Targeting the Northern Triangle

 The Engel List calls out corrupt actors in Central America

Corruption has long plagued El Salvador, Guatemala and Honduras (the so-called Northern Triangle), draining the wider Central American region of an estimated USD 13 billion a year. The Biden administration has made tackling corruption in the Northern Triangle a priority, seeing it as a driver of immigration to the US. To this end, in July 2021 it published the “Engel List”, a list of 55 public officials, sitting politicians, and judges who are engaged in corruption and may be targeted by US sanctions. The publication of this list – combined with the Biden administration’s renewed interest in governance in the Northern Triangle – offers both opportunities (in the form of investment initiatives) and risks (comprising sanctions regimes and scrutiny of business practices) for investors in the region.

Corruption Quagmire

Combatting corruption requires local cooperation, which may be hard to find in a region where the political elite is so embroiled in scandal. Two of El Salvador’s former presidents – Antonio Saca (2004-2009) and Mauricio Funes (2009-2014) – have been collectively accused of embezzling USD 650 million in state funds. In Guatemala, a corruption probe dubbed ‘La Línea’ has seen the former president and vice-president stand trial for heading a customs corruption scheme, after they were forced out of office by protests in 2015. Meanwhile, Honduras’ sitting president, Juan Orlando Hernández, is under investigation in the US for his links to the drug trade. To compound the problem, all three governments in the Northern Triangle have dismantled internationally-backed anti-corruption bodies after they began probing cases of corruption involving the countries’ political and business elites.

Enter Engel

The publication of the “Engel List” is one of the Biden’s administrations most high-profile steps in its anti-corruption strategy. Named after Eliot Engel, the former congressman who devised it, it stems from legislation that was passed as part of a spending bill in December 2020. This required the Biden administration to publish a list of individuals from the Northern Triangle who are “engaged in significant corruption and the undermining of democratic institutions”. In addition to naming-and-shaming these individuals and revoking their US visas, officials have declared they may sanction some of those allegedly engaged in corruption and human rights violations under the Global Magnitsky Act, a US sanctions regime designed to target such violations. The Biden administration envisages supplementing these sticks with carrots such as a regional anti-corruption task force, a proposed USD 4 billion aid package for the Northern Triangle, and encouraging multinationals to invest in the region.

The list itself pulls few punches. Named on it are El Salvador government officials, sitting Honduran lawmakers and senior Guatemalan judges. From El Salvador, names include Carolina Recinos, the president’s chief of staff; Osiris Luna Meza, the government’s director of prisons; and various other government officials and former politicians. In Guatemala, the list highlights former president Álvaro Colom, current Supreme Court judge Nester Vásquez, and a businessman and political operator named Gustavo Alejos. And in Honduras, focus has been placed on current and former politicians such as Jose Porfirio “Pepe” Lobo Sosa and Rosa Elena Bonilla de Lobo, the former president and first lady (2010-2014).

The list’s implications could complicate the landscape facing investors in the Northern Triangle. Politics and business in Central America regularly intertwine, and members of prominent families – such as the Rosenthals in Honduras – often pursue political careers while participating in family-run business groups holding prominent stakes in many sectors of the economy. US sanctions on public officials could thus increase the risks of doing business with companies tied to political figures, both by obliging investors to navigate sanctions and increasing the reputational risks of transacting with such companies. In addition, the naming of judges on the “Engel List” will stoke further suspicion that corruption has become entrenched in the judicial system, and raise questions about the rule of law for businesses operating in the region.

For Better or Worse?

The use of the “Engel List” could have several ramifications for the countries involved. On one hand, it may stoke divisions between the US and Northern Triangle governments, leading the latter countries to spurn further US bilateral assistance programs and anti-corruption initiatives. This could limit the list’s impact by reducing further cooperation and leading governments to insulate themselves from US pressure.

On the other hand, the list could have effects that extend beyond exposing individual misconduct. By focusing on public officials, it will shine further light on the dynamics of public corruption in the region. With local voters already frustrated by the closing of investigative bodies, the list could re-ignite anti-corruption protests, and lead to greater public scrutiny of the political class and the failure of local oversight bodies. In turn, this could bring pressure on investors and companies active in the Northern Triangle. They face navigating not only sanctions and political and institutional instability on the ground, but wider public scrutiny of business operations in the region. Together, these pressures demand an active and ongoing assessment of their potential exposure to corrupt public officials or human rights abuses. But navigating these risks successfully could equally bring rewards in a region that looks set to enjoy renewed attention and investment from the Biden White House.