Chile: Piñera and the country’s unnoticed corruption problem

Asked where bribery and graft hazards are lowest in Latin America, most outsiders quickly point to Chile. And with billionaire Sebastián Piñera in the lead to become the country’s next president, expectations are high that he will open the tap to investment, leading to an economic growth surge free of corruption risks.

But that might be an overly optimistic view. Here’s why.

Something uncomfortable is afoot in Chile. A region-wide survey released last month by Transparency International found that Chile was the country where the largest share of the population—80%—believed that corruption levels have increased, second only to Venezuela. In addition, 68% said that the authorities weren’t doing enough to fight corruption, leaving Chile third-worst in the region after Peru and Paraguay.

This seems paradoxical. By regional standards, Chile has an exemplary range of laws designed to prevent and punish corruption. Agencies that issue permits and oversee tenders are robust. And in the corporate sphere, there is a wide understanding of compliance. The OECD has praised Chile’s advances in anti-corruption rules.

One of the reasons for the diverging perceptions of corruption risk in Chile held abroad and at home is that while most foreign eyes have focused on the interminable, region-wide Odebrecht affair, a string of home-grown scandals in Chile over the past three years has gone largely unnoticed outside the country.

Chile’s Carabineros police force has seen its historically unsullied reputation blemished over the past year by a USD42m embezzlement scandal. So far, 118 people have been charged. Another scandal has centred on the army, where its former commander and several top officers have been accused of corruption.

Confidence in President Michelle Bachelet’s office was irrevocably dented in 2015 by a probe into the alleged use of confidential information by her son and daughter-in-law in relation to a real estate deal.

And since 2014, prosecutors have been investigating two major cases of corporate fraud and influence-peddling, one involving financial holding Grupo Penta, the other linked to mining and chemicals giant SQM.

In reaction to all of this, and to her credit, Bachelet appointed an independent commission in 2015 to review and recommend ways to improve Chile’s anti-corruption architecture.

The commission recommended that compliance procedures be mandatory for all firms above a certain size, rather than voluntary. A lobbying law passed in 2014 now extends to the municipal level. And a probity law passed in 2016 requires not only legislators, but also about 60,000 officials, to file asset and interest disclosures.

Unfortunately, once incidents of corruption and serious misconduct become public knowledge, the damage is done, and the public perception in Chile is that prosecution and punishment either takes too long or is too slack, even though the relevant authorities appear to have been diligent and thorough in their investigations.

But the risk going forward could be Piñera’s seeming neglect to include concrete proposals to tackle corruption in his blueprint for government. Indeed, other candidates have said Piñera’s plan is decidedly weak in the area of anti-corruption.

To be fair, during his 2010-2014 presidency, Piñera put control of his business interests in a blind trust to avoid potential conflicts of interest. However, he subsequently stacked his cabinet with business leaders, a move that itself sparked several conflict-of-interest allegations. Piñera himself has been linked to 14 separate corruption investigations during his political career.

Piñera won a first-round vote on 19 November with 37%, a 14-point lead over his closest rival, Alejandro Guillier. It was a narrower margin than expected, but Piñera is still the best-positioned candidate to win a run-off on 17 December. If that happens, there is every chance that businesses will dust off investment plans and growth will gather pace.

But in buoyant economic times, more parties tend to gloss over the rules, especially the bigger players. A key test for Chile’s anti-corruption enforcement and corporate self-regulation architecture could revolve around SQM, one of the world’s largest producers of lithium, the metal used in rechargeable batteries.

SQM has been investigated for illicit political party financing, insider-trading, underpayment of royalties, and underhand ways to maintain its leases. In January, SQM paid USD30m in penalties to settle civil and criminal US FCPA charges. As demand for lithium surges, SQM will become exponentially more powerful.

Piñera’s slogan of ‘better times ahead’ is upbeat, but it also seems vacuous. The potential for conflicts of interest and incidents of corruption coming to the fore during a Piñera presidency could prove to be his weakest flank.