Biz Views

Op-Ed: Who will fix this?

This week, a federal jury returned a guilty verdict against the former mayor of Gurabo for extorting $125,000 from a government contractor in exchange for paying eight outstanding invoices for services previously rendered.

Last week, the Financial Oversight and Management Board for Puerto Rico (FOMB) reminded the government that a recent executive order setting aside contracting requirements had been illegally issued in violation of PROMESA.

Shortly after the Three Kings Day seismic activity and the various aftershocks, the government reportedly rejected an offer by the College of Engineers to inspect, free of charge, public schools in the southern-most part of the island, opting instead to award the contracts to corporate entities owned or led by political contributors.

Last summer’s protests led to the unprecedented resignation of a Puerto Rican governor known for granting close friends unfettered access to government operations.

Weeks before that, federal authorities had indicted and arrested a member of his cabinet for wire fraud in connection with preferential contracting, as well as a high level executive from one of the island’s consulting firms for conspiring with a third-party to bypass the bidding process and attain an unfair business advantage in government contracts.

Corruption is not new to Puerto Rico. So, when others say that Puerto Rico is “the most corrupt place in the world,” I can’t help but wonder why we keep fueling this rhetoric at the expense of those in need. Have we become numb to bad news?

When stories of federal investigations or corruption indictments leak, media outlets frequently recite examples of the island’s corrupt history. Once the uproar fizzles and subsides, the island seems to return to normalcy. When media outlets rehash the events, those in power conveniently claim that these investigations are partisan in nature.

These efforts are merely a red herring to distract the electorate, gain support, and distort the seriousness of the events. They also widen the “red or blue” divide, at least until the evidence is published at trial.

I vividly recall a packed courtroom during one of my corruption trials on the island in the late 1990s. In an effort to intimidate the prosecution, and undoubtedly sway the jury pool, the defendant filled the courtroom with political big-wigs who embraced each other as they waited for the judge to appear in court.

However, by the time the prosecution played the second or third tape recorded conversation of the defendant demanding money from a U.S. company in exchange for a government contract, the courtroom emptied. The supporters vanished.

Sadly, not much has changed since. Government officials continue to extort corporations doing business in the island in exchange for contract awards, expediting business dealings and issuing licenses and permits.

At times, the government will delay paying past due invoices, sometimes for years, and thereafter threaten unilateral contract cancellations, force the withdrawal of payment demands, impose onerous conditions, or amend contractual provisions leading to hostile takeovers.

Driven by dire economic times, greed, or perhaps ignorance, third parties exploit their government connections and lure private companies into bypassing the bidding process in order to obtain an unfair advantage that ultimately benefits them and their government associates.

Island’s future rests on its people
Puerto Rico’s future rests solely in the hands of its people and in its reputation. The private sector has the wherewithal to drive and impact the latter through openness, compliance, and marketability.

Business operations, like many things in life, must revolve around ethics – the moral principles that tell us how to behave. Companies whose business practices are centered on ethical principles have a better reputation, a loyal employee force and customer base, increased marketability, and as a result, more access to capital.

All corporations, regardless of the industry involved, should have a compliance program founded on ethical principles equipped to tackle business risks. Companies doing business with the local, national or international governments face risks that demand greater scrutiny of potential business partnerships.

These organizations should know who they are doing business with, their past and present business dealings, and be prepared to ask questions and demand answers. They should also be capable of detecting the red flags of corrupt solicitation such as the introduction of unknown third parties, and payment demands to parties not involved in negotiations or through unusual locations and methods.

Whistleblowing system needed
Corporations should also have a whistleblowing system in place equipped to receive internal and external confidential complaints regarding corporate or individual wrongdoing. An efficient corporate security team should be able to delve into such allegations to determine accuracy and recommend the adoption of measures necessary to deter recurring events and mitigate damages.

In 2015, the U.S. Department of Justice announced that investigations of corporations involved in fraud and other wrongdoings were a priority. Since, there has been a steady increase in federal investigations and convictions of corporate entities and their employees in an effort to level the business playing field at both the national and international levels.

Puerto Rico frequently hosts prosecutors from the Public Integrity Section of the Department of Justice in Washington. This team of prosecutors is equipped to handle investigations involving violations of anti-corruption statutes by local public officials.

The Fraud and Money Laundering and Asset Recovery Sections have units devoted to investigating and prosecuting international corruption violations involving kleptocrats, domestic corporations and individuals paying bribes to foreign government officials. They may also seize and forfeit assets involved in or derived from such offenses.

U.S. Department of Justice policy not only enables these prosecution teams to work alone or in tandem with local federal prosecutors, but more importantly requires that they evaluate an organization’s compliance program and its incorporation into the day-to-day operations before deciding whether to file charges and negotiate settlements.

The FOMB has said Puerto Rico should get its finances in order and stop depending on Washington. While our people are skilled, intelligent, laborious, and resilient, corruption and its impact on the island’s reputation will erode any progress and self-initiative.

The potential for conflicts of interest should be closely monitored and demand immediate action. Corruption’s impact on the island and those lacking the means to compete is atrocious. It seeks to exert undue power by silencing the disadvantaged into submission.

Corruption demoralizes. It decimates an individual’s inner strength and God-given talent to explore, thrive and achieve. Cronyism forces acceptance of the status quo, while corroding self-esteem shouting: “you’re not worthy, you’re not good enough.”

Corruption thrives on ignorance and its success is commensurate with obscurity.

Corruption thrives on ignorance and its success is commensurate with obscurity. It victimizes those who remain dormant and oblivious to the world around them. Delia Ferreira, chair of Transparency International, said it best: “people’s indifference is the best breeding ground for corruption to grow.”

Heavy under the weight of an oversight board and a number of federal monitors, the Puerto Rican government is ill-equipped to improve the island’s image as a business center. While those in power scramble to account for missing supplies and federal funding, the private sector can signal to the world and potential investors that businesses are different.

Author Aixa Maldonado-Quiñones is a partner at Zeichner, Ellman & Krause LLP, Washington, D.C. and New York City Offices, and specializes in White Collar Defense, Government Investigations and Anti-Money Laundering/Financial Crimes.

However, this will require that island companies be prepared to reject extortionate demands and protect themselves against becoming another casualty to the illicit schemes orchestrated by those in power.

At a time when trade agreements are opening markets in Asia, Canada and Mexico, corporations doing business in Puerto Rico should be thinking of how to expand their products and venues.

These entities also need to demonstrate that they abide by applicable laws, rules and regulations, and are aware of the implications of departing from legal and ethical principles.

Absent drastic changes in how the government operates and conducts its business, only the private sector can smother the rhetoric and turn things around.

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