Bloomberg Línea — Regulatory changes advocated and promoted by left-wing presidents in Latin America are likely to lead to a flurry of litigation cases between companies and governments in local courts and international arbitration tribunals for breach of contract over the next two years, according to Michael Cullen, senior director of FTI Consulting, and who leads the consultancy’s investigation and litigation area in the region.
In an interview with Bloomberg Línea, Cullen said FTI will triple the size of its investigative team in Latin America over the next 18 months to cope with increased demand in the region.
“We are investing heavily because we believe there will be a big increase in activity on the investigation front. That involves compliance work, it involves business intelligence, due diligence, and the forensic investigation capability. We bring in not only forensic experts but technologies and solutions,” Cullen said in an interview at FTI’s São Paulo office.
“Our CEO and our board gave us the financial capabilities to go to market and bring in the best talent in the market and build this dream team based in Brazil, Colombia and Mexico, covering the entire region,” he added, and who leads the team from the company’s office in Bogotá.
One of the recent hires is Ricardo Indalecio, a former KPMG executive in Brazil and specialist in the forensic practice, who will be managing director for the forensic and litigation consulting area. Throughout his career, Indalecio has led corporate investigations involving fraud, corruption and cases of financial statements that were not in compliance with laws and regulations.
‘Pink wave’
In Cullen’s view, the arrival of left-wing presidents in Latin America in recent years - dubbed the “pink wave” by international political observers - indicates that many contracts and regulations would have to be revised to carry out promises they made in election campaigns.
Most of Latin America’s major economies are governed by presidents on the left of the political spectrum, such as Mexico (with Andrés Manuel López Obrador), Chile (with Gabriel Boric), Colombia (with Gustavo Petro), as well as Argentina (with Alberto Fernández) and Brazil, with Luiz Inácio Lula da Silva.
Cullen says disputes are already occurring in Mexico, Chile and Colombia, where the countries’ presidents have been in power longer, and predicts the same could happen in Brazil during the Lula administration.
One example, he said, is Chile, where the Boric government managed to pass a tax reform in Congress at the end of May that significantly raises the mining royalties paid by companies that exploit copper and lithium in the country.
Chile is the world’s largest copper producer and exporter and has one of the largest global reserves of lithium, a mineral that is key to the production of electric vehicle batteries and seen as one of the sources of economic growth for the country.
The changes, according to the FTI executive, could lead to an increase in litigation involving companies operating in Chile.
Cullen recognizes that political fragmentation in the region’s congresses, whether in Brazil or in other countries, serves as an obstacle to avoiding changes that could lead to contract breaches and regulatory setbacks.
One example is the resistance of Brazil’s legislatures to some changes advocated by the Lula government, such as a review of the sanitation framework and the privatization of electric power utility Eletrobras.
However, the government’s defense of these projects creates an environment of instability at a time when there is great interest from foreign companies seeking investment opportunities in areas such as energy, infrastructure and mining.
“Companies are not necessarily thinking about a four-year or five-year term of a presidency. Many of these projects have life cycles of 10, 20, 30 years. The smart money that has been coming into Latin America sees that there is an opportunity to do deals because prices in certain markets are low. It’s a good time to buy,” he said.
FTI’s revenues in Latin America
Forensics and litigation accounted for 21% of FTI Consulting’s $3 billion revenue last year and is the company’s second-largest business unit, behind corporate finance and restructuring (36%), according to the company’s annual report.
North America accounts for the largest share of the company’s revenues at 65%, followed by the Europe, Middle East and Africa (27%) and Asia-Pacific (7%) regions.
Latin American revenues account for just 1% of the total.
In the first quarter, revenues in Latin America amounted to $8.58 million, a decrease of 3.5% compared to the fourth quarter of 2022 and a 13% drop over the result of the same period last year ($9.86 million).