussions with their business partners to help renegotiate each party’s obligations due to the COVID-19 pandemic; 71% said that COVID-19 had made them more likely to do so.

Again, this suggests an increase in the level of contentious issues being dealt with by the legal team in the present time, either resulting from a failure to meet payment obligations or other failures to meet contractual obligations. On the other hand, such willingness to enter discussions with partners in the supply chain suggests an amenability on the part of in-house teams and their businesses to taking a practical, lenient approach to commerce during the pandemic. Many businesses are feeling the crunch, and with reduced capacity in courts and dispute resolution venues across the globe, there may be little to be gained from a steadfast insistence on contractual rights.

Methods of Disputes

When asked what type of dispute resolution methods they or their team had employed in the previous 12 months, in-house counsel across Latin America showed a tendency toward litigation, with 64% having been involved in a major litigation over the past 12 months. Arbitration was the next most common answer, at 38%, followed by mediation at 27% and ‘other’ at 11%.

But one common sentiment to come out of the interviews conducted for this report has been that alternative methods of dispute resolution – the likes of arbitration and mediation – are beginning to become a key part of the in-house toolkit.

‘I really think that mediation is a great way to solve disputes,’ says Sandra Gebara, Legal, Compliance, Risks and Corporate Affairs Director at Via Viejo in Brazil. I am using mediation very often in my company, in [matters such as] civil, labor or property disputes and the results are more efficient in terms of costs, time and the mood of the parties involved. It is an effective and, usually faster dispute resolution than litigation. It works better in certain jurisdictions of Latin America than in others.’

Similar sentiments were expressed in favor of arbitration.

‘Our organization firmly believes in the benefits of arbitration as a means of conflict resolution,’ shares Ana Maria Florez, general secretary and corporate legal director at the Cardiovascular Foundation in Colombia.

‘So much so that 90% of the contracts the company enters into have an arbitration clause. Its permanent use has led to the establishment of this practice as a mandatory institutional policy.    Therefore, disputes are resolved in the arbitration courts.’

However, efforts to avoid disputes were clearly just as important to in-house teams as which forum might be best suited to the resolution of conflict. This has become an especially pressing consideration given the stress on the court system and other dispute resolution venues in the wake of the COVID-19 pandemic.

‘At 3M we work a lot in preventing [a situation] getting to a conflict that would need a third party “court” or an “alternative form of dispute resolution”,’ says Ivan Loynaz, general counsel at 3M Mexico.

‘Getting to the point in which a discussion turns into a legal fight [is a bad outcome]. We work a lot in prevention, and we work a lot in partnering with the business to avoid or mitigate the risk of getting to a moment in which we have to go to court or arbitration. Of course, we cannot [always] avoid it. But we do everything in our power, and again always observing the right ways and the law, to not get there. To negotiate and to enter into an agreement over the contract and to keep our commercial process as clean as possible from all of that. Most of the time we get it: we do not have a lot litigation and we do not usually take or choose arbitration as the means to resolve a conflict. That is because we do not get into those conflicts at the end. We solve those conflicts before. There are just a few cases in which a situation would end in court. That is the way we see it. This does not mean that we do not believe other alternative ways of solving conflicts. We do believe in them, and we have participated in dispute processes around Latin America.’

Remote Access

The disputes sphere has been under particular pressure to adapt and reinvent itself over the course of 2020. With entire populations quarantined indoors for large chunks of the year, courts have had to find a way to deal with the growing backlog of hearings while balancing the risks associated with gatherings in public spaces. For example, Colombia postponed all but the most urgent of proceedings and introduced videoconferencing for judges; Chile has introduced remote hearings and prioritized cases relating to pandemic management; other countries throughout the region have introduced similar measures.

But as the normal dispute resolution infrastructure buckles under the pressure of varying levels of isolation and quarantine across the region, there may be an opportunity for in-house counsel to explore other avenues of dispute resolution: taking your place in a long queue to embark upon litigation that will be heavily disrupted by COVID-19 is not likely to be enticing for businesses and their legal teams, especially if an alternative is available.

Judiciaries across the region have implemented remote-access policies for pandemic-era dispute resolution, albeit to varying degrees. The case for this makes itself: the courts will not be able to cope if every potential party to a dispute waits for a future time where the pandemic will not be a factor. However, there have been a number high-profile incidences of video conferencing software being compromised (be it through user error, software bugs or something more sinister altogether), so how do in-house counsel view the prospect of remote dispute resolution?

When asked how comfortable they were in using remote-access courtrooms and alternative dispute resolution services (such as remote arbitration during the pandemic, for example), answers were mixed. 63% were at least somewhat comfortable with the prospect, although 39% in total were only ‘somewhat’ comfortable – the single most-common answer. 21% reported being somewhat uncomfortable with the idea, and 2% said they were very uncomfortable.

When asked what, to the extent that they are uncomfortable with the idea of remote dispute resolution, was their biggest concern, the most commonly cited reason was a lack of face-to-face time with the opposition, followed by cybersecurity concerns. Privacy, confidentiality and a lack of infrastructure were the next three most common reasons given.

‘Any dispute resolution mechanism works upon negotiation and therefore, the lack of face to face time decreases the possibility to read the opponents reaction,’ explains Melania Campos, legal director at Grupo Garnier in Costa Rica.

Choosing a Venue

Another factor comes from the fact that the region is made up of closely connected but independent economies and governments. It means that senior counsel in the region often oversee very distinct yet geographically close jurisdictions, so their opinions on the viability of alternative methods of dispute resolution will likely depend on the infrastructure available to them in their jurisdictions.

‘One of my biggest concerns is about local arbitration/dispute resolution mechanism in highly corrupted countries, where there is lack of objectivity during the process,’ says Michelle Canelo, legal director at Cargill in Honduras.

‘In that sense, for certain countries we have decided not to use arbitration. On the other hand, when we use arbitration as a dispute resolution mechanism, we may feel more confident using an international headquarters.’

For example, those counsel who were based in the United States (yet having responsibility for countries within Latin America) were almost all very comfortable with using remote access dispute resolution infrastructure, whereas those based in Colombia were most likely to have reservations about using remote dispute resolution. Similarly, when asked where their preferred seat of arbitration would be, the most common answer for GCs across Latin America was the United States, with Chile a close second.

‘On some other occasions, we may choose formal arbitration within an arbitration centre,’ explains Loynaz at 3M Mexico.

‘Generally speaking, we would only choose centres we trust and only in cities within which we have a presence. In some occasions where the issue is more global, you might be pulled into the next stage, but that is not very common. As I said, we spend a lot of time making sure we do not get to that point.’ 

It’s no surprise that the COVID-19 pandemic has forced human coexistence to rethink, revalue and reinvent itself in all aspects. Indacochea Asociados (IA) attorneys were no exception.

During this time, the Bolivian National Government issued a series of regulations in order to mitigate the impacts on our country. Regulations were focused mainly on labor matters, financial and tax compliance extensions, economic reactivations programs, enforcement of technology driven commercial mechanisms and most importantly, regulations regarding public health.

Due to quarantine, commercial and economic activities were practically paralyzed at a general level, which generated major uncertainty in the labor force where, despite the quarantine, employers were forced to take on a social burden while being limited or unable to continue commerce or cover day-to-day expenses. Adding complexity to this situation of uncertainty, Bolivian legislation provides high regulatory protection and labor stability for employees, which was reinforced by new regulations issued during the strict quarantine. Law No. 1309 established the prohibition to dismiss employees during the quarantine, a prohibition that would be applicable for a period of two months after the state of emergency had been concluded.

However, as the quarantine was constantly extended, some activities and restrictions have been partly lifted by the government, allowing the development of essential activities on-site. These measures have been regulated by Supreme Decree No. 4218, which establish guidelines, obligations and conditions for the execution of home office practices at a national level – work practice that has been highly encouraged by well-established companies. The implementation of these measures certainly upgrades labor practices in Bolivia.

Likewise, and as encouragement to taxpayers, the National Government through its National Tax Service issued several regulations aiming to provide payment facilities and extension deadlines for applicable taxes levied over personal and company obligations. These policies were reflected in programs that allow flexibility in the fulfilment of tax obligations, thus avoiding potential applicable sanctions by the National Tax Service. Similarly, these regulations provided various incentives for those taxpayers who complied with tax obligations in a timely manner or who performed donations directed to COVID-19 pandemic relief.

The Bolivian Registry of Commerce has issued a new Manual of Commercial Procedures which intends to reduce bureaucracy in all commercial acts that must be registered before this authority. This manual recognizes the digital signature as a valid way of securing certain commerce acts required by the Bolivian commerce code. Moreover, through new commercial regulations, it is now legally accepted that shareholders meetings may be held via communication technologies (prior to COVID, all shareholders meetings required shareholders to be physically present in the legal domicile of the company). Alongside this, the Bolivian Financial System Authority allowed for certain banking procedures to be executed with digital signatures, thus avoiding the physical presence of the interested party at financial offices.

In regards to welfare programs, the Bolivian Government provided economic support and relief to the general Bolivian population through various bonds. These bonds have been aimed at those whose economic or employment situation has been severely affected by the pandemic.

Taking into account the extended duration of the quarantine applied in Bolivia (In accordance to Supreme Decree No. 4199 strict quarantine started on 19 March and flexible and dynamic quarantine was established starting 1 June), the country’s economy will surely be impacted; experts predict anything from a 3% to 9% contraction in 2020.

In order to reverse these mid-2020 economic growth projections, the Bolivian government, through Supreme Decree No. 4216, Ministerial Resolution No. 159 and Ministerial Resolution No. 160  issued economic programs to support micro, small and medium enterprises, as well as programs to support employment and labor stability. These programs extended bank credits to micro, small and medium businesses bank credits in service of two main objectives: avoiding closure and maintaining jobs.

Additionally, and with the sole objective to reboost the national economy, a loan program was launched to promote the consumption and production of national goods and services. This loan has an historically low interest rate of 3% per year and intends to reactivate consumer buy-ins .

Despite the fact that economic support measures have become a reality, the current political scenario in Bolivia has made it difficult for them to materialize. A continuous struggle between the Executive Branch, which holds office, and the Legislative Branch, which holds a majority has seen the initiatives of one side opposed by obstacles from the other. This situation can be clearly identified with law projects in regards to international loans and sovereignty bonds proposed by the Executive Branch and blocked by Legislative Branch.

Although during the first months of the National Emergency the national economy was affected, as of June an increase in the labor market and in the generation of labor income could be witnessed, according to studies carried out by the National Institute of Statistics. Likewise, as a result of the implementation of virtual registries before the Trade Registry, there was an increase in the creation of small and medium enterprises, which implemented innovative business models and e-commerce in their offer of services and products. Also, because of the recently issued resolutions by the National Tax Service, tax incentive programs were created, implementing a system applicable to individual entrepreneurs and start-ups which offers access to a unique tax, as a replacement to traditional taxes applied to ordinary businesses.

We consider that despite the limitations COVID-19 brought to Bolivia and the world, it has given birth to what we call the Bolivian Legal System 2.0. This version comes with legal technology innovation, debureaucratization of public institutions’ procedures and new opportunities to reinvent business. It is necessary to adapt quickly to the new limitations and obstacles that are found in our reality, and to seek the effectiveness from the offer and customer satisfaction to provide the results that are sought.

The current situation has forced the state to adapt quickly, responding effectively with incentives that promote foreign investments likely to help the country’s continued economic growth. In this matter, new investments can count on a far higher level of legal protection than was offered by previous governments. The Government’s guidelines on new investments are certainly promising, and investors can have every confidence that legal protections are robust and will be enforced.

Thus, even though we are aware that much more needs to be done, COVID-19 certainly changed the rules of the game and government officials must continue to promote Bolivia as a promising emerging market, securing not only local but international investments. They must, they will.

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See more from Indacochea & Asociados at: www.indacochea.com

Regardless of the fact that Ecuador’s economy is the eighth largest in Latin America and the Caribbean (among 33 countries), Ecuador has amazing potential of business activities in the mining, energy, tourism and agriculture industries. With large natural mineral reserves (in gold, cooper and iron), amazing conditions for the development of energy projects, especially photovoltaic and hydroelectric energy, incredible tourism locations such as the Galapagos Islands, beautiful highlands, and considered to be one of the most bio-diverse countries in the world, Ecuador is also one of the top exporters worldwide of bananas, shrimp, flowers and cacao.

Due to all these interesting factors and many others like a dollarized economy, the government’s current policy has been focused in promoting attractive conditions for foreign investors and working on improving the benefits that were already granted in the Organic Code of Production, Commerce and Investment (COPCI) published in December 2010, but had little or none effect during the previous government (aligned to Hugo Chavez ideology).

The Law of Productive Development, Attraction of Investment, Employment Generation and Fiscal Stability (Investment Law) enacted in august 2018, offers to investors the possibility of obtaining interesting benefits such as: tax exemptions (income tax and currency remittance tax), reduction of custom tariffs, legal stability and entering into arbitration agreements while entering into Investment Agreements with the State, which has given law firms a new scope of work that involves project finance, tax, regulatory matters and contracts.

Furthermore, Ecuador offers investors a dollarized economy and a much more transparent State which has promoted transparency and the implementation of ISO 37001 anti-bribery among its government institutions and companies. These benefits have caused almost a 130% increase in foreign direct investment in comparison to the former government as per studies of the Central Bank of Ecuador.

However, despite the new foreign investors that came in different industries due the favorable conditions of the Investment Law and the effort of the current government to solve the extremely high debt left by the former government (which in addition to other matters caused a division among the elected political party, some in favor of the previous government and some in favor of the actual government), the economy of Ecuador was affected again by a combination of different factors.  These are the social unrest events that occurred not only in the country but also in the Latin American region around October 2019, followed by the oil crisis (price-drop), the damages in the local oil pipelines due to massive landslides and COVID-19.

COVID-19 impact not only revealed the deficit in the country’s health system but also caused the lockdown of the country and the suspension of most economic activities for a couple of weeks. As a consequence, certain small businesses have faced bankruptcy or many other, have had to reduce their production capacity and employment force, generating many opportunities for law firms in debt restructuring, ADR and labor advice, that had to innovate their services to provide legal assistance while working from home.

In addition, Ecuador has upcoming presidential elections on February 2021, and the political scenario is uncertain due to the fact that most of the high public official (President, Vice President and some ministries) of the former government have been prosecuted in relation to corruption allegations, and there is low probability that they can run for a public position. As such, after 14 years of having the same political party in government, there is a high probability of having a different political party achieving the presidency.

Some of the key aspects take into account while deciding to invest in Ecuador are the following:

Key Indicators for 2020 and forecast

Current Business Environment

Tax Regulation

Bellow a brief description of the main taxes applicable to commercial activities in Ecuador:

a) Income Tax

Income tax taxes the rent obtained by persons and local and foreign companies. Under the Ecuadorian law, income refers to:

Income from Ecuadorian source obtained free of charge of from work or capital.

Income obtained from abroad by persons domiciled in Ecuador or by Ecuadorian companies.

The tax basis is the total taxable income, less returns, discounts, costs and expenses deductible and attributable to such income. In general terms, the rate for companies is of 25%.

b) Value Added Tax

Tax on the value of transfer of ownership or import of goods, services, copyrights, industrial property and related rights. A 12% rate is applied over the price of goods and services. Some exceptions may apply to certain goods and services that will be taxed with a 0% rate.

c) Currency Remittance Tax (ISD)

The Currency Remittance Tax (ISD) taxes transfers in cash, through money orders, bank transfers, shipment, withdrawals or any payment of any kind, of currencies sent abroad, with the exception of an account clearing made with or without the intermediation of financial institutions.

The tax rate of 5% is applied over the value of the currency transfer. This tax is declared and paid by the financial institution by which the financial operation is carried out.

d) Capital Gains Tax or Property Transfer Tax

The tax rate for Capital Gains Tax and Property Transfer Tax ranges from 2% to 10%.

Labor – Profit sharing

15% of the net earnings of a company are distributed to all employees in the payroll. It can also apply to employees of companies that provide the company complementary services such as catering, security, cleaning and courier services. From the 15%, 10% is divided and distributed to all employees. The remaining 5% is distributed in accordance with the employee’s household.

Profit Sharing in mining, oil, and hydroelectric companies: as an exception to the general profit sharing rule, that the 15% of the annual profit must be distributed to all employees, in the case of mining, oil and hydroelectric companies it is only distributed 3% to all employees in the payroll, and 12% is distributed to the state.

Public Private Partnerships

The government has promoted Public Private Partnerships (PPP) which can be established for the provision of goods, building infrastructure, or services. All terms and conditions of PPPs are set out in a contract that must be signed with the public entity.

The PPPs have, among others that might be agreed upon the contractual parties, the following incentives:

a) Legal stability.

b) Income tax Exemption: Income tax exemption for ten years in projects in the prioritized sectors determined by an inter-institutional committee, period which starts from the first fiscal year in which the company generates operating income.

c) Currency Tax Remittance Exemption:  All companies that participate in an PPP will be exonerated from ISD in the following scenarios:

• In the importation of goods for the execution of the public project, whatever the import regime used.
• In the acquisition of services for the execution of the public project.
• The payments made by the company to the financiers of the public project, including capital, interest and commissions, provided that the agreed interest rate does not exceed the reference rate at the date of registration of the credit. The benefit extends to subordinate loans, provided that the borrowing company is not in a situation of undercapitalization in accordance with the general regime.
• The payments made by the company for distribution of dividends or profits to its beneficiaries, notwithstanding where they have their fiscal domicile.
• Payments made by any person or company due to the acquisition of shares, rights or participations of the structured company for the execution of a public project in the PPPs modality or for transactions that fall on securities representing obligations issued for the financing of the public project.

d) Reduction of tariffs: Customs tariffs that are related to the PPP projects will also be exonerated

e) International or domestic arbitration agreements

The incentives mentioned above may be enjoyed for the term agreed upon in the contract, with the exception of the income tax exemption, which can only be 10 years.

Investment Contracts

The Investment Law and COPCI benefits are directed to those new investments (either made by foreign or local investors) that meet the criteria of new productive investments in prioritized sectors of the economy that increases production and generates new employment.

The benefits granted by the government will depend on the investment project, its location, its industry, whether is a new company or an existing one, amongst other criteria, as shown bellow:

a) Total or partial income tax reduction from 8 to 15 years.

b) Currency Remittance Tax (“ISD”) exemption for the payment of imported machinery and raw materials, and for the payment of profits to foreign shareholders.

c) Tax stability for up to 15 years of the current applicable income tax rate. This provision does not provide stability for municipal, customs nor VAT Taxes.

d) Temporary exemption of custom tariff.

e) International or domestic arbitration is available for investors.

Initially, the aforementioned benefits apply for those investments made up to August 2020, but the President has recently extended the benefit for 2 years more, until 2022.

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See more from Paz Horowitz at: www.pazhorowitz.com

Fraudsters, money launderers, and corrupt government officials in Latin America (LATAM) have been running rampant, capitalizing on the coronavirus emergency. COVID-19 is posing unprecedented challenges to compliance professionals in LATAM, both in-house and external, for preventing, detecting, and reacting appropriately to compliance risks, especially in a remote working environment replete with financial strains, and massive surges in alerts caused by changes in the behavior of clients, employees and third parties.

Against this unprecedented backdrop, we present the following summary of recent compliance trends for organizations doing business in LATAM.

Additional corruption risks

With governments in the region allocating significant resources via expedited public procurement processes, the risk of corruption has dramatically increased in LATAM. Further, as pressures grow on sales representatives, consultants, and distributors to keep businesses afloat, individuals are tempted to bribe government officials. Not surprisingly, law enforcement agencies in Mexico, Guatemala, Honduras, Panama, Colombia, Ecuador, Bolivia, Argentina and Brazil are conducting criminal investigations against a number of senior officials for participating in schemes to misappropriate emergency COVID-19 funds, or for engaging in the fraudulent purchase of ventilators, masks and other medical supplies.

Critically, multinationals face heightened exposure to corruption allegations, because such enterprises can potentially, in the course of regular business operations, inadvertently assist, sponsor, or provide financial, material or technological support for forms of corruption such as the misappropriation of public funds, collusion, opaque contracts, and overpricing. The risk is even higher when organizations interact with government officials, especially in situations involving government procurement and inspections, customs clearance, licensing and permitting and donations.

Ramifications for multinationals operating in LATAM of being involved in, or associated with, corrupt practices is significant. For example, they can be the target of US enforcement actions, including criminal investigations under the Foreign Corrupt Practices Act (FCPA) for suspected involvement with bribery of foreign officials, and/or under the US Money Laundering Control Act for engaging in monetary transactions in corruption proceeds. Additionally, foreign companies believed to be involved in corruption can have their assets blocked under the Global Magnitsky Human Rights Accountability Act.

In fact, the US Government has continued to aggressively fight corruption in LATAM this year through criminal and civil penalties, in addition to economic sanctions. Notably, the Department of Justice (DOJ) has criminally charged individuals and corporations for FCPA violations in connection with the bribery of foreign officials in or from countries such as Uruguay, Brazil, Panama and Venezuela.

The US Government also recently released new compliance guidance to enhance its FCPA-related enforcement efforts globally. On 1 June 2020, the DOJ released its revised Guidance on Evaluation of Corporate Compliance Programs to further explain its assessments of the design, implementation, and effective operation of corporate compliance programs in criminal cases. And, a month later, the DOJ and the Securities and Exchange Commission (SEC) released a new edition of their FCPA Resource Guide, which advises on prosecutorial guidelines in FCPA matters.

Also, the US Government has expanded its economic sanctions related to countries that are believed to be under corrupt regimes, such as Venezuela. Specifically, the US Government has sanctioned several individuals, entities, and vessels for operating in designated sectors of the Venezuelan economy, or for their attempts to evade US sanctions related to Venezuela.

Coronavirus-Related Fraud

Law enforcement agencies from Panama to Argentina are investigating criminals impersonating government agencies, international organizations, and healthcare facilities to solicit donations, steal personal information, or distribute malware (imposter scams); fraudsters misrepresenting that the products or services of publicly traded companies can prevent, detect, or cure the coronavirus (investment scams); companies selling unapproved or misbranded products that make false claims pertaining to COVID-19 or fraudulently marketing COVID-19-related supplies (product scams); individuals and entities stockpiling items in high demand to sell them at extremely high prices online and in person (price gouging); and insiders conducting transactions based on, or tipping others with, material non-public information about the negative impacts of COVID-19 on the financial performance of shares (insider trading). Business email, telework, and social media scams, ransomware attacks, and phishing email schemes have also proliferated in regions such as Puerto Rico, Guatemala and Mexico.

Organizations should take great care to familiarize themselves with emerging trends associated with coronavirus-related fraud identified by regional law enforcement agencies, in order to promptly detect and report criminal activity. In addition, businesses applying for relief programs offered by governments in LATAM should track and understand the eligibility requirements under local statutes, to prevent future civil and/or criminal liability for sanctioning benefits fraud.

Increase in Money Laundering (ML) And Financing of Terrorism (FT)

On April 8, 2020, the Financial Action Task Force of Latin America (GAFILAT) issued its ‘Statement on COVID-19 and its associated Money Laundering ML and FT risks.’ In it, GAFILAT cautioned that controls aimed at preventing and combating ML and FT in the region have been compromised by the pandemic, due to a decrease in compliance staff at reporting entities. GAFILAT also warned that criminal organizations are stepping up recruitment to support ML-related activities, and that pawn shop services, lenders, as well as informal financing are being used for ML and FT in the region now more than ever.

In fact, a number of law enforcement agencies in LATAM are witnessing an increase in the recruitment of people, sometimes under the pretext of legitimate employment, to receive deposits of illegal money into personal bank accounts; as well as an increase in illicit financial flows, including trade misinvoicing, tax evasion and the criminal smuggling of cash, gold, diamonds, and illicit goods across borders.

There is also a growing concern among Governments in LATAM of criminals using cryptocurrency in the midst of the pandemic to hide the illicit origin of funds stemming from blackmail, extortions, imposter and investment scams, and charities fraud.

Recommendations

While most government agencies in the region have granted some measure of regulatory relief to organizations upon considering the current circumstances, there is no ‘pandemic defense’ for violating applicable laws. Organizations should make every effort to meet their compliance obligations, such as filing suspicious activity reports and conducting comprehensive, risk-based, and integrated customer and third-party due diligence.

Given the additional risks caused by COVID-19 in LATAM, organizations should also update their risk profile to determine where vulnerabilities exist and enhance their controls, including customer and third-party due diligence procedures, around those vulnerabilities. For example, organizations should design and implement digital identity systems under the on-point guidance issued by the Financial Action Task Force (FATF) on 6 March 2020. In it, the FATF explains several factors for assessing whether a digital identity system is sufficiently reliable and independent to conduct customer due diligence.

Lastly, organizations should make the best of technological resources to provide employees, customers, and third parties with training programs, together with mentoring and capacity building support, so all stakeholders are familiar with the red flags of fraud, corruption, and money laundering, and can take timely and appropriate remedial action.

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See more from Diaz Reus at: diazreus.com

The responses to The Legal 500 and GC magazine’s GC Powerlist: Latin America Survey illustrate the far-reaching and continuously expanding role that in-house counsel are playing in their businesses across the region. General counsel are a multitool, able to step in and assist their company as needed. But this also means that the differences between in-house roles are becoming more distinct: the portfolio of one general counsel might look very different from another, even in the same jurisdiction.

For example, as a part of the survey, participants were asked about the role they play in their organization’s technology investment policy. When asked how involved they were, nearly as many characterized themselves as ‘very involved’ as they did ‘slightly involved/not involved at all’ (30% and 29%, respectively).

Similarly, though the majority reported being ‘very involved’ in the event that the company needs advice on debt restructuring (72%), the second-most common answer was that the legal team is never consulted in these scenarios (14%).

‘Yes, I am proud to say that my team is very responsible with their work and with the company,’ gushes Alejandro Fernandez, head of legal at Cotemar in Mexico.

‘But how they are showing commitment is amazing. They just do not comply with their daily activities, but they interact with other areas to provide support – even if there is not related to legal performance.’

The versatility of in-house counsel has come to the fore over the course of 2020, but a widely held view among the Latin American in-house counsel interviewed for this survey is that the challenges of this year have merely given the opportunity for lawyers to demonstrate a level of adaptability and utility that was always there.

‘It has just confirmed that we are committed and always business oriented, and very creative in addressing difficult times, such this one,’ says Catalina Gavivria, legal vice president at  SBS Seguros in Colombia.

‘We are always asking about business results and we know that if we deliver our work quickly, it will facilitate business.’

When asked what he’d learned about his team over the past year, Jorge Hirmas, general counsel at Orica in Chile, pointed to ‘resilience, the capacity to adapt and quickly adopt change and perform under unprecedented strenuous and stressful circumstances’. The words ‘adaptability’ and ‘resilience’ came up a lot over the course of the research conducted for this report.

‘Resilience, empowerment, independence, high accountability’, were the words offered by Pablo Urrego at Diageo.

‘Creativity is a part of our job’, says Alfonso Videche, regional legal director for Colgate-Palmolive.

Sanitary and economic crises are challenging Chile’s modernization. Great leadership to guide Chile in combining the right experiences from the past and adapting the country to new demands and reality will be needed to overcome social and economic difficulties Chile is currently facing.

Chile is generally regarded as South America’s most stable and prosperous country, renowned for competitiveness, political stability, economic freedom, and low perception of corruption. Its market-oriented economy, based on a neo-liberal model implemented in the 70’s, is characterized by a high level of foreign trade, open market policy and sound financial institutions and policy. Chile is member of the OECD, being the only South American member (together with Brazil) with a GDP worth USD$282.3bn, and a GNI of USD$15,010, similar to countries like Poland or Croatia. It has the second-lowest tax burden in the OECD and the government maintains a tight rein on fiscal spending, ensuring the highest credit rating among the major economies of Latin America. It is an active member of the Pacific Alliance, the principal regional multilateral trade platforms, and has bilateral free trade agreements with basically all of the major economies in the world.

Being primarily a mining-based economy, Chile enjoyed for several years high economic growth figures of about 5%. Growth rates were, pre-COVID-19 , between a more modest 2% and 4% and similar rates are expected for 2021.

Chilean economic policies favor foreign investments. FDI increased by 63% from USD$7bn to USD$11bn in 2019, sustained by investment in utilities, mining and services. FDI stocks reached USD$268bn, a rise of more than USD$100bn if compared to 2010. Investments are mainly oriented towards mining, finance and assurance, transportation, energy and manufacturing.

The coronavirus crisis and simmering discontent over inequality in a neo-liberal economic model have forced the conservative government under President Sebastian Pinera to adopt measures that both allow for political reforms and stimulate the economy. It announced a constitutional referendum which will be held in October, which may lead to a new model that minimizes social disparities and equalizes the distribution of wealth, and is in the process of implementing a fiscal stimulus package worth USD$11.8bn (4.7% of GDP) to increase productivity and innovation in key sectors.

The stimulus package covers, among other things, increased investment in infrastructure, implementing protective measures to protect workers against a loss of income, providing support through tax measures and the creation of social funds and state backed credits. In parallel, the parliament just adopted a controversial reform, not backed by the government, allowing citizens to have 10% of their pensions savings paid out as emergency coronavirus aid and is discussing legislation prohibiting utilities companies to cut basic services (water, gas, electricity and internet) in case of non-payment by their clients. The Central Bank of Chile, for its part, reduced the fiscal policy interest rate to 0.5% and announced an increase of its bond purchase program of USD$4bn as well as measures loosening regulatory credit requirements.

An injection of over USD$8bn is projected into water and other infrastructure, including short-term projects worth USD$150m starting in 2020. The projects include road maintenance, the building of irrigation systems, drinking water facilities, hospitals, ports, airports, and inland water management systems. Most of these projects will be carried out through private or public concessions and the Ministry of Public Works has already initiated the first tenders in the public health care sector worth USD$2.5bn.

The temporary tax measures, loosened credit requirements and government reliefs include, amongst others: 0% stamp tax rate for credit, financial and refinancing transactions (until October 2020); expenses incurred in Covid-19 related measures will be deductible for income tax purposes; deferral of VAT payable with 0% interest; deferral of annual income tax payment for small and medium sized companies; early return on income tax; deferral of payment of real estate tax; deferral of mortgage backed loans; flexibilization of loan maturities for small and medium-sized companies; increase of the credit capacity of the National Bank to mainly support citizens and micro businesses; creation of a social fund for micro businesses; state support to finance credits for micro businesses; and subsidies and socials fund for citizens without formal employment and unemployment insurance.

In addition, and in order to generate additional resources to the State, opposition deputies of the opposition presented a draft constitutional reform that would allow to establish a capital tax, a project currently under discussion in Congress and which has received strong criticism from experts, taking into account the lack of clarity of the tax to be established, lack of clarity in the determination of the associated tax base and the effects that taxes of this kind have generated in legislation, and that are associated with wealth and capital flight.

Employment and security related measures adopted or underway include: temporary unemployment insurance; the possibility for an employer and employee to agree on a suspension of the labor relationship or reduction of the work hours with a proportional reduction of the salary, cases in which the affected employees access to the benefits of their unemployment insurance; suspension of working contracts in case of a mandate by the competent authority with access to the same benefits; safety obligations to assure the health and wellbeing of the employees. New regulation on ‘teleworking’ (Law N° 21.220) was adopted regulating remote work and work by technological means, establishing rights and duties for workers and employers. The adopted measures have been a relief for employers and employees, as they intend to prevent the termination of the labor contracts and the increase of unemployment, and numerous companies has applied those measures. However, projections show that the companies will not be able to reintegrate all the suspended employees, and will have to dismiss them, in which case their unemployment insurances will be depleted, as they already make use of them during the suspensions.     

On the other hand, aid to large corporations has been difficult. Latam Airlines Group, Latin America’s largest air carrier, sought bankruptcy court protection in New York after the COVID-19 pandemic grounded flights across the region. The government has been reluctant to come to the rescue, very much like other governments in the region, although discussions are ongoing. These discussions seem to stall government support to other large corporations as well.

The implementation of these measures and the direct effects of the economic slowdown on businesses are providing legal practices with a vast stream of advisory work. Additional work comes from significant legislation or legal modifications. Most noteworthy, on a fiscal level, is the adoption in February of law N° 21.210, modernizing the tax legislation. It is aimed to grant certainty to taxpayers regarding audit processes, the possibility of conducting out-of-court transactions in respect of ongoing litigation, and the digitization of processes, among other things. Moreover, it introduced a new tax on digital services provided by suppliers residing abroad, so that depending on the tax quality of the local beneficiary of the service, these will be affected by either VAT (at a rate of 19%) or withholding tax. At the income tax level, a number of amendments are being made, the most relevant being the following: corporate tax of 27% for large companies and 25% for small and medium-sized companies under a simplified income determination system;  the is the possibility for small companies of opting for a ‘pass-through’ system, so that the rents generated by the company are taxed directly at the level of its owners. Other modifications relate to changes to the concept of accepted expenditure for tax purposes; incorporation of legal definitions for the determination of the possible establishment of a permanent establishment in Chile; the establishment of a new entity to support and guide taxpayers; and incorporation of a new tax or contribution applicable at the regional level for certain investment projects.

Other recent or upcoming modifications include a recent update of banking regulations, modernization of the criminal code, and strengthening of anti-trust and anti-corruption regulation, amongst others. In parallel, there is a growing emphasis on compliance, corporate governance, data protection and data privacy, stimulating companies and the business community to adopt higher standards of corporate governance and business ethics. 

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