How to Deal with Corruption Risks in Central America as an Investor

Despite the obfuscation of Conservative MPs and the distraction posed by the war in Ukraine, the so-called “partygate” scandal continues to command headlines in the UK media.

While this scandal and the management of PPE contracts during the pandemic has led to accusations of corruption against the UK government, this pales in comparison with some regimes in regions such as Central America.

This includes El Salvador, which is an incredibly challenging area to deal with from the perspective of UK investors. But why is this the case, and what steps can you take to mitigate your risk as an investor?

Why is Central America Challenging for UK Investors?

In many ways, El Salvador has been the poster boy for Central American corruption since the turn of the century, which has contributed to a besieged economy and increasingly poverty-stricken population.

Interestingly, Millennial President Nayib Bukele recently unveiled a new independent commission to tackle corruption in the region.

In announcing this, Bukele said that he had drawn inspiration from a U.N.-backed body that brought down the previous President of neighbouring Guatemala, which had followed years of financial abuse and the theft of taxpayers’ money.

The scope of the new commission also highlights the main challenges facing the economy and overseas investors.

Firstly, its main task will be recovering the money that has been embezzled directly from taxpayers, while another key focus will be the identification and investigation of businesses that evade taxes.

Other common issues include money laundering, bribery and anonymous offshore financial dealings, which combine to challenge the audits of investors while potentially damaging their holdings and reputations.

Interestingly, the landscape for investors has been further clouded recently, by the decision of the government to accept Bitcoin (BTC) as legal tender. More specifically, traders have been quick to exploit the state-issued BTC ‘wallet app’ to leverage a quick profit at the expense of market stability and regular users.

How to Mitigate Your Risk as a UK Investor

OK, we hear you ask, but what steps can you take as a UK investor to mitigate the risk of investing in El Salvador and Central America as a whole? Here are some ideas to keep in mind:

#1. Liaise With an International Consultant: Before you even begin to consider investing your hard-earned capital in El Salvador or its surrounding regions, you’ll need to develop a comprehensive understanding of the country’s financial landscape and its core corruption issues. This will involve partnering with a skilled international consultant, preferably one that currently works in the country and can help with issues such as taxation and auditing.

#2. Carry Out Risk Assessments and Create Relevant Controls: When working with an international consultant, one of the key areas of focus is carrying out risk assessments. This will focus on the key challenges in El Salvador and the main economic restrictions, while the information garnered can subsequently be used to design relevant controls to help protect and safeguard your investments.

#3. Record Transactions Accurately and Apply Checks and Balances: Last, but not least, you’ll need to prioritise accurate and consistent transaction reporting processes that promote transparency. This will create a detailed paper trail for your money and investments, while making it easier to apply regular checks and balances across all aspects of your international portfolio. This can make all the difference when investing in complex and often corrupt countries in Central America.