[author: Matías Mora Simoes]

Introduction

Under President Biden’s Administration, the U.S. Government has launched a strategy to address the root causes of migration in Central America. Two of the key components of this strategy are the fight against corruption and the promotion of economic development in the region known as the Northern Triangle, formed by Guatemala, El Salvador, and Honduras.

To accomplish those two objectives, the Administration has launched its Call to Action initiative, which is aimed at promoting economic opportunity in the region through private sector investment. In its focus on rooting out corruption, the U.S. will implement the Engel List, which is meant to sanction local corrupt individuals with a range of anticorruption measures.

The Call to Action initiative recently reached an investment level of more than US $1.2 billion, with leading companies such as Microsoft, Mastercard, and PepsiCo, among others, having pledged their commitment to the initiative in its first stages. It is expected that the initiative will generate further commitments by other comparable companies.

This paper will provide a general review of the plan developed by the U.S. Government and will discuss the steps international and local companies need to take in order to participate in this initiative that will stem migration from Central America by benefitting the region economically and socially for years to come. This paper references more recent developments in the region since the white paper published last year entitled, “Socio-Political Analysis: Latin America and the Caribbean Region in 2021.”

Root Causes of Migration in Central America

Background

Before becoming the President of the United States, Joe Biden had already foreseen the need for a strategy to improve U.S. foreign assistance and international cooperation throughout Central America to reduce migration, especially from El Salvador, Guatemala, and Honduras.

During his presidential campaign, Joe Biden presented the Biden Plan to Build Security and Prosperity in Partnership with the People of Central America. The plan stated that for the Western Hemisphere to be secure, democratic, and prosperous as a whole, it is critical to ensure that the nations of Central America are strong, safe, and capable of delivering future opportunities for their own people.

The plan noted the Northern Triangle countries face enormous challenges due to violence, transnational criminal organizations, poverty, a lack of economic opportunities, and corrupt and inefficient public institutions. These factors are the reason for the exodus of people leaving their countries in search of a better life, embarking on a dangerous journey.

Recognizing these problems, the Biden Administration wanted to renew a robust commitment by the leadership of the United States in the region and develop a strategy for Central America.

On February 2, 2021, President Biden signed an Executive Order that called for the development of a Root Causes Strategy to address the migration from El Salvador, Guatemala, and Honduras and to establish a fair, orderly, and humane immigration system.

Several months later, on July 29, 2021, Vice President Kamala Harris announced the release of the Root Causes Strategy, which identifies, prioritizes, and coordinates actions to improve security, governance, human rights, and economic conditions in the region. The strategy integrates various U.S. government tools, including diplomacy, foreign assistance, public diplomacy, and sanctions. The Root Causes Strategy features as two of its five pillars: addressing economic insecurity and inequality (Pillar I); and combating corruption, strengthening democratic governance, and advancing the rule of law (Pillar II).

Fight Against Corruption

Battling corruption abroad is a key pillar of the political agenda of the United States due to its disastrous effect on the rule of law, economic development, and democracy. Corruption is associated with market distortion, investment deterrence, worsening poverty, undermining international aid efforts, and fostering crime.

The United States has historically attached great importance to the fight against corruption and has invested significant resources in numerous efforts throughout various administrations. In Central America, particularly in the Northern Triangle, it supported the formation of international entities against corruption such as the Commission Against Impunity in Guatemala (CICIG) in 2016, the Mission to Support the Fight Against Corruption and Impunity in Honduras (MACCIH) in 2016, and the International Commission Against Impunity in El Salvador (CICIES) in 2019.

The U.S. Government reached another important milestone in this regard when the House passed the United States-Northern Triangle Enhanced Engagement Act on July 15, 2019, as part of an effort to support countries in the region in fighting corruption. The main objective of the law is to promote economic prosperity, combat corruption, strengthen democratic government, and improve citizen security in El Salvador, Guatemala, and Honduras, and curb irregular migration from the region.

The second component of the 2019 law focuses exclusively on corruption. It requires the creation of a roster of corrupt and undemocratic actors in the Northern Triangle (Section 353(b) of the Department of State), known as the Engel List, named after former Congressman Eliot Engel, Chairman of the House Foreign Affairs Committee, who authored the legislation.

To be included in the Engel List, an individual or entity must have knowingly participated in actions that undermine democratic processes or institutions, acts of significant corruption, and obstruction of investigations of such acts of corruption, including the following:

• Corruption related to government contracts
• Bribery and extortion
• Money laundering or other facilitation of the proceeds of corruption
• Violence, harassment, or intimidation of corruption investigators.

The law incorporates sanctions on property, such as freezing funds held in the U.S., and denying entry to the United States, including immediate revocation of issued visas. Harsher measures could be taken if it is determined that individuals or entities on the Engel List should also be included on the Office of Foreign Sanctions Control (OFAC) and Magnitsky lists.

The first version of the Engel List was revealed on July 1, 2021, and initially included 55 individuals; 14 from El Salvador, 20 from Guatemala, and 21 from Honduras. Those listed include two former presidents and a former first lady, as well as members of congress, supreme court judges, ministers, and other high-ranking public officials.

U.S. scrutiny and enforcement in fighting corruption in the region is likely to intensify, as it is the top priority of the Biden Administration in Central America. On June 3, 2021, President Biden issued a National Security Study Memorandum, which stated that countering corruption is a vital U.S. national security interest. According to the memorandum, the Administration’s plan includes assistance and strengthening the capacity of domestic authorities and institutions (local and state), as well as foreign partners and governments. The objective is to implement transparency, vigilance, and accountability measures to tackle corruption.

On December 6, 2021, the Biden Administration released the United States Strategy on Countering Corruption, which outlines a government-wide approach to escalating the fight against corruption. The strategy organizes U.S. Government efforts under the following five pillars:

• Modernizing, coordinating, and resourcing U.S. Government efforts to fight corruption,
• Curbing illicit finance,
• Holding corrupt actors accountable,
• Preserving and strengthening the multilateral anti-corruption architecture, and
• Improving diplomatic engagement and leveraging foreign assistance resources to achieve anti-corruption policy goals.

Addressing Economic Insecurity and Inequality

Another major factor driving irregular migration from Central America is the lack of economic opportunities. As a result, the Biden Administration has determined that addressing economic insecurity and inequality is a key pillar in the U.S. Root Causes Strategy. A notable accomplishment by the U.S. Government in the promotion of economic development in the region is the Call to Action initiative.

Announced by U.S. Vice President Kamala Harris on May 27, 2021, the objective of the initiative is to support economic development in northern Central America and to address the root causes of migration to the United States. It is facilitated through a public-private partnership between the State Department and the non-profit Partnership for Central America, and in close coordination with the United States Agency for International Development (USAID).

The initiative has the following six focus areas intended to support long-term development in the region:

• Reform Agenda – Commitments to support greater transparency, predictability, and stability in the business enabling environment by facilitating regional government efforts to adopt international best practices in licensing, permitting, procurement, regulation, and taxation.
• Digital and Financial Inclusion – Commitments to expand affordable internet access and participation in the digital economy; facilitate access to financial technologies and capital for small businesses, particularly women- and indigenous-owned businesses; and ensure that the most vulnerable and the most likely to migrate have access to basic public services and financial institutions.
• Food Security and Climate-smart Agriculture – Commitments to combat food shortages by increasing agricultural productivity and crop resilience.
• Climate Adaptation and Clean Energy – Commitments to support the region’s resilience to climate change through adaptation and mitigation efforts; support industries impacted by climate change; and transition to clean energy.
• Education and Workforce Development – Commitments to expand job-training programs; support greater access to technical and secondary education; and create higher paying formal sector jobs, especially for women and in rural areas.
• Public Health Access – Commitments to support regional governments in addressing the impact of COVID-19 on their populations; build robust and resilient health economies to confront future health challenges; support access to clean water and sanitation; and ensure inclusive access to healthcare.

On December 13, 2021, Vice President Harris announced that the Call to Action initiative had reached an investment level of over $1.2 billion. The following entities have pledged their commitment to the initiative:

• Accion
• Bancolombia
• Chobani
• Davivienda
• Duolingo
• Harvard T.H. Chan School of Public Health
• Mastercard
• Microsoft
• Nespresso
• Pro Mujer
• Tent Partnership for Refugees
• World Economic Forum
• PepsiCo
• Cargill
• Parkdale Mills
• CARE International
• Grupo Mariposa
• PriceSmart (Costco)
• JDE Peet’s

Considerations for Companies Participating in The Initiative

Companies seeking to engage in the Call to Action initiative need to be aware of the risks and build their own strategies that will correspond with the objectives with the U.S. government, develop economic opportunities throughout the region, avoid corruption by paying close attention to the Engel List, and enhance their own financial prospects.

Call to Action Considerations

Whether they are regional or international companies, those participating in the Call to Action initiative all need to protect their assets, comply with anti-corruption measures, and know who to deal with in the U.S. government and elsewhere.

1. International companies need to protect their investments:

• • Pre-Investment Stage: Companies evaluating whether to invest through the initiative at this stage need to consider the following:
    • Country Risk Analysis: A comprehensive country risk analysis (labor market, economic and political risks, and operational risks) of the specific jurisdiction of interest providing the key insights that would best inform a company’s investment and market entry strategy.
    • Due Diligence: Investigations of local candidates for key positions and potential local strategic partners to evaluate their legal, commercial, and reputational backgrounds, in order to determine and manage the risk exposure of the potential relations. This would guarantee compliance with FCPA requirements for American corporations investing abroad.
    • Operational Assessment: Guidance to design and implement the desired operational structure in compliance with local regulations and requirements.
• • Setting-Up Operations: after making the decision to invest in Central America international companies would need assistance with the following:
    • Operational Assessment: Further guidance in the design and implementation of the desired operational structure in compliance with local regulations and requirements.
    • Tax Advisory: Planning to reach an efficient tax strategy while complying with the local law.
    • Transactional Intelligence: Assessment in the set-up of the transactional cycles of the international companies in the jurisdiction of interest with the objective of minimizing risk exposure and optimizing transactional costs.
    • Physical Security: Designing and implementing comprehensive corporate security systems evaluations and assessment of physical security for key international personnel.
• • Ongoing Operations:
    • Due Diligence: screening of employees and providers to evaluate their legal, commercial, and reputational backgrounds in order to determine and manage the risk exposure of the potential relations.
    • Regulatory Compliance: anti-money laundering and anti-corruption evaluations and investigations, including FCPA risk assessments and compliance program reviews, among others.
    • Fraud Risk Assessment and Forensic Investigations: identification of areas susceptible to fraud and the implementation of the relevant internal controls to mitigate fraud risk. In the case of identifying evidence of fraud, capability of conducting accounting and computing forensic investigations to identify the financial losses and the conspirators.
    • Audit and Internal Control: standard audit of processes and procedures and constant review of operational efficiency and effectiveness.

2. Needs of Central American companies to take part in the initiative: Regional companies interested in participating in the initiative would need assistance to comply adequately with the requirements and expectations of U.S. authorities and international companies. Central American companies would need to generate commercial relationships. To accomplish this, they would also need to design a customized business proposition that portrays their products, services, and strengths, together with an approach strategy, to generate interest of international companies with the objective to formalize a potential commercial partnership in the region.
3. Companies in the region would need a liaison with the U.S. authorities and parties leading the initiative.

Engel List Considerations

Regarding the Engel List, the following Reputational Risk Management services should be performed:

• Reputational Self Due Diligence (RSDD): an RSDD is a useful tool to manage reputational risks that may affect the public image of a subject, as well as the value of the business or commercial practices. Carrying out an RSDD involves developing - externally and independently - an enhanced due diligence review of a subject. This includes an examination of the legal, commercial, family, and reputational background of the subject with the objective to demonstrate that both the individual and his or her businesses do not represent a risk to financial institutions, business partners, clients, regulatory entities, and law enforcement authorities, among others.

Depending on each case, performing an RSDD may also encompass the reconstruction of a particular situation that has marred the reputation of a subject in order to provide accurate information and an objective interpretation of facts.

• Assistance in Fulfilling Requests for Information (RFI): If a request for removal from a sanction list is accepted, the following steps for reconsideration will most likely include the fulfillment of an RFI to the corresponding authorities for their internal analysis process. The subjects would need help in the information-gathering process and preparation of the responses to complete the RFI. Depending on the nature of the request, this could include performing a computer forensic investigation.

These services would also apply to subjects that may be placed on the Engel List and would like to take a proactive approach to mitigate such risks.

CONCLUSION

There are many considerations for companies to take into account when participating in the Call to Action initiative. Examples of key considerations include evaluating the investment risks and building a personalized strategy that will correspond with the U.S. government’s policies, develop economic opportunities throughout the region, avoid corruption by paying close attention to the Engel List, and enhance their own financial prospects.

References:

https://joebiden.com/centralamerica/

https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/02/executive-order-creating-a-comprehensive-regional-framework-to-address-the-causes-of-migration-to-manage-migration-throughout-north-and-central-america-and-to-provide-safe-and-orderly-processing/

https://www.whitehouse.gov/briefing-room/statements-releases/2021/05/27/fact-sheet-vice-president-harris-launches-a-call-to-action-to-the-private-sector-to-deepen-investment-in-the-northern-triangle/

https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/29/fact-sheet-strategy-to-address-the-root-causes-of-migration-in-central-america/

https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/13/vice-president-kamala-harris-announces-new-commitments-as-part-of-the-call-to-action-for-the-private-sector-to-deepen-investment-in-central-america-now-totaling-over-1-2-billion/

https://www.whitehouse.gov/briefing-room/presidential-actions/2021/06/03/memorandum-on-establishing-the-fight-against-corruption-as-a-core-united-states-national-security-interest/

https://www.state.gov/u-s-releases-section-353-list-of-corrupt-and-undemocratic-actors-for-guatemala-honduras-and-el-salvador/

https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/06/fact-sheet-u-s-strategy-on-countering-corruption/