As seen in Corporate Compliance Insights – by Omar Magana
In recent years, money services business (MSBs) have given rise to technological innovation, forcing changes in the way we use financial services. We have also seen an evolution driven by a boom of internet accessibility and mobile technology adoption, providing new and unprecedented opportunities for many companies in the U.S. and around the globe. The Latin-American (LATAM) market is no exception to this growth. The widespread use of smartphone devices is impacting the mobile e-commerce industry, and these devices are becoming the primary tool used to access the internet. In 2014, there were approximately 270 million smartphones, and that number is expected to reach over 605 million by 2020 in the LATAM region. Let’s not forget the importance of this geographic location as a corridor for the U.S. remittance industry. The World Bank reported that five countries (Mexico, Guatemala, El Salvador, Dominican Republic and Honduras) were included in the top 30 corridors in 2015 from the U.S., with a combined value of $42 billion. The U.S.–Mexico corridor topped the list, with an estimated $25 billion. Cross-border payments in LATAM continue to grow in importance, not only for the remittance industry, but for the e-commerce sector as well. A study conducted by Forrester indicated that Brazil, Mexico and Argentina are projected as the leading e-commerce markets in LATAM and will generate an estimated $47 billion by 2018. Another report estimated that from 2014 to 2020 carriers will invest approximately $193 million to support coverage, capacity and service quality.
Nevertheless, before venturing into this area, it is important to understand the risks. While there are many to address, such as financial, currency fluctuation and an ever-changing political environment, arguably the most prominent are related to criminal activities. In particular, foreign corruption and money laundering. In the past months, there have been a number of high-profile cases of bribery and corruption in LATAM. The most recent and highly publicized example is the Panama Papers case, which exposed several public figures allegedly sheltering more than $11.5 million of wealth offshore. A different case involves the former Brazilian president, other politicians and executives, who allegedly used state-owned firms to facilitate kickbacks. Money laundering is another evident threat to MSBs and operations in LATAM. It is difficult to overlook the magnitude of the illicit funds generated by drug trafficking and organized crime. These criminal organizations behave as legitimate multinational businesses operating with the most basic principles of business management. In essence, cartels utilize similar distribution practices through strategically placed units in a continent that geo