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BUSINESS RISKS AND THE GOC/FARC PEACE AGREEMENT

Written by Dr. Maria Velez de Berliner
August 28, 2016

28 August 2016© By: Maria Velez de Berliner, President, Latin Intelligence Corporation Professor, Intelligence and Strategic Analysis The George Washington University, College of Professional Studies Introduction: The following is based on the likelihood of Colombians voting yes on the Peace Agreement’s Approbatory Plebiscite on 2 October 2016.  The government has the financial and campaign- publicity resources, not to mention the retributive power, to ensure the low threshold of 4.4 million yes votes required for passage.  However, should the unexpected happen and the no prevails, all bets will be off and other aspects of these risks would need to be considered, depending on whether FARC will renegotiate, under which terms, and with whom. In the interim, if you are enticed by the promise of a “country at peace,” with political stability and security for all, welcome to Colombia!  But as you plan your business entry into, or expansion in, Colombia, I suggest you consider the following risks lurking behind the Peace Agreement and the euphoria of fifty percent of Colombians who are celebrating the agreement, either because they hope for the best, or have no choice if they want to keep their government jobs. Political Risk: FARC observers will take five seats in the Senate and five seats in the House of Representatives upon approval of the Agreement.  These non-voting observers are there to advise in any laws that would affect directly the implementation of the Legislative Framework for Peace (the Agreement).  Supposedly, they cannot participate in anything else.  However, given the influence FARC has along the chain of government, from veredas (hamlets) to municipalities to departments (states) and in the national government, they will be able to sway laws and policies their way through their associates, enablers, or “bought” legislators and officials.  Between 2018 and 2026 FARC is guaranteed to be able to run unopposed candidates to all elective branches of government, either directly through their yet unnamed political party or through their proxies in the social groups they have dominated for five decades.  This will allow FARC to shape laws regarding employment, social benefits, ownership of land, capital investment and repatriation of profits, taxes, and developmental direction.  In addition, the Restructure of Powers (Reglamentación de Poders) that will reform the government will affect every aspect of Colombia’s political organization.   And FARC’s objective is the creation of a Fourth Power (Power of the People) to restructure Colombia into a socialist-type society based on the redistribution of wealth, land tenancy, and economic organization. Regulatory and Judicial Risk: Interest groups influence, and many dominate, the formulation of laws, regulations, and governmental policies.  Strikes of all sorts are a daily occurrence.   Since most Colombians believe the government gave FARC what they asked for, and more, every other group is asking for concession after concession through strikes and rolling stoppages of all types.  From national stoppages and violent blocking of all roads to localized strikes that disrupt supply at the national and local levels and affect customers adversely because finished products cannot get to them.  Witness the almost two-months-long truckers strike in May/June, which cost industry and consumers billions through supply bottlenecks and destruction of property.  Therefore, those counting on foreign supplies need to consider alternative means for getting them into Colombia, and other issues related to the export of products and meeting commitments to customers in the Colombian market.  Despite numerous security laws and regulations, and the deployment of security forces to protect their operations, the ports of Buenaventura, Barranquilla, Cartagena, and Santa Marta remain vulnerable to FARC’s proxies and to the criminal groups associated with them. It is axiomatic that in Colombia one gets the justice one pays for.  The parallel judicial system created especially for the FARC will have 62 judges, yet unnamed, whose sole responsibility is to judge FARC’s leaders and their troops under principles of immunity, or semi-immunity, non-FARC Colombians do not have.  The alternative given FARC of “community service instead of jail” for a maximum of up to seven years means that some businesses will run the risk of having to deal with FARC members either as associates, employees or customers. Economic Risk: The Government of Colombia estimates the Peace Agreement will enable GDP to grow by 2-2.5 points into 2018 and higher beyond.  Compare this to growth of one percent and a decrease in foreign direct investment of thirty-five percent to date in 2016, and government projections look encouraging.  More so when an all-government effort will focus on the diversification of and raising the productivity of Colombia’s agricultural sector. Academia and private industry are being called upon to collaborate with innovation, capital infusions, employment of FARC demobilized operatives, helping them develop the skills necessary to hold a regular job, and overall social development that includes a legalized FARC.   However, some Colombian companies that, under government pressure, employed demobilized FARC found the gains the demobilized made through legal employment ran below those they made from illegality and crime.  In addition, those employees lacked the discipline required to perform profitably, day after day, and the social skills necessary to collaborate in the hierarchical environment of private industry in Colombia.  Consequently, those employees left for what they knew best:  highly profitable extortion and crime as members of other criminal and trafficking organizations. Colombia will have to borrow from global financial institutions and donors to finance over the next 10 years the implementation of the Peace Agreement.  The estimate to “regularize the countryside” is US$10 billon.  This will add to the fiscal hole of today.  Therefore, the government will resort to onerous taxes on business and personal wealth to collateralize the borrowing and to support the US$212.00 guaranteed to every demobilized FARC through 2026, or per life, depending on the case.  Not to mention FARC is not required to give up either narcotrafficking or narcomining (illegal gold mining), their two major revenue streams today. Cartels of all sorts exist to corner the markets to ensure high, monopolistic prices. And the legal sectors of the economy will continue to be dominated by the long-established, powerful, influential, exceedingly wealthy, traditional economic groups made up by five families. These groups have the power to influence legislation that will benefit them while undermining those who dare compete with them. The US/Colombia Free Trade Agreement has not disrupted these arrangements.  If anything, it has strengthened the five legal groups and their U.S. associates at the expense of local small business, entrepreneurs, and sole proprietors who cannot compete. Social Risk: The latest polls show sixty percent of Colombians do not trust FARC.  Seventy-two percent oppose the appointment (Curul a Dedo) of Timochenko (Timoleón Jiménez, head of FARC) as a senator.  Over eighty percent want peace, but not under the concessions given to FARC.  And those who want peace do not want FARC in their neighborhood.  The Zonas Veredales Transitorias de Normalización, the agricultural hamlets where FARC’s troops are being relocated, are in areas controlled by FARC.  These are areas where coca grows aplenty, and where there are no roads, storage, or refrigeration facilities for the substitute crops FARC is expected to grow.  The Armed Forces of Colombia are responsible for the security rings that will protect FARC within those hamlets.  But other criminal groups, such as the ELN, Cartel del Golfo, Los Rasguños, and others have already occupied the areas abandoned by FARC’s retreat.  This means that social tensions, the mainstay of Colombia, will increase, reminiscent of La Violencia that created FARC.  Many Colombians are preparing for La Violencia II, fought this time in the five major urban areas (Bogotá, Medellín, Cali, Barranquilla, and Bucaramanga) for control of territory and trafficking routes by several criminal groups, including demobilized FARC members. Cultural Risk: The Legislative Framework for Peace and other complementary laws and regulations (some already the law of the land) seek nothing less than the remaking of Colombian culture, steeped as it has been since Colonial times in violence, illegality, corruption, and collusion.  These massive cultural changes take decades to take hold, particularly in a society as traditionalist as Colombia’s.  Witness the lawlessness that prevails in El Salvador, Guatemala and Honduras.  Many claim, with good reason, lawlessness is the direct consequence of the immunities given to guerrillas and rogue government agents involved in the conflict under the separate Peace Agreements that ended what is collectively known as The Central American Wars of 1970-1990.  Laudable as they are, President Juan Manuel Santos’s efforts to turn Colombia into the Switzerland of Latin America are not supported by the reality of his country.  Just in Medellin, the center of economic activity, there is a militia group dedicated to stop FARC from relocating in Antioquia.  By now 20 leaders of the Land-Restitution Movement have been assassinated and 48 made “disappeared” by the newly formed Ejército contra la Restitución (Army Against Restitution).  Similar groups will form in other areas, stalling any cultural change. It is worth highlighting that only FARC’s Central Command is demobilizing.  Other FARC fronts are continuing the fighting and chaos in northwest of Antioquia, southwest in Cauca and Nariño, in the Llanos (Casanare, Putumayo, and Amazonas) and east in Catatumbo, on the border with Venezuela.  Therefore, the cultural change of peace will be a long time in coming to Colombia. Security & Safety Risk: Politically powerful and wealthy transnational criminal business enterprises (TCBEs), along with FARC, will continue to operate in Colombia, Peace Agreement or not.  The country lacks the institutional and judicial strength necessary to counter them.  Garden variety criminality is a daily occurrence.  “La Vacuna,” the weekly, right-to-operate tax charged by the criminal gangs is a mandatory cost of doing business in Colombia.  Downtown Medellín is controlled by several Combos who work in cahoots with the police.  Stealing mobile phones (cosquilleo) accounts for over 1000 phones forcibly separated from their owners daily in Bogotá alone.  Private security is one of the fastest growing industries in Colombia.  Even if all FARC fronts were to demobilize and become agents of peace and prosperity, other militia and criminal groups will form.  There is too much money to be made from criminality and illegality in Colombia for them to be stopped by any law or presidential fiat.  Although many Colombians are law-abiding citizens who work hard to make a legal living, criminality, corruption, and collusion are fundamental components of Colombia’s modus operandi. Recommendations: If you decide to go to, or expand in, Colombia, please be prepared to have at your side those you can trust.  But follow the late President Ronald Reagan’s dictum: “Trust but verify,” constantly. You need at your side: Legal & Regulatory:  Honest, reputable Colombian lawyers, practicing in Colombia, with high-level contacts.  Lawyers who can tell you not only what is in your favor, or against you, today, but, far more important, what is coming down the pike and what you are likely to be up against so you are not blindsided.   As a USA corporation or person, your Colombian lawyers must keep you appraised, at all times, of potential violations of the USFCPA (US. Foreign Corrupt Practices Act) and those provisions of the Patriot Act regarding the activities of terrorist, or terrorist supporting, organizations.  You need your lawyers’ advisories so you do not run afoul of U.S. law. Reputational Protection:  Make sure your associates are trustworthy in all aspects so your name does not appear in El Tiempo, Revista Semana, or El Colombiano associated with some unsavory character you “did not know a thing about.”  Innocence is not a defense in Colombia or in the USA.  Witness the Panama Papers Scandal.  Hushed as the Papers are by the powers that be, being in them is not reputation enhancing for the perception of impropriety the Papers convey. Safety and Security:   Listen to the locals and do not defy or ignore their knowledge.   Get personal security and pay and treat them well so they do not “sell” you or your business to whoever pays them better.  All foreigners are easy targets. Social & Cultural:  Associate with those within the five legal family groups.  They know the actual and forthcoming pulse of the country better than anyone.  They will help you with actionable intelligence about club memberships, safe neighborhoods to live in, restaurants and cultural venues to patronize, and alert you to what you need to know ahead of time so you can prepare for it. Conclusion: Colombia represents lots of opportunities.  But it is in a state of flux that will continue for years to come. You need to know who you are doing business with now and in the future, where, how, which protections you have there, what precautions you must follow, and what risks you must prepare for.  Take it as seriously as if your life and business wellbeing depended on it, because they might be.

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