Against a backdrop of global stressors from conflict to trade friction and drivers for change such as global warming and the emergence of AI, Latin America presents a complex socio-political mosaic, currently, impacting both investor confidence and legal service provision.

From Argentina to Venezuela, the region has rarely seen so many elections or so much change. Here Legal 500 Latin America editor Tim Girven and Brazil editor Daniela Costa take a look at the politics framing the region’s legal markets.

Argentina: back on the map?

‘Milei is a game changer,’ says Santiago Carregal, chair of Argentina’s largest law firm, Marval O’Farrell Mairal, of the eruption onto the political landscape of radical populist Javier Milei, who won the country’s November 2023 elections with some 56% of the vote – ‘a clear mandate to change and shake things up’.

He inherited a country living with 30% annual inflation, a poverty rate above 50% and a fiscal deficit equivalent to 15 points of the country’s GDP, all driven by excessive public spending and aggravated by a drought that reduced 2023-export earnings by US$30bn.

Milei’s stabilisation plan has four pillars: a zero deficit policy to eliminate inflation; abandoning the peso in favour of the US dollar; far-reaching deregulation; and a relative price realignment of the economy. To this end he issued a presidential decree and sent an omnibus Bill to Congress, both pieces of legislation including reforms across multiple areas (most notably labour and tax) and the privatisation of state-owned companies. After only a few months in office he has liberalised prices and drastically reduced public spending, achieving a month of zero deficit in January; the first in two decades. Nevertheless, the economic situation is critical: while inflation is going down, it remains at disruptive levels, with real wages at record lows, poverty levels at record highs and economic growth remaining stubbornly absent.

‘The legal market in Argentina enjoyed a far better 2023 than expected.’
Hugo Bruzone, Bruchou & Funes de Rioja

Predictably, such radical steps have provoked a furious backlash, both in the street – in the form of huge demonstrations in Buenos Aires and other cities; and from provincial governors angered by the reduction of central government funding. Milei’s mantra: ‘No hay plata’ (‘there’s no money’) is still popular, but the question is: for how long? And while the market and investment community are supportive of the administration’s direction and purpose (the former head of Marval’s capital markets’ practice, Roberto Silva, has joined the administration as president of the Argentine National Securities Commission, for example), after the experience of the Macri administration (2015-19), many are adopting a ‘wait and see’ attitude until inflation is reduced and social unrest subsides.

If Argentines have the patience and Milei has the political savvy to build the congressional alliances and consensus required for his reform package, a new dawn may beckon for the resource-rich country that has remained mired in cycles of debt default and chronic inflation for almost 25 years.

Despite the political upheaval, ‘the legal market enjoyed a far better 2023 than expected’, comments Hugo Bruzone, managing partner of the full-service Bruchou & Funes de Rioja. Despite capital controls and foreign exchange restrictions, the M&A market was active, if not buoyant, ‘typically with foreign investors selling to local investors’, and there was some capital markets activity. Elsewhere international trade, tax, and hydrocarbon and mining activity all picked up.

Horacio E Beccar Varela, managing partner of Estudio Beccar Varela, foresees ‘at least three more months of considerable political conflict ahead’ – others though more pessimistically argue that 2024 will be a write-off in its entirety. For now though the country is back on the map and under the magnifying glass as it attempts one of the most radical economic realignments in the region’s history.

Bolivia: dollar blues and ‘white gold’

Eighteen months out from Bolivia’s planned October 2025 presidential elections it is an internal governing-party dispute that is both electrifying the political stage and damaging the country’s economy. The confrontation between current president Luis Arce and former president Evo Morales as to who will stand as the official Movimiento al Socialismo (MAS) candidate, has opened a profound rift in the formerly monolithic party that has governed Bolivia since 2006.

Though both presidents and vice presidents can only serve two terms by law – a quota Morales has already completed – all indications suggest he remains committed to standing again, leading to suggestions that Arce may be forced from the party. For his part, Arce is determined to stand his ground and remain the MAS candidate.

The scenario is particularly significant given the country’s precarious economic situation. The economic boom of the 2000s and 2010s, driven by gas exports (primarily to Argentina and Brazil) is just a memory, with both production and sales falling significantly for the last eight years. In the face of declining revenues, consecutive administrations have turned to the country’s international reserves to cover public expenditure, bankroll projects and maintain heavily subsidised petrol and diesel importation. The resulting drop in reserves – from around $15bn to barely $2.5bn – over the course of the last decade has seen the country’s credit rating downgraded by the key international credit-rating agencies, driving inflation and increasing costs for importers.

‘We had a remarkable 2023 and saw billing grow 20% but while I’m enthusiastic about that for the firm, it also pains me since it is work derived from the crisis.’
Carlos Pinto, PPO

Foreseeing the impact of these falling reserves, the Arce administration has sought to develop a number of mining projects, many of which involve lithium (Bolivia has the world’s largest proven reserves of this ‘white gold’), to replace dwindling gas export revenues.

However, with any revenues unlikely to come on stream until a year after the election, should the Boliviano – which has been pegged to the dollar for 15 years – not remain steady, the odds of Arce retaining the presidency look increasingly small.

Commenting on the market, Carlos Pinto of PPO, notes: ‘We had a remarkable 2023 and saw billing grow 20% but while I’m enthusiastic about that for the firm, it also pains me since it is work derived from the crisis. The restructuring, tax and labour practices have all been very busy, financings and refinancings have been steady, and we’ve also had plenty of M&A transactions – unfortunately, again, arising from distressed scenarios as the crisis opens opportunities for the acquisition of assets at reduced prices.’

In a bid to move with Arce’s plans, the firm is considering opening an office in San Luis Potosí to further serve its growing mining clientele, including those in the lithium sector.

Chile: exhaustion vs hope

Chile has endured a torrid five years since the eruption of the ‘estallido social’ protests in 2019. Although that social uprising gave way to the pandemic, it also obliged Garbiel Boric’s Frente Amplio administration to oversee not one but two attempts to rewrite the country’s constitution – both subsequently rejected by the electorate at large.

It is not an overstatement to say that the country is scarred – not just as a result of the devastating forest fires that left 132 dead and thousands homeless earlier this year, or indeed, the death of former president Sebastián Piñera in February, but primarily as a result of the years of renewed socio-political polarisation.

‘To move forward, Chile needs broad agreement in both the political sphere and as regards the economic model.’
Jorge Carey, Carey Abogados

Economic recuperation will not be easy, however. The country, long accustomed to the lowest interest rates in the region, endured high interest rates in 2022-23. On the upside, the Central Bank’s efforts to redress the problem have opened the way to limited growth in 2024 – forecast at 1.8% by the World Bank in the wake of zero growth in 2023.

Jorge Carey – chair of leading full-service firm, Carey Abogados – comments: ‘To move forward, the country needs broad agreement in both the political sphere and as regards the economic model. Only in that way can Chile return to the path of development and turn its back once-and-for-all on the so called “lost decade” of 2014-24, which was characterised by declining indicators and economic stagnation.’

For the country’s legal market – undoubtedly the region’s deepest (excluding Brazil) and arguably its most sophisticated – with political interruptions (barring municipal elections in October) likely to take more of a backseat, there are hopes of further recuperation in the M&A market. With investors in the sector more attuned to longer-term stability issues, infrastructure M&A has seen a significant uptick, while mining transactions have exceeded expectations, with copper performing steadily (despite weakening global demand factors) and lithium continuing to outstrip forecasts.

Indeed, investor-state relations have gradually improved since the administration’s launch of a lithium strategy in April 2023, with Codelco and SQM establishing a private-public association to exploit reserves in Atacama until 2060. Elsewhere, the agribusiness sector has also performed well and, in the wake of the impressive performance of the Santiago Stock Exchange during 2023 and into 2024, it is hoped there will be an increased taste for public M&A deals.

If the transactional outlook is cautiously positive, it is tempered slightly by the more limited manner in which clients are seeking private practice advice, especially as regards due diligence requirements, where in-house teams are playing a far greater role, becoming less reliant on external counsel.

This decline is, in turn, offset by additional specialist requirements – most notably compliance (including cyber security and data protection) – which have steadily been gaining importance, particularly with respect to deals involving international operations buying into the Chilean market.

Colombia: the jury’s out…

‘Back in 1904, a Colombian president was elected under the phrase of “Less politics and more administration” (‘Menos política y más administracion’) – it seems that after 120 years we are still in the same place.’ So comments Carlos Umaña, a senior partner at the country’s leading law firm, Brigard Urrutia, with regard to the current political administration of Gustavo Petro.

Inaugurated in August 2022, Petro became the first left-wing president in Colombia’s recent history, assuming power in a scenario characterised by anger at corruption in the political classes, ongoing economic recession, increasing political polarisation and the social impact of both the Covid-19 pandemic and rising (violent) crime levels.

Sadly, his administration has all too quickly become bogged down in its own political scandals (not least those surrounding his son), and more significantly successive failures to pass new healthcare, pensions and labour legislation. While the government does have a tepid tax reform to its credit, the administration has increasingly lost the support of much of Congress, with Petro making his Cabinet more left wing, further reducing his chances of passing new legislation and losing public support.

‘The general opinion is that Colombia remains an attractive destination for investment.’
Martín Acero, PPU

Relations with the Supreme Court have become particularly sensitive: on the one hand, the institution has vacillated for months over Petro’s choice to replace outgoing attorney general Francisco Barbosa (when the process usually takes just a few weeks), leading to complaints of ‘lawfare’ against the administration. On the other, Petro has called on supporters to defend his administration in the streets. February this year saw a demonstration and march on the Supreme Court, not only raising accusations that the administration is seeking to pressure the judiciary, but also stirring memories of an infamous 1985 attack on the Supreme Court by M-19 (the group of which Petro was a member), which resulted in a military siege and the death of more than 100 civilians, including 11 court justices.

In this complex scenario, economic activity levels are mixed. Certain industries – most notably tourism and renewable energy – look set to benefit from the pro-environmental position adopted by the government. Nevertheless it remains difficult to see how these will offset the negative impact of the administration’s policy regarding two key sectors; hydrocarbons, long a key hard-currency earning export for the country; and road infrastructure, which has also acted as a key economic driver and additionally gone some way in recent years to resolving some of the logistic and governance issues presented by the country’s complex topography.

PPU Colombia managing partner Martín Acero notes: ‘At the end of 2023 and the beginning of 2024, there has been a reactivation in the interest of investors to continue with their projects.’ Indeed, he suggests ‘this combination of factors makes Colombia a buyer-friendly market in terms of M&A. Although there is still some caution, the general opinion is that the country remains an attractive destination for investment. As such, it is likely that transactional activity will continue over the next two years and that a moderate upward trend will eventually be seen, especially in key industries, including logistics, renewable energy and retail.’

On the contentious front, Acero highlights that ‘the private sector is very attentive to ensure that its acquired rights are respected in the face of decisions made by the national government’, with the market seeing a corresponding growth in arbitration activity, along with an upturn in claims before administrative courts.

Ecuador: a phoenix in the making?

In January this year Ecuador endured a wave of criminal violence that culminated in the armed storming of a television studio while the station was live on air. The shock attack catapulted the (apparently) peaceful nation into global notoriety.

In reality, a crisis had been developing steadily since 2017, when a combination of the departure of former president Rafael Correa (2007-17), whose authoritarian style had stifled social discontent; the austerity measures of his successor, LenÍn Moreno; and Ecuador becoming increasingly significant as a cocaine trafficking route; resulted in a steady growth of organised criminality and violence. Demonstrations in 2019 ultimately saw Moreno’s successor, Guillermo Lasso forced out of office and the calling of early presidential elections in late 2023. Some 11 days before the polls, however, the assassination of candidate Fernando Villavicencio upset all polling expectations and ushered in a period of criminal, gang-related violence that would culminate – at least in a mediatic sense, with the takeover of the TV station.

‘There has been a notable increase in Ecuador’s judicial effectiveness index, fostering greater confidence in the current legal framework and judicial authorities.’
Javier Robalino, Robalino

The October elections defied all expectations, with political novice Daniel Noboa (the heir to a banana trading fortune), defeating former frontrunner, lawyer and Correa-ally, Luisa González.

Forced to pivot towards a security focus, Noboa – whose current term runs through to May 2025, has demonstrated a degree of political savvy that defies his youth, moving to establish a state of emergency, and subsequently an internal war that has allowed him to deploy military resources against narcotrafficking and violence. As a result his political support has surged to more than 80%.

He has also managed to pass a number of relevant reforms to assist with the country’s finances, and given clear and coherent pro-business signals.

Overall, the early signs suggest a remarkable political turnaround for the country: violence has dropped precipitously giving way to a cautious wave of optimism and a growing belief in the possibility that the country can turn a socio-political and economic corner and return to growth.

While it remains early to talk of recovery (Noboa will have to win a second election in some 15 months time to obtain a full mandate), signals are promising.

As FBPH Abogados’ partner, Mario Flor, notes ‘the legal services market is already showing signs of recovery compared to 2023, when numerous projects were deferred or suspended due to the political crisis that culminated with the change of government. One senses greater optimism this year, with a dynamism that suggests firms are already beginning to feel this reactivation.’

The market has seen the return of both banking and finance and M&A transactions, along with increased activity in the energy and natural resources sector –particularly mining and public infrastructure – with the ESG segment also trending, especially in terms of debt swaps. Indeed, FBPH, a mid-sized but growing firm of 26 fee-earners has recently hired a new real estate practice head – Mauricio Bustamante – as well as making internal promotions to the partnership.

While the country’s twin challenges of insecurity and a significant fiscal deficit remain, there are a number of additional indicators that suggest a phoenix-like recovery – unimaginable even months ago – may indeed be possible.

As Robalino managing partner, Javier Robalino notes, Noboa’s actions have seen the country’s risk index drop below 1,500 points ‘instilling further confidence in international market actors watching Ecuador’, especially given the anticipation of a new financing agreement with the IMF; ‘moreover, there has been a notable increase in the country’s judicial effectiveness index, fostering greater confidence in the current legal framework and judicial authorities’. While there remains much to be done, ‘these developments signal positive signs of political and economic advancement for the country’.

Mexico: green-lit for growth?

A quiet optimism stalks the Mexican legal market. The end of Andres Manuel López Obrador’s damaging MORENA-alliance administration is in sight. While his successor will likely be his hand-picked replacement, Claudia Sheinbaum, there is a strong sense that a combination of practical economic necessity and her different political weight and profile will combine to provide a less ideological administration more attuned to Mexico’s needs.

One key indicator will be the make-up of Congress: if MORENA ’s outright dominance is broken, the next president will be obliged to negotiate policy in a manner absent during the current administration, prioritising pragmatism over ideology.

Indeed there is a sense that market players are comfortable with both leading candidates (MORENA ’s Sheinbaum and the PAN’s Xóchitl Gálvez), because if Mexico is to capitalise on the opportunity presented by the ‘near-shoring’ phenomena, it will have to facilitate increased power generation, which will require a return to private-sector investment in the energy sector. The scale of investment required after a six-year presidential period in which both the energy and infrastructure sectors have been starved of private funds, means there is the possibility that the return of such investment can drive the growth of the Mexican economy as a whole.

In Mexico, however, domestic issues are only ever half the equation. Tied to the US by virtue of the USMCA (formerly: NAFTA) agreement, and constituting the United States’ primary commercial partner, the country has benefited from the US/China trade war and the resulting desire of businesses to restructure and strengthen their supply chains for the key US market.

Leading firm Galicia Abogados’ experience of market conditions included a steady growth of corporate M&A and financing transactions, particularly in the second half of 2023, accompanied by an uptick in litigation, and both labour and tax consultancy.

The firm’s performance was further underpinned by its strength in regulatory matters across the competition, international trade, life sciences, environmental and compliance areas. Notably, in the face of the expected return of energy mandates, the firm has also retained its depth in that sector (where it fields a five-partner team), as well as in projects and infrastructure, another segment that has seen very limited activity during the López Obrador administration.

The firm added two new partners in January 2024, promoting M&A and mining specialist, Florent Patoret, and hiring contentious tax specialist Paola Yaber. It has also hired Xavier Careaga – formerly the GC of Meta Latin America – as a counsel for TMT and AI. With more than 20 legal initiatives related to AI and cyber security currently pending, the firm foresees a cascade of regulatory and litigious work in the sector in a Mexican market with little experience in the subject.

The broader economic optimism is also – arguably – driving market developments: March 2024 saw three partners from the former Ibarra del Paso Gallego, two from Creel Abogados, and one from Norton Rose Fulbright’s Mexico City office establish a new firm – the now 20-strong Assembla Law. The same month also saw a ten-strong group – including four partners and two counsel – leave Gonzalez Calvillo to join Sainz Abogados; the former has since announced its merger into Spain’s Pérez-Llorca.

Peru becalmed?

In a certain sense, Peru finds itself becalmed. The country’s emergence from the pandemic coincided with the disastrous and short-lived presidency of Pedro Castillo, who secured a narrow run-off win against three-time candidate Keiko Fujimori in June 2021, only to be removed from office and arrested on charges of ‘rebellion and conspiracy’ in December 2022. With former vice-president Dina Boluarte becoming the country’s first female president in his place, she endured a torrid first year in office with the country ending 2023 with negative economic growth.

The damage was largely done during the Castillo administration, with both foreign and local investors leaving the country to seek investments in more stable economies. 2024 has, nevertheless, begun on a more positive note following the president’s appointment of a number of new ministers to key posts (most notably, economist José Arista at the Ministry of Economy and Finance; and RÓmulo Mucho at the Ministry of Energy and Mines), a step which has been interpreted as signalling a willingness to seek to restore investor-confidence moving forward.

While Boluarte’s popularity continues to languish at around 10%, according to Miranda & Amado’s Juan Luis Avendaño she’s likely to stay in power until the end of her mandate in 2026, bringing some stability to the nation – ‘which is what Peru needs most right now following a number of years of abrupt change’.

2023’s poor economic indicators notwithstanding, the country registered some 140 M&A deals over the course of the year – primarily in the mining, energy and agribusiness sectors – and there is optimism that deal flow will increase slightly, given that the country’s inflation rate remains manageable; indeed, the World Bank has predicted growth of 2.5%.

Market strictures have been such that firms have largely remained cautious, with standout developments being Estudio Hernandez’s absorption of a dispute resolution team from Baker McKenzie member firm, Estudio Echecopar, in May 2023; and the more recent strategic swoop by Payet Rey Cauvi Abogados (PRC) for a seven-strong mining team (including three partners) formally with CMS Grau in October that year.

While the latter, with its long history in the sector, has already begun to rebuild its capabilities, the move was an undoubted coup for PRC, positioning it as a key player in this sector, along with national powerhouse Estudio Rodrigo and Estudio Hernández.

More generally, the lack of investment during Castillo’s administration and the subsequent political turmoil has impacted the local legal community more-or-less across the board. While firms with a broad offering, particularly leading players such as Estudio Rodrigo, Miranda & Amado, PRC, Garrigues and Rebaza, Alcázar & De las Casas and – increasingly – Estudio Hernández have proved able to offset the decline in transactional mandates with counter-cyclical work, less diversified firms have struggled, leading to price-dumping and even redundancies.

Uruguay: between a rock and a hard place

The coalition government led by president Luis Lacalle of the centre-right Partido Nacional (PN), has proved admirably durable as the country navigated its emergence from the pandemic. The administration has passed a number of modest, pro-business reforms, while dealing with a series of events that have hit the country’s gross domestic product – from the severe drought Uruguay’s predominantly agro-industrial economy endured in 2023, to the impact of the Argentine crisis, which saw hundreds of thousands of Uruguayans crossing the Rio Plata to spend their disposable income due to the huge difference in the costs of goods and services. Such was the scale of this flow that it negatively impacted the country’s GDP.

‘The Mercosur agreement does not even secure Uruguayan companies access to Argentina and Brazil’s internal markets.’
Nicolás Piaggio, Guyer & Regules

The administration’s success partly reflects a political maturity that has seen the country’s democratic framework respected regardless of the government in office: the judiciary is independent, the rule of law respected, and foreign investment is promoted and protected. Significantly, the country has enjoyed investment-grade status for over a decade. Inflation too, is under control – although at the expense of a significant appreciation of the Uruguayan peso vis-à-vis the US dollar, compromising the competitiveness of companies in the export sector.

Uruguay’s location between neighbouring Brazil and Argentina has long-defined the country’s economic policy options, a reality embodied by its membership of the Mercosur trade bloc. Of late, however, frustration with the agreement – which as Guyer & Regules’ Nicolás Piaggio notes ‘does not even secure Uruguayan companies access to Argentina and Brazil’s internal markets’, has grown, with the current administration seeking to establish trade agreements with the US, the EU and even China, only to be held back by its neighbours. Arguably, the Milei administration – with its radical agenda – could provide an opportunity to break out of this deadlock, although Brazilian opposition remains strong and a considerable brake on any modification of the Mercosur agreement.

The country will hold a general election in October 2024, with Lacalle’s term ending in March 2025. With his alliance and the opposing Frente Amplio more-or-less neck-and-neck in the polls, it is uncertain which party will be taking the country forward. What is more certain is that with an ageing population (one of the region’s oldest) and a relatively generous array of social benefits that are an increasing weight on the national purse, there are difficult policy decisions ahead.

Despite its small size, the Uruguayan legal market has remained very stable. It has long been dominated by a leading duopoly consisting of Ferrere and Guyer & Regules, with the arrival of Dentons (in conjunction with local firm Jiménez de Aréchaga, Viana & Brause) perhaps the only major development in the
last few years.

Venezuela: surviving ground zero

In October 2023, the Biden administration approved the Barbados Accord, temporarily lifting US sanctions on Venezuela’s hydrocarbons’ sector as a response to an electoral agreement between the Maduro administration and the country’s opposition coalition in the run up to the country’s July 2024 presidential elections.

This easing of restrictions potentially added some US$500m in export revenues to Venezuela’s depleted coffers, opening the way to moderate growth in the economy and the likelihood of increased M&A activity in the sector.

However, with political tension mounting, there is likely to be a rethinking of this policy when it comes up for review and renewal in October this year, impacting the already tenuous business environment again.

Despite the difficulties, the legal market’s most agile players continue to find and generate work. In the case of Palacios Torres y Korody (PTCK), name partner Juan Korody highlights the key role played by the firm’s corporate M&A and tax practices. On the M&A front, the firm enjoyed an integral role in the year-long negotiation of the sale of a prominent baseball franchise; while the team also secured significant tax relief for TotalEnergies in a dispute with the municipality of Anzoátegui in the country’s Monagas state. Outperforming its own financial goals and revenue forecast despite the national economic downturn impacting the service industry allowed the firm to launch a labour practice in 2023, thereby broadening its multi-service offering and consolidating its market position in otherwise difficult circumstances. LB

For more on Brazil, see ‘‘So big it never stops’ – why Brazil’s legal market is still booming despite political instability and economic uncertainty’.

The post The Latin American mosaic appeared first on Legal Business.

They say that Brazil comes to a halt on three occasions: Carnival, the World Cup and elections. It is no surprise therefore that the combined weight of these events in 2022 made for an unusual start to the year that followed.

A fraught election in October 2022 saw Workers’ Party leader Luiz Inácio Lula da Silva return to the presidency 13 years after he left office, ousting former president Jair Bolsonaro. Decided by the narrowest margin in decades, Lula’s inauguration was marred by an attempted insurrection when a sea of yellow and green-clad bolsonaristas stormed federal government buildings in Brasília.

Not only was President Lula inheriting a deeply polarised Brazil, he was also tasked with confronting a delicate economic situation at home and abroad.

‘2023 was a very challenging year. It started with the Americanas issue. Together with a bad economic climate and high interest rates, it caused the credit market to shrink,’ says Miriam Signor, project development and finance head at Lefosse.

A multibillion-dollar accounting scandal involving one of the country’s most established retailers, Americanas – and its subsequent implosion – alarmed many across corporate Brazil, raising deep concerns about systemic risks to the economy. Fearing that the fallout would envelop other domestic corporate borrowers, the local financial markets – already tested by rising borrowing costs and global instability – contracted, weakening prospects for Brazilian companies that were already struggling.

‘2023 was a difficult year for transactions,’ confirms Mattos Filho’s new managing partner, Pedro Whitaker de Souza Dias, who took over the leadership role from Roberto Quiroga in April 2024. ‘But the Brazilian market is so big that it never stops. Companies always end up having to adapt, even in times of crisis and uncertainty, and somehow find solutions. So even in a year with reduced M&A and capital markets activity, there were still opportunities, and our transactional areas continued to be routinely engaged by clients.’

Moving with the markets

On the equity capital markets side, after an IPO peak in 2021, Brazil has failed to attract a single market debut since Vittia Fertilizantes e Biologicos’ IPO in September that year. Confidence has been dented further by residual scepticism of Lula, who served 19 months of a sentence for corruption and money laundering before returning to politics after his sentence was annulled.

‘2023 was a very challenging year. It started with the Americanas issue. Together with a bad economic climate and high interest rates, it caused the credit market to shrink.’
Miriam Signor, Lefosse

‘Whenever there’s a change of government, the economy stagnates. People wait to see what kind of policy and which sectors are going to be prioritised,’ comments Signor.

While M&A transactional activity also fell, some sectors experienced a notable uptick: ‘Agribusiness, banking, transport, and technology were some of the sectors that saw most activity over the past year in Brazil,’ comments Luanna Perdiz de Jesus, a partner at Brasília-headquartered Perdiz de Jesus Advogados.

Some notable domestic deals still took place, including the R$12bn (£1.88bn) merger between BRMalls and Aliansce Sonae (BMA Advogados advised Aliansce Sonae, while Spinelli Advogados acted for BRMalls), but acquisitions by foreign buyers outstripped those by local purchasers, who cut back their M&A activity given the mismatch between valuations and high financing costs.

The infrastructure and energy sectors, long a safe bet for investors given the potential for stable, long-term returns, continued to drive much of the deal flow in the country, particularly those involving renewable assets.

‘The incumbent government has a clear focus on the environment and energy transition, which is aligned with international policies and sends out a very positive message to foreign investors,’ says Signor.

A radical change in Brazil’s environmental policy looks set to define the current administration. After suffering significant budget and staffing cuts under Bolsonaro, Brazil’s environmental agency IBAMA is experiencing something of a revival, pushing climate change, ESG and environmental compliance to the top of the domestic agenda.

Meanwhile, after benefiting from a particularly fruitful harvest in 2023, the agribusiness sector is responsible for a growing slice of the M&A pie: ‘Agribusiness has always taken up a very large share of GDP but traditionally a very small share of deals, but that is slowly changing,’ says Whitaker de Souza Dias.

Machado Meyer chief executive Tito Andrade agrees, adding that non-transactional practices, including tax, dispute resolution and crisis management, have also shown ‘capacity for growth’. Recently enacted tax reform is intended to tidy up Brazil’s tax system and overhaul its consumption tax system in the hopes of fostering growth.

Elsewhere, a backlog of around 78 million lawsuits is challenging the country’s legal system and the firms that work in it. Brazil’s courts are implementing various AI tools with the aim of reducing this mountain of pending cases.

‘Nowadays we have courts that use this technology to analyse pleadings and even suggest a decision. This certainly impacts the lawyer’s work when drafting a petition and developing a line of argument,’ says Perdiz de Jesus, who adds that ‘companies are increasingly looking to use artificial intelligence in their own legal departments’.

Courts and in-house teams are not the only ones turning to new technology and processes. Brazilian law firms are facing challenges that, in the words of Andrade, ‘require adaptability, innovation and a strategic approach. This implies not only adopting new tools and systems, but also rethinking processes and strategies to remain competitive and efficient in the market, and training professionals who are capable of navigating this new world.’

Talent spotting

While activity levels over the last few years may have been slightly sluggish, Brazilian law firms have demonstrated real dynamism in a post-pandemic world. Splashy lateral moves are expected to persist, as full-service firms look to strengthen practice areas that are likely to be key drivers of business.

Lefosse has arguably been the hungriest, recently recruiting notable industry experts, and at times whole teams, for its compliance, restructuring, life sciences, and competition teams. Indeed, Signor joined Lefosse in April 2022 from competitor Stocche Forbes Advogados.

‘Nowadays we have courts that use technology to analyse pleadings and even suggest a decision. This certainly impacts the lawyer’s work when drafting a petition and developing a line of argument.’
Luanna Perdiz de Jesus, Perdiz de Jesus Advogados

Talent is not solely concentrated in heavyweights like Lefosse though.

Brazil’s legal market is becoming more and more pluralised, with smaller players increasingly spinning off from well-established firms to create new outfits. Noteworthy recent examples include HRSA Sociedade de Advogados, which was established in 2022 by a team of former Huck, Otranto, Camargo Advogados’ lawyers and Gandelman & Costa Dias Advogados, which was founded by Marcelo Gandelman and Rafael da Costa Dias (formerly at Souto Correa Advogados) in May 2023. Boutique player Xavier Gagliardi Inglez Verona Schaffer, was founded the same month by a quintet of highly regarded litigators: Celso Xavier, Marcelo Inglez de Souza, Rafael Gagliardi, Daniel Kaufman Schaffer and Carlo Verona, all of whom came from Demarest Advogados.

This trend echoes the story of Mattos Filho, which over three decades has grown to become one of the largest and most successful full-service law firms in Latin America.

‘Today the Brazilian legal market is bigger and more sophisticated,’ says Whitaker de Souza Dias. He argues that the firm’s ‘diversification in terms of practices, professionals and clients’ shields it from competition, as well as wider market shocks.

Looking ahead

Looking to the future, while dealmakers are still cautious, a brighter picture is forming on Faria Lima, Brazil’s Wall Street. Defying the odds, Brazil’s GDP grew by around 3% in 2023, triple what analysts were predicting when the new government took office. Inflation has slowed down, interest rates have gradually fallen, and the Brazilian real is steadily recovering after years of volatility. Perhaps unsurprisingly, lawyers are reluctant to comment directly on the political tumult of the past 15 months but Lula’s internationalism signals the reemergence of a respectable Brazil on the world stage, something which is ultimately good for business. LB

For more on Latin America, see ‘The Latin American mosaic’.

The post ‘So big it never stops’ – why Brazil’s legal market is still booming despite political instability and economic uncertainty appeared first on Legal Business.

In Brazil, in October 2023, according to data from the National Council of Justice, there were 84 million cases pending in the country’s courts. The Brazilian judiciary, for example, adjudicates, on average, four times more cases than similar institutions in European countries. Brazil has the highest number of lawyers per capita in the world. In 2022, according to a survey conducted by the Brazilian Institute of Geography and Statistics (IBGE), it was found that there is an average of one lawyer in Brazil for every 164 inhabitants. These data underscore the relevance and importance of carefully selecting the law firm that best serves the client’s interests, especially in contentious cases.

The Perdiz de Jesus Law Firm, established in 1995, stands out because of its commitment to excellence and dedication to its clients. It provides personalised client service and direct partner involvement. Ethics, dedication, and excellence are the core foundational principles on which it has built its reputation for its nimble advocacy. Perdiz de Jesus Attorneys focus is on meeting their clients’ needs and guiding them towards optimal resolutions to their legal issues.

In addition to the strong foundation of personalised service provided by the lawyers in our core litigation and advisory team, Perdiz de Jesus prides itself in having a process for managing excellent service delivery, in accordance with which we provide detailed reports, predicting possible adverse judgments based on legal research on the court’s database, preparing graphs showing the number of related cases by specific topics, and providing accurate and objective information to clients.

The Perdiz de Jesus Law Firm is renowned for its strategic and assertive approach before the Higher Courts. The Superior Court of Justice (STJ), for example, according to Brazil’s Federal Constitution of 1988, is responsible for standardising the interpretation of federal law throughout the country. To emphasise the importance of choosing a law firm with expertise in the Higher Courts, it is worth mentioning that in 2023 alone, the STJ broke its record for the number of cases received in a single year: 419,544 cases. These numbers have a direct impact on the judgment of cases received by the court.

Nevertheless, several measures have been adopted by the Brazilian courts to optimise the analysis of cases, such as the use of technological tools with artificial intelligence. It is believed that this is a trend worldwide, given the technological advancement and the search for optimised solutions for challenges experienced and daily issues. It is in this context that Perdiz de Jesus Attorneys reiterates its mission to provide legal services of excellence with responsibility and transparency amid a scenario of profound changes in the resolution of legal matters. The firm’s vision consists of maintaining the recognition of legal quality in ethical and personalised client service, whose actions are guided by the following values: knowledge, technical excellence, trust, honesty, and transparency.

Our team is highly qualified in preparing and advising on special appeals considering the civil, constitutional and administrative jurisdiction of the Superior Court of Justice and the internal rules, as well as on the obstacles to hearing appeals. Overall, our firm is dedicated to preventive, consultative and litigious law practice, monitoring administrative, judicial and arbitration proceedings, also working in risk assessment, crisis management, contracts, asset management, negotiation, and alternative dispute resolution, seeking the best strategies to resolve our clients’ interests.

Perdiz de Jesus Attorneys has a proven track record of success in handling complex litigation cases. With our extensive experience and deep understanding of the legal landscape, we have consistently achieved favourable outcomes for our clients. Through strategic planning, meticulous preparation, and effective advocacy, we have successful represented our clients in a wide range of cases, including high-profile disputed and challenging legal matters.

Along the years since its foundation, Perdiz de Jesus Attorneys has been ahead of various leading cases in the Superior Courts, leading emblematic victories to its clients. As an example, in the past 12 months, our firm represented Confederação Brasileira de Futebol (CBF) on the Superior Court of Justice regarding the application of a penalty clause for breach of contract, with vast media coverage. After careful consideration, the Superior Court of Justice ruled in favour of our client, setting a precedent that will have a lasting impact on future legal proceedings. This favourable outcome not only secured justice for our client but also contributed to the development of Brazilian jurisprudence.

Recently, our firm had the privilege of representing Soy Producers Association of Mato Grosso do Sul State (APROSOJA/MT) in a landmark case concerning a judicial dispute against a multinational agriculture and biotechnology company, aiming the declaration of nullity of a patent of invention which was processed at the National Institute of Industrial Property (INPI), after 12 years of analysis, and expired in 2018. The associated producers aim to obtain the cessation of payment of royalties inherent to the free and optional use of the technology inserted within the soybean seed, due to an alleged lack of technical innovation in the patented seeds and a lack of transparency when describing the invention, besides other legal aspects.

Last year, the Supreme Court of Brazil ruled a significant case that had far-reaching implications. The case involved a complex legal issue that required careful examination and deliberation. It was a leading case regarding the definition of the legal-constitutional status of tenure relations in areas of traditional indigenous occupation, where our firm represented the interests of the Mato-Grosso State Association of Cotton Producers (AMPA) as an impartial adviser (amicus curiae). The court’s ruling will probably have a huge impact on Brazil’s economy, as it may reduce the area of private farms that grows commodities and, consequently, diminishing its capacity of plantation and turning it to an indigenous area.

Perdiz de Jesus Advogados was hired in early 2022 to represent Itaipu Binacional in various lawsuits filed by the Union of Construction Company Ltd demanding compensation for losses allegedly suffered by the Brazilian construction companies represented by the Union during the construction of the binational hydroelectric power plant of Itaipu. The lawsuits started in 1999 and 2000 and have been under a long dispute in the Brazilian tribunals since then.

Last but not least, our partners are renowned in the market as leaders in the litigation field. Our founding partner José Perdiz de Jesus is widely known by peers and the Justices of the Superior Court and Federal Regional Courts as a leading lawyer in the litigation field, especially due to his deep knowledge of the civil and procedural law, his knowledge of the Superior Courts procedurals and internal rules and by the innovative case strategies he has built along the years since 1991. He is also one of the leading authorities on sports law in Brazil, where he currently holds the position as president at the Superior Court of Sports Justice (STJD). Our professionals are frequently invited to speak in seminars and courses and are also regular sources to the Brazilian media. Most recently, our partners José Perdiz de Jesus and Luanna Perdiz de Jesus, spoke at Academic Days on Open Government and Digital Issues – Imodev, at Université Paris 1 Panthéon Sorbonne and presented an article at an International Congress at Universidad Complutense de Madrid for the International Law Symposium Consinter 2022.

In sum, our firm’s dedication to delivering exceptional results has earned us a reputation for excellence in the legal community. We are proud of our record of securing favourable settlements, winning significant verdicts, and obtaining successful resolution for our clients. When you choose Perdiz de Jesus Advogados, you can trust that you are partnering with a team of skilled litigators who are committed to protecting your rights and achieving the best possible outcome for your case.

The post The Brazilian legal market appeared first on Legal Business.

Mauricio Duarte from Legal Plus gives his insights into startups in Latin America, providing particular focus on the growing venture capital market in Guatemala

Startup ecosystem in the region

If you have heard of Duolingo, you might not know that the founder was born and raised in Guatemala. Like this successful company, there are multiple examples of successful startups in Latin America, such as Kavak, Rappi, Ualá, Hybrico, Osigu, CoreCode, Pacifiko, and more.

The startup ecosystem in Latin America is unique. The region keeps giving hundreds of successful startups, many already worth over a billion dollars (unicorns). However, some metrics show that in 2023, there was a 60% drop in venture capital investment compared to 2022, according to Dealroom.co.

Yet, there are reasons to stay positive. For example, according to Bloomberg, SoftBank Group Corp anticipates increased investments in Latin American startups in 2024.

Latin America is on track to become a hot spring of innovation, fuelled by rapidly growing startups and capital investment. Many of the most successful startups are from Argentina, Brazil, Chile, Colombia, and Mexico, where the number of startups nearly tripled in the last five years. However, based on our observation and practice, you should watch for countries in Central America, especially Guatemala, El Salvador, and Costa Rica.

As a Guatemalan-born and raised attorney now residing in the US, I will focus on Guatemala. As you keep reading, remember that this is not financial advice, but it may sound compelling to invest in Guatemala after reading.

The country’s strategic location and proximity to Mexico, the US, and other Latin American markets, on top of the creativity of its people, make it an attractive country to tap into its potential.

The venture capital market in Guatemala has been experiencing significant growth after the pandemic. Like Statista found recently, there are multiple factors contributing to this growth, such as:

• The proliferation of incubators, accelerators, and significant regional gatherings, as seen in initiatives like Multiverse, Startup Grind, and the Volcano Innovation Summit.
• The rising tide of angel investors and investment funds within Guatemala, such as Pomona Impact, Invariantes, GEA Capital, Cacao Capital, and E10. This trend signifies an escalating enthusiasm for investment opportunities in the region.
• The widespread adoption of smartphones and internet connectivity has revolutionised access to information and digital services, laying the groundwork for an increasingly connected and digitally-savvy population.

For example, the same study from Statista suggests that Guatemala is projected to reach a total capital raise of US$63.4m in the venture capital market by 2024, representing a 6.8% increase. In addition, according to Dealroom.co, Guatemala keeps showing a positive outlook on capital investment.

Role of legal

At Legal Plus, we are at the forefront of this trend and provide specialised and tailored legal solutions that respond to Latin American startups’ needs, quirks, and budgets.

The journey of a startup, from its pre-seed stage to becoming a full-fledged business entity, is filled with legal intricacies and regulatory hurdles. It is here that legal advice becomes indispensable, guiding startups through the complex maze of corporate, intellectual property, securities, and financial laws. In our experience, the valuation of a startup is just as good as its legal compliance and protection of intellectual assets.

Especially in the dynamic realm of venture capital financing, technology, and private equity, the expertise of a knowledgeable legal sidekick is invaluable.

We advocate for harmonising external law firm services with the practicality and dedicated focus akin to an in-house legal counsel. This approach equips startups with a consistent point of contact and specialised expertise while also acknowledging the constraints inherent in the ‘one-stop-shop’ model typically associated with larger law firms. By positioning themselves as general external counsel, small and medium-sized law firms can offer a more nuanced and adaptable service, aiding clients in leveraging technology, streamlining legal operations, and establishing vital connections with a diverse network of legal professionals across various jurisdictions.

I came to learn about technology, venture capital financing, and private equity only after I became interested in legal technology. Like myself, our team needed to be taught the importance of venture capital financing or caveats about innovative startups in law school. We came to learn more and more by reading and experiencing ups and downs.

For instance, our team had to quickly understand why it is advisable to use the Simple Agreements for Future Equity (SAFEs) and convertible notes when our local regulations do not explicitly regulate them. Another example was the ability of our team to quickly grasp the importance of standard documents for financing, such as the ones provided by the National Venture Capital Association. Embracing standard legal documents and structures facilitates deals, especially with foreign investors.

As a part of this learning process, there are other valuable lessons that we suggest for any Latin American startup:

• Negotiate favourable terms for the startup while keeping reasonable terms for the investor.
• Structure deals that align with long-term business goals. This also means that not all startups require a C-corporation incorporated in Delaware.
• Find a suitable tax structure for the company and the investors. Do not undertake unreasonable and overly complex structures.
• Finally, focus on the product first, but remember the legal!

I do not mean to suggest that lawyers make or break a successful startup. A good product or service is based on the user experience, functionality, and simplicity. However, a solid legal framework will ensure the startup can secure the necessary capital while safeguarding its interests and long-term strategy.

The journey of securing venture capital is pivotal for any startup, especially a Guatemalan startup. The approach for every law firm should not merely be about securing funds; it’s about crafting financing rounds that respect the vision and autonomy of the startup. This might sound easy, and it is if you have a great team that can handle various legal issues.

For example, parallel to financial negotiations, the digital nature of today’s startups often places them at the crossroads of user agreements, data protection regulations, and intellectual property concerns. Therefore, our team provides a comprehensive service that intertwines financial negotiation support with other technological strategies. This dual focus ensures startups secure the capital they need and establish trust with their user base through compliant practices.

This expertise is significant when startups, in their scale-up phase, must navigate complex financial instruments, equity arrangements, and compliance requirements. More than just a service, law firms should focus on becoming a pillar of collaboration with the startup.

Successful examples

Over the past two years, we have had the privilege to facilitate significant milestones for our clients, underlining the critical role of strategic legal counsel in the startup world.

The legal team at Legal Plus, which specialises in private equity and venture capital and comprises Alvaro Hurtado, Juan Andrés Campos, Pamela Rodas, and myself, has successfully spearheaded a series of significant transactions.

These initiatives include, but are not limited to:

• n Orchestrating the strategic acquisition of Carvajal by Osigu in Colombia and leading Osigu’s Series A-2 Financing and its subsequent corporate restructuring;
• n Executing a venture debt financing arrangement for Hybrico while securing a senior secured credit facility and managing the Series B Financing and corporate reorganisation of Hybrico.

Additionally, our team has been instrumental in facilitating various equity and debt financings and establishing investment fund structures, collectively exceeding US$75m in transactional value, which reaffirms the data provided by the 2024 LAVCA Trends in Tech.

Looking ahead

The role of legal counsel extends far beyond traditional legal services. Lawyers can be strategic partners to clients, guiding them through the intricacies of financing rounds, cross-border expansions, and the ever-evolving global business landscape.

Like startups and technology companies, law firms must embrace innovative approaches to serving their clients effectively. This necessity is particularly crucial for lawyers who aspire to advise startups and technology firms. In this dynamic sector, lawyers must consider various business aspects, including international tax implications, venture capital funding, technical protections for software, data protection, and cyber security.

For instance, advising a startup on venture capital funding requires knowledge beyond legal terms; it requires an understanding of the venture capital ecosystem, investment strategies, and the financial implications of different funding structures. Similarly, when dealing with data protection and cyber security, lawyers must be familiar with the technological aspects of data management and the risks associated with cyber threats.

Moreover, the delivery of legal services is transforming, driven by advancements in technology and artificial intelligence. Law firms increasingly leverage these tools to enhance efficiency, improve accuracy, and offer more sophisticated services.

Therefore, for lawyers advising startups and technology companies, it’s more than just offering legal services. It’s about expanding how these services are delivered, integrating technology, and applying business concepts to provide holistic, forward-thinking solutions. This approach will benefit the clients by providing them with comprehensive support, and it will position the law firm as a forward-thinking, innovative partner in the client’s growth.

The post The Latin American startup industry appeared first on Legal Business.

Can you elaborate on the role of government agencies and oversight bodies in enforcing labour laws and social security regulations in Mexico?

Agencies charged with enforcing labour and social security laws, are the Ministry of Labour (STPS), the Mexican Social Security Institute (IMSS), and the National Workers’ Housing Fund Institute (INFONAVIT), through information requests, labour inspections and specific social security audits.

As a way of ensuring compliance, these authorities can impose fines and other penalties. Furthermore, both IMSS and INFONAVIT are tax authorities that have the power to execute the imposed sanctions and carry out the process to collect unpaid contributions or fines.

What are the legal obligations and responsibilities of employers regarding workplace health and safety under Mexican law, and what laws are especially relevant for foreign investors?

In exchange for the employers/employees paying their contributions, IMSS substitutes the employer in providing medical services when occupational hazards occur and the endowment of subsidies to compensate for lost wages. When general illnesses or occupational hazards occur, IMSS will pay the ailing or sick employee a subsidy to compensate the income loss, a general illness subsidy equal to 60% of the declared salary after the third day of sick leave or an occupational hazard subsidy equal to 100% of the declared salary since the first day of sick leave.

Considering latest developments, the Mexican Official Standard regarding remote work, NOM037 STPS 2023, and the Mexican Official Standard regarding psychosocial risk factors in the workplace NOM 035 STPS 2018, are of particular importance because they establish rules that employers must comply with to provide safe and adequate working conditions for employees.

How have recent amendments in labour legislation impacted employers and employee obligations in Mexico?

• Outsourcing regulations: Amendments have introduced stricter regulations on outsourcing practices, banning staffing of personnel, and enabling only the outsourcing of specialised services (that are neither part of the beneficiary’s corporate purpose nor part of its main economic activity). Penalties for breaches might entail up to US$320,000 and might be individualised per affected employee in worst-case scenarios.
• Union democracy and transparency: Union democracy and transparency have become a priority, requiring unions to hold periodic, secret ballots for leadership elections and collective review of collective bargaining agreements (CBAs), ensuring workers have a more active role in union decisions.
• Labour justice system: The amendments consolidated a new labour justice system, including the creation of specialised labour courts. This system aims to expedite the resolution of labour disputes and ensure fair treatment for both employers and employees.
• Gender equality and non-discrimination: Regulation was strengthened to boost gender equality and non-discrimination in the workplace, aiming to promote equal opportunities and treatment for all employees, regardless of any protected trait.

How will the changes to Convention 190 of the International Labour Organisation affect foreign investment into Mexico?

It may increase costs associated with ensuring workplaces’ adherence to standards outlined in Convention 190, including policies, training programmes, and monitoring mechanisms to prevent and address violence and harassment. Adhering could also lead to improved reputation regarding social responsibility and ethical business practices, while non-compliance could expose companies to legal risks and liability, including economic penalties and reputational damage.

What are the key considerations for businesses regarding compliance with these new regulations in Mexico?

Employers must provide training and awareness programmes to employees about their rights and responsibilities under new regulations covering topics such as recognising and reporting harassment, understanding company policies, and promoting a respectful work environment.

The final step to consider is the establishment of tools and procedures for the regular monitoring and enforcement of policies necessary to ensure their effectiveness, such as updating the internal workplace rules, which are mandatory and surveilled by the labour inspection.

With the evolving nature of remote work, how has Mexican labour law adapted to address issues such as telecommuting and flexible work arrangements?

These adaptations ensure that necessary guidelines are in place for remote work situations and reflect the recognition of remote work as a significant aspect of modern employment. There’s more flexibility in work arrangements overall, allowing for part-time work, adaptive schedules, and variations to accommodate different needs. Telecommuters are entitled to the same rights and benefits as in-office workers, including working hours, compensation, safety measures, and access to training.

Employers are required to provide necessary equipment and support for remote workers, while addressing data protection and confidentiality to safeguard sensitive information. Despite flexibility, employers still have the right to monitor remote work to ensure compliance with company policies and standards, although this must be done in a way that respects employees’ privacy.

Last year, the Vacation Reform came into effect. How quickly has the Mexican business landscape adapted to these changes?

The adaptation of the Mexican business landscape to the Vacation Reform introduced last year has varied across different sectors. While some organisations have swiftly adjusted practices to comply with new regulations, others may have encountered challenges in implementation, mainly focused in the added cost considering vacation premium and the slight increase in social security contributions. Furthermore, additional vacation days represented more absences, which in turn resulted in adjustments of shifts and headcount increase.

How do Mexican labour laws address issues of outsourcing and subcontracting, and have there been any recent developments in this area?

Subcontracting reform is currently undergoing the renewal of the specialised services registration (REPSE). The FLL states that REPSE must be renewed every three years. Since a significant number of registrations were approved between September and December 2021, the second half of 2024 will put the STPS’ ability to keep up to the test. Due to labour and tax effects of an invalid REPSE, employers must be cautious of lapses in compliance. After three years of this reform, companies continue to work and analyse the different types of services they render to clients and those they receive from contractors, to determine which activities they need to declare to comply with these subcontracting provisions.

How will the Legitimisation of Collective Bargaining Agreements affect employers and investment? And what steps should be taken to ensure compliance with the law?

Under USMCA’s labour chapter, unions were required to ratify the content of all CBAs through a secret ballot, prior to 1 May 2023. If a majority wasn’t reached or the Union failed to perform the voting session, the CBA was terminated, while the employment conditions remained. After the deadline, only an estimated 30,000 CBAs were kept in force, out of a 130,000 original universe.

For those CBAs who achieved a majority, they will be subject to integral reviews every two years, requiring a secret ballot once again and, if approved, will maintain its effect for an equal amount of time, until the next voting session.

Employers must realise this process corresponds to employees and their unions with little to no intervention on the part of the employer, due to interference prohibitions.

What measures are being taken to address issues of informal labour and ensure adequate social security coverage for all workers in Mexico?

To provide independent workers with access to social security, IMSS created the Simplified Scheme for the Voluntary Incorporation of Independent Service Providers into the Mandatory Social Security Regime, which will be formally integrated into the SSL to expand voluntary insurance.

To join the Simplified Scheme independent service providers must register through the corresponding digital means and pay both the workers’ and employers’ contribution based on the total income they obtain from their activity. The insurance under this new scheme must be paid in advance on a monthly, bi-monthly, semi-annual, or annual basis.

Looking ahead for the next 18 months, what do you foresee as the key areas of focus for future reforms or amendments in Mexican labour and social security law?

1. Reduction of the standard work week from 48 to 40 hours: This bill entails concerns about the potential impact on business operations, citing increased costs, logistical challenges, headcount increase and productivity implications. Reducing the work week may necessitate adjustments to staffing levels, compensation structures, and operational practices, posing challenges for businesses, particularly small and medium-sized enterprises. However, advocates of the bill emphasise its potential to improve work-life balance, enhance employee well-being, and promote productivity by mitigating fatigue and burnout.
2. Christmas bonuses increase from 15 to 30 days salary: With concerns about the potential burden on employers, particularly small businesses, an increase yin the Christmas bonuses could strain budgets and potentially lead to workforce reductions or even business closures, however, proponents of the measure argue the additional financial support would help alleviate economic pressures and enhance employee morale and well-being.
3. Possible pension reform: The bill aims to rework the retirement pension management system to eliminate the individual retirement account system and return to the fixed benefit system that was in effect until 1997. We believe this initiative is of a more political nature, however, in a rarefied political environment major change regarding pensions could upend the way retirement fund managers operate and wreak havoc on the Mexican economy.

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Gabriel Dejarden, member of the executive committee of ECIJA, discusses the legal trends in the Dominican Republic, and the firm’s role in Latin America

What new legal trends or regulatory changes are you seeing emerge in the Dominican Republic?

Firstly, I would like to thank you for the opportunity to engage with you and your readers. In the proptech area, we are seeing efforts from the Dominican government to somehow regulate online marketplaces for short and long-term homestays and experiences. Our impression so far is that the aim of these new rules would be to ‘level the playing field’ with traditional hotels which are required to obtain permits from the Ministry of Tourism and other institutions to carry out their activities. It remains to be seen whether these platforms and/or their clients will also need to make new tax payments or observe new fiscal rules.

In the TMT sector, there has been talk for a while to tax online marketplaces and streaming services with VAT, which is 18% in the Dominican Republic. Such proposed measures have been referenced in budgets prepared by the Dominican government, but so far, no regulation or statute has been approved towards this end. We believe that such a measure could potentially be approved in the context of a comprehensive tax reform bill or a stand-alone regulation after a new presidential term begins on 16 August 2024. Moreover, it is worth mentioning in this area, that the Ministry of Industry, Commerce and Medium and Small Business together with the World Intellectual Property Organization recently commissioned and published the first diagnostic study of the local video game industry. This shows a clear intent from the government to diversify existing industries, create new jobs that provide higher added value and that would involve the payment of higher wages. The next step in this area could possibly be the creation of new regulations that would foster the growth of the video game industry, perhaps similar to the very successful tax incentives currently available for the movie industry. We also anticipate, given the study’s conclusions, that changes to the Dominican Republic Industrial Property statute might be on the horizon. Lastly, in this area it should be noted that the Dominican Republic government policy makers are paying attention to the recent trend to ‘nearshore’ the manufacturing of semiconductors found in automative parts, medical devices, manufacturing, and information technology. A leading study from the Information Technology & Innovation Foundation published on 29 January 2024, considers the Dominican Republic as ‘the most attractive business environment in Latin America’ and a ‘leading candidate for nearshored investments in advanced manufacturing activity particularly for electronics such as printed circuit boards and the assembly, test, and packaging of semiconductors’. We anticipate that policy-makers would likely try to channel these investments to our country through the existing and very successful Free Zone Regime under law 8-90, which among other incentives, exempts businesses from the payment of customs duties and income tax, which is 27% in the Dominican Republic.

In the labour area, we are seeing a firmer enforcement of the 80/20 rule, which requires that at least 80% of a company’s workforce be Dominican. Moreover, the creation of the health and security committees has become more important as employees are demanding their implementation and are frequently suing for damages when they are absent. Lastly on this aspect, it should be noted that the government is seeking the approval of a new law to govern teleworking and that we have seen more efforts from multinationals to ensure local labour compliance, perhaps motivated in part by the decision of the US Customs and Border Protection (CBP) to issue, for the first time, a Withhold Release Order against a major corporation operating in the Dominican Republic. To justify the measure, CBP acting commissioner Troy Miller asserted that ‘this Withhold Release Order demonstrates CBP’s commitment to protect human rights and international labour standards and to promote a fair and competitive global marketplace’.

In the tourism area, the government continues to encourage the creation of a new tourism pole in Pedernales in the Dominican Republic’s ‘deep south’. To this end, the government is creating new infrastructure, which already includes a new cruise port known as ‘Port Cabo Rojo’ and is set to include a new international airport, new roads, etc. The government is also seeking to create the ‘Corporación Turística Cabo Rojo’ a private corporation that will be in charge of developing and administering the services, hotel and commercial infrastructure of this new tourism area, including public and private investments.

In the financial services sector, a very interesting new development is the recent ratification by the National Congress of the Agreement for the Promotion and Protection of Investments signed by the OPEC Fund for International Development (OPEC Fund) and the Dominican Republic. This new instrument creates a new financing window for projects in our country through loans, equity participations and other forms of investments defined by the treaty. The agreement is to be managed by two representatives of the OPEC Fund and two representatives of the Dominican Republic government. It is also worth noting that the agreement contemplates the creation of an ‘investment ombudsman’, which shall be located at Prodominicana, the local government agency in charge of the promotion of foreign investment into the Dominican Republic.

What can you tell us about ECIJA, its Latin American Strategy and the different roles you serve within the firm?

ECIJA is the Ibero-American firm with the largest presence in Latin America and is a key player in the Dominican market.

We currently have 35 offices spread across 17 jurisdictions (Dominican Republic, Puerto Rico, Spain, Portugal, Mexico, Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Colombia, Ecuador, Chile, Argentina, Uruguay, and Brazil), staffed by more than 1,000 attorneys. We speak more than 20 languages and aim to serve the sophisticated legal needs of businesses and individuals through a full-service practice. The firm has been recognised by leading international directories and magazines such as Chambers & Partners, Legal 500, IFLR 1000, Expansión and the Financial Times.

Our Santo Domingo office has represented clients in some of the most significant projects in the Dominican Republic, such as the local implementation of:

i. the acquisition of Flora Food Group by KKR (formerly Kohlberg Kravis Roberts & Co) for more than US$8bn; and

ii. the sale of the infusion therapies business by Pfizer to ICU Medical for US$1bn.

We have also represented the World Bank, the Central American Bank for Economic Integration, the International Labour Organization, and the European Union.

In terms of our Latin American strategy, the firm in essence aims to grow its presence in the region to eventually cover all Latin American countries. To streamline our growth, the firm has set up an internal governance structure which divides Latin America into two subregions: Northern Latin America (NOLA) and Southern Latin America (SOLA). The NOLA region is headed by Ricardo Chacón, managing partner of our office in Mexico, and the SOLA region by Gonzalo Gonzalez, managing partner of our offices in Ecuador. These leaders coordinate all our business planning and integration efforts within their respective subregions and help also define the firm’s overall strategy together with the firm’s 16-member executive committee. As a member of the executive committee, I have been tasked with various responsibilities over time, which have included the search of candidate firms to join ECIJA, and the organisation of the firm’s last annual partners’ meeting together with Alejandro Touriño, managing partner of our office in Madrid. At present the role includes the appointment to a subcommittee of the executive committee in charge of fostering relationships with law firms in the US.

I am personally very fond of this jurisdiction, as I completed my LLM in Georgetown Law, in Washington DC in 2003, and have remained in close contact with US colleagues throughout the years, thanks in part to the volunteer work I perform for the American Bar Association International Law Section. Moreover, given our firm’s geographic footprint, full-service capabilities, industry expertise and scale, we feel that we are uniquely positioned to assist US and other international firms with large regional mandates throughout Latin America and Iberia. We strive to seamlessly deliver a standardised high-quality product, through a single point of contact, using industry leading technology and legal project management tools. I share this role with other administrative duties I have within our firm’s Dominican office.

The post Q&A: What’s on the horizon for the Dominican Republic? appeared first on Legal Business.

Bofill Escobar Silva Abogados is a law firm with a decade-long history, comprised of attorneys renowned for their track record in resolving high-complexity domestic and international disputes. The firm is involved in several of the country’s most significant cases and holds a persistent presence across nearly every industry and sector of the economy.

Our focus lies in adding value when addressing challenging disputes. We are distinguished by our comprehensive and sophisticated approach to matters that span multiple legal domains; entail various and diverse conflicts requiring a coherent strategy; involve multiple legal entities on one or more sides of the issue; encompass laws from different countries; and present not only legal aspects but also economic, financial, and other questions necessitating integration of other areas of expertise into the strategy.

The firm’s work is founded on collaboration and assembling the optimal team for each case. The diverse experiences and expertise of the attorneys at Bofill Escobar Silva Abogados enable us to attain an integrated and innovative perspective on conflicts, thereby identifying the best means to address clients’ true challenges.

We don’t only handle litigation. Resolving conflicts means understanding their origins and finding ways to prevent them, so we can advise clients on improving their abilities to anticipate and address issues before they escalate. When a dispute arises, we analyse the best approach to resolve it, whether through negotiation or more assertive long-term strategies.

We stand out as a leading firm in the white-collar crime practice, participating in the most relevant cases of the last decade. We are a national reference in resolving tax disputes, with great effectiveness in highly complex tax conflicts for international groups and high-net-worth individuals. We are experienced in handling commercial disputes before international tribunals, including the International Chamber of Commerce, and other institutions. Our practice is also well-established in regulated markets, antitrust, and public works concessions, serving clients from various international industries.

Our signature

Legal conflicts disrupt normal business operations, distracting individuals and companies from their core activities and hindering negotiations and profitable commercial transactions. We aim to be trusted allies to our clients, supporting them in resolving their legal problems so they can focus on their core activities with the assurance that their interests will be well safeguarded.

We are a firm willing to take on cases involving significant stakes and relevant actors. Our team dares to tackle conflicts others might shy away from, and we adeptly navigate high-pressure environments and media exposure, often in collaboration with our clients’ media experts.

Additionally, we are known for establishing an effective and close relationship with our clients, maintaining clear and timely communication. All of this is guided by the principle that we strive to put ourselves in our clients’ shoes.

Our services are tailored to each client, accompanying them throughout the entire process of resolving their issue, remaining attentive to their feedback, and any changes that may require an adjustment of the strategy. Moreover, our advisory services adhere to the highest standards of quality and technical precision.

Competition Law gains increasing importance in everyday business practices. How does your firm advise clients to stay updated and comply with new regulations and trends in this area?

A recent development in Chilean competition law is the criminalisation of agreements between competitors. This means that board members and senior executives of companies may face in collusion cases potential fines, subsequent criminal prosecution, and even imprisonment. Another recent source of exposure for companies and their corporate governance is the inclusion of interlocking as a form of antitrust violation. The first cases involving these new rules are expected to be resolved in 2024.

In the context of increased risk and exposure for corporate governance, board members and executives, we help companies assess their current compliance status, identify gaps, and build strategies to enhance compliance effectiveness by providing tailored compliance consulting and risk management solutions. We have developed solid expertise in conducting internal investigations within companies, either pre-emptively or in the context of a conflict or prosecution. This activity involves detailed reviewing of emails and other communications, interviewing senior executives, and analysing compliance programmes, their awareness, and adherence within the organisation.

Digital platforms and new technologies have significantly influenced the development of new businesses and innovations. What institutional and private actions need to be considered in Chile in response to this impact?

Law firms need to not only embrace technological advancements for their internal processes, but also integrate them into their client advisory services. This is essential as markets are rapidly evolving due to innovations. In the case of Latin America, Chile stands out for its proactive approach towards both private and public technology initiatives. For example, in 2021, the country introduced the National Policy on Artificial Intelligence which outlines strategic AI priorities for the next decade along with a new regulatory framework focusing on ethics and governance. Additionally, the Chilean Congress is expected to pass a new data protection bill promptly aimed at positioning Chile as a leading nation in this area within the region.

Competition authorities have also played an active role in this area. The Chilean Competition Agency (FNE) is analysing a complaint against digital platforms for excessive pricing and lack of transparency. Additionally, it is in the final phase of its digital platform’s accommodation market study. The FNE also reached out-of-court settlement agreements with three food delivery apps, that were approved by the Chilean Competition Court. This Court will also judge a recent lawsuit filed by a digital newspaper against Google for abuse of dominance in the digital advertising market.

Chile has an important portfolio of infrastructure projects. What are the biggest challenges companies face when developing projects and activities in your country?

Given our firm’s experience in project management, one key factor of every infrastructure project is navigating the complex process of obtaining the necessary permits to develop the works (sectoral, environmental, etc). Obtaining these permits is important as it directly impacts project financing, time, and risks, which are crucial factors for project execution.

Addressing this challenge is particularly pertinent given the introduction of a new bill for the Framework Law on Sectoral Authorisations. This bill seeks to simplify procedures and response times for permits to develop projects and activities, thus promoting investments and improving the country’s productivity.

Bofill Escobar Silva Abogados focuses on understanding the entire project lifecycle, offering comprehensive planning, and effectively balancing and managing contract risks. If discrepancies arise with government agencies during the project’s lifetime, such as with additional works, our firm has the necessary experience to address disputes through negotiations or in judicial or arbitral proceedings.

Last year, a new law on economics and environmental offences was published, with its implementation currently underway. How do you think this will affect business operations in Chile?

The enactment of Law 21,595 on Economic and Environmental Crimes has been the most important legislative change in recent years and will result in a significant impact on the way business operates in Chile.

From a general point of view, the introduction of the category of ‘economic crimes’ and the establishment of a new and differentiated criminal statute for those cases, with implications in the determination of penalties, restriction of alternative penalties, among others, will imply greater surveillance and more rigorous sanctions directed toward legal entities and their executives. This will force companies to become involved in crime prevention from the highest levels, strengthening the figure of those in charge of compliance and adjusting crime prevention systems.

Regarding environmental matters, this Law establishes a unified catalogue of crimes against the environment, which are classified as second-category economic crimes, recognising the significantly greater social damage that can cause. This will probably lead to companies giving special importance to environmental compliance, focusing on the development of a robust crime prevention model, which fully identifies the activities and processes the risk behaviours defined, and investing in procedures to prevent criminal behaviour.

In terms of corporate governance, what are some best practices that businesses operating in Chile should prioritise, and how does your firm support them in implementing these practices?

In addition to the differentiated criminal statute already mentioned, Law 21,595 created the crime of ‘abuse of majority position’. This proscribes the adoption of abusive agreements by the board of a company, taking advantage of a majority position, when the agreement or action doesn’t report a benefit to the company but to the controller or the majority shareholders.

In this context, businesses operating in Chile should prioritise efforts to adapt their crime prevention models and their corporate governance policies to the new standards. This translates into the implementation of a cultural change in the company’s criminal risk management, as well as a periodic review and update of the compliance model according to the changes that the company’s reality may undergo.

We support the implementation of these practices through the advice that we continually provide to our clients, updating them and developing tailored strategies to face the problems that may arise because of non-compliance.

The Chilean government announced a tax reform programme across two separate bills looking at tax evasion and introducing tax changes aimed at increasing revenue. How will this affect foreign investment into Chile and what should businesses do to ensure compliance?

Within 2024 the Chilean government has announced two tax bills. The first one is called the Tax Compliance Bill, which is currently under discussion in the National Congress. This project is related to reforms that affect local taxpayers and the agencies related to tax administration as well as tax courts. It also contains changes to anti-avoidance rules. This bill does not contemplate specific changes aimed at or affecting foreign investors in Chile. However, they may be affected since the changes are of general reach.

The second bill is still in the pre-legislative stage; an official text proposed by the government has not yet been presented, although the key aspects on which it will be based have been made known. Several changes to the income tax law for individuals and companies will be considered, although nothing special for foreign investors has been announced. Some of the potential changes include the elimination of capital gains relief on stock trading (except for institutional investors), elimination of the corporate tax credit against personal taxes and increase of marginal rates of personal taxes.

In December last year, the US capital tax treaty with Chile came into effect. What implications does this have for businesses looking to expand into Chile?

The tax treaty generally intends to reduce tax-related barriers to cross-border investments and services between the US and Chile. This is done by either eliminating withholding taxes otherwise applicable by one of the two countries or by reducing the ordinary withholding tax rates on income such as dividends, interest and royalties.

This treaty’s entry into force will have multiple implications for businesses seeking to expand in Chile. However, the cap on tax withholding with respect to dividend income will not practically apply to dividend payments from Chilean corporations unless Chile modifies its integrated corporate tax system in the future, since it reduces dividend withholding tax from 35% to an effective 10.96% for treaty country residents.

The domestic rule providing for withholding tax at 4% on payments of interest made to a beneficial owner that is a financial institution resident in the US will not be affected. In all other cases, the maximum withholding rate on interest will be capped at 15% for the first five years after the treaty enters into force, after which it will decrease to 10%. Withholding on payments of royalties will be generally capped at 10%. Withholding on capital gains derived by a resident of a contracting state from the sale of shares or a company that is a resident of the other contracting state will generally be capped at a maximum rate of 16% provided certain ownership percentage thresholds are met. In addition, the tax treaty will generally exempt most US source service fees — normally taxed by Chile at 35% if paid from Chile — as business profits of US residents.

Looking ahead, what do you envision as the future challenges and opportunities for businesses operating in Chile, and how does your firm aim to address these dynamics in its legal counsel?

We anticipate both challenges and opportunities for businesses operating in Chile. One ongoing challenge is excessive bureaucracy, which has long existed in our country. For instance, a singular mining project requires approximately 219 sectoral and environmental permits, involving 28 public entities, and adherence to deadlines is often inconsistent.

However, there are significant opportunities. Chile has demonstrated legal stability in rules across different governments and committed political and economic support for investors. This provides a conducive environment for business operations and reduces investment risk. In recent years, however, some of that stable legal framework has been politically challenged, as it was with the case of the attempts to substitute our Political Constitution. Nonetheless the subjacent strength of our institutions has prevailed and in the environment towards foreign investment should continue being favourable.

At Bofill Escobar Silva Abogados, we are prepared to address these dynamics with our legal counsel. The diversity of experience and expertise of our partners and lawyers allows us to take a comprehensive and innovative look at conflicts and identify the best way to resolve the client’s real challenge, whether strictly legal, reputational, commercial or a combination of these.

The post A view from the Chilean legal market appeared first on Legal Business.

The ferocity of competition in Latin America’s legal sector over the last decade has reshaped the region’s key markets. A genuine onslaught of factors – ranging from the challenges of institutionalisation and the arrival of international players to populist politics and the pandemic – has led to powerful change, eroding the former ‘magic circle’ groups that previously dominated most key jurisdictions and, in general, reducing them to just a couple of leading players.

Beyond the upper echelons, the region’s markets have grown in terms of depth, professionalism and specialisation. Certain markets, most notably Chile, but also – increasingly – Colombia, are demonstrating a tendency towards an increasing proliferation of boutiques, which in turn bring their own challenges to more established market players. Below is an analysis of the region’s key Pacific Rim jurisdictions, working from north to south – and also a brief look at Argentina and Brazil.

Mexico

The ‘sombrero magico’ of the Mexican market long consisted of five firms: Creel, García-Cuéllar, Aiza y Enríquez (Creel GC); Galicia Abogados; Mijares, Angoitia, Cortés & Fuentes (MACF); Ritch Mueller; and White & Case – the group constituting a leading pack that dominated the transactional areas of banking and finance, capital markets and corporate/M&A. Other names more familiar today – such as Nader, Hayaux y Goebel (NHG) and Gonzalez Calvillo – had yet to fully emerge, while Greenberg Traurig didn’t open in Mexico City until 2011, and Barrera, Siqueiros y Torres Landa developed into Hogan Lovells’ Mexican outpost.

Fast-forward ten years and a combination of ever-fiercer competition and the rigours and demands of institutionalisation have whittled this group down to a leading pair: Creel GC and Galicia. This does not suggest that the others have lost relevance – on the contrary, all remain highly competitive – but most have, over time, suffered reverses: Affinitas-alliance member, Mijares, endured the loss of its IP and dispute resolution practices; White & Case has similarly experienced departures, most recently losing six partners to an increasingly relevant DLA Piper; and Ritch Mueller, while successfully maintaining its position in the market, has outstanding questions over its future in terms of generational handover and strategic direction in the face of seemingly more thrusting firms.

‘While the global economic and health situation has encouraged a price war here, in which smaller and less institutional firms have managed (with some success) to compete, we do not believe this to be sustainable.’
José Visoso, Galicia

Galicia co-managing partner José Visoso and competition and corporate partner Christian Lippert, explain the market: ‘Practically all the firms in the Mexican legal market have business models based on cost association (‘eat-what-you-kill’); Galicia and Creel – with different nuances – are the only members of the Mexican magic circle that have incorporated a more institutional and collaborative scheme. While the global economic and health situation has encouraged a price war here, in which smaller and less institutional firms have managed (with some success) to compete, we do not believe this to be sustainable. The most complex transactions remain concentrated in a smaller number of firms that can offer greater specialisation and better infrastructures. Undoubtedly, the offices that have been most favoured are, again, Galicia and Creel.’

NHG undoubtedly punches above its weight, providing premier-level service across its offering, but this remains considerably narrower than its full-service competitors.

Greenberg Traurig, which has undergone significant overhaul in terms of the make-up of its Mexico team since it opened its doors, is increasingly well placed, but not yet on a footing to challenge today’s leading duo. These, demonstrating both adaptability and a willingness to take bold steps, have grown more aggressively than their competitors. Creel GC, for example, was the first firm to fully commit to building a sizeable in-house tax practice – an area dominated by specialist boutique Chevez Ruiz Zamarripa; while Galicia was first off the mark in terms of developing a genuinely robust regulatory practice and associated contentious administrative capability, an area which will prove highly useful under the current administration in Mexico.

If a clear market vision illuminated this growth and consolidation, it was underpinned – in both cases – by relentless and unsentimental institutionalisation, both firms grasping that the key to ensuring the highest quality offering in an increasingly complex, regulated and volatile market was the strength of the platform constituted by the firm. Notably, they have done so in very distinct manners – they are regarded as virtual opposites in cultural terms – one seeking the productivity of a tensile structure that is highly competitive internally, while the other benefits from a highly collegiate working environment. Both models have been extraordinarily successful and elevated them beyond their competitors.

Colombia

In Colombia, again the long-dominant leading group – that comprised Brigard Urrutia, Goméz-Pínzon Zuleta, PrietoCarrizosa and Posse Herrera Ruiz (PHR) – has become increasingly fragmented.

Founded in 1934, traditional blue-chip presence Brigard Urrutia has retained its predominance in the market but today its clearest rival is the former PrietoCarrizosa, now transformed into the Colombian office of the multijurisdictional Philippi Prietocarrizosa Ferrero DU & Uría (PPU) – of which, crucially, it was the driving force in conjunction with Iberian giant Uría Menéndez. Meanwhile, both Affinitas-alliance member Goméz-Pínzon (which has undergone the separation from what is now Zuleta Abogodos Asociados) and PHR have retained relevance but lost position vis-à-vis Brigard and PPU.

Baker McKenzie’s local office – undoubtedly its strongest in the region – has been one of the main beneficiaries of this loosening at the top of the market, as has relative newcomer DLA Piper Martínez Beltrán (founded in 2015) and the market’s most recent entrant, Cuatrecasas, whose impressive and acquisitive arrival has impacted on virtually all the market’s main players as it aggressively built an office via the cherry-picking of local talent. Indeed, the reverberations of this arrival have been felt throughout the market – especially in the banking and finance sectors – as those firms that have lost key figures or teams have looked elsewhere to recruit and rebuild capability.

‘Strong and institutionalised firms have proven to have a clear advantage in the market. PPU has had the best years ever, not only based on its results but primarily on consistent institutional growth.’
Martín Acero, PPU

Once again, however, those firms that have emerged as predominant have done so by adopting (or maintaining) radically different paths: Brigard Urrutia by resisting the temptation to stray from its hard-earned role as an independent ‘national champion’; and the former PrietoCarrizosa as the driving force in the project to build a truly regional Latin American firm – PPU – of which today it constitutes the Colombian arm. Neither position is unassailable, and each office has had challenges to overcome over the last decade but, once again, systems, organisation and institutional efficiency are the keystones that characterise both operations.

Notes Martín Acero, managing partner of PPU in Colombia: ‘Recent times have been challenging for all sectors of the global economy and the legal industry has not been the exception. Strong and institutionalised firms have proven to have a clear advantage in the market, given their capabilities in terms of comprehensiveness and excellence in client service, innovation, financial and technological strength and talent promotion and retention. For PPU, it has been a time to demonstrate to our clients, lawyers and administrative personnel, the value the firm gives to each one of them and therefore, it has allowed us to renew day by day our most faithful ties with our clients and our people. PPU has had the best years ever, not only based on its results but primarily on consistent institutional growth.’

Peru

In the Peruvian market, a clear leading group was perhaps never quite so firmly established as in the other jurisdictions in this report – a factor related in part to the country’s recent political history (and its impact on both economic activity and the legislative framework) – and, debatably, to a slower process of market sophistication and professionalisation. Nevertheless, today Rodrigo Elías & Medrano –Abogados has consolidated a clear ascendancy, with Affinitas-alliance member Miranda & Amado Abogados, its clearest full-service competitor.

Luis Carlos Rodrigo Prado, chair of Rodrigo Elías in Peru, is alive to the challenges: ‘There is certainly more competition, but the arrival of international firms has determined that there is a more limited pool of strong, independent, local outfits – which has benefited the few truly full-service local firms that remain. Additionally, those – like ourselves – that have a very high level of service quality across the board, are even fewer in number and have been able to manage the reduced fees that niche competitors are trying to offer as a result of having other practice areas where that issue is not a factor, thereby balancing the financial equation. In general, we feel that despite the growing competition and ongoing reduced fee-rate offers (which only damage service quality), firms such as ours – of which there are just two or three – are stronger than ever.’

The chasing pack, arguably led by Payet, Rey, Cauvi, Pérez Abogados and Rebaza, Alcázar & De Las Casas (although neither have the same breadth of service offering); Estudio Muñiz (full service but with a completely distinct partnership structure and market presence); and what was Estudio Echecopar (now Baker McKenzie), all remain relevant but have struggled to seize additional market share, as has Rubio Leguía Normand, which continues to seek a return to the leading group.

The case of Rubio is noteworthy. A long-established leading firm, it lost its position in the leading group not as a result of a strategic misstep, but as the result of a number of tragic losses that weakened its position. Momentarily debilitated as a result, it would subsequently suffer further losses as competitors sought to hire away its talent. Certainly, to its credit, the firm has over the last five to eight years not simply reconsolidated its position but has also taken strides towards regaining its previous status. The lesson would appear to be that even the finest planning and strategy cannot always forestall difficulties arising from unforeseen black-swan events.

Elsewhere, it will be of considerable interest to watch the ongoing development and emergence of Hernández & Cia. Arguably the biggest surprise of the Peruvian market over the last five or so years, the firm has grown steadily, largely via lateral hires. This growth has been matched by increased market share and profitability, despite the pandemic; what remains to be fully proven is how the platform will extend beyond the eventual retirement of managing partner Juan Luis Hernández, who has engineered and driven this growth.

Chile

The Chilean market presents several aspects that make it a particularly interesting case study; one that perhaps signposts some of the developments likely to emerge in some of the larger, aforementioned markets over time. Like Colombia, the country endured serious and significant social protests from 2019 onwards, issues that the arrival of the pandemic would, at best, only mask. Like Peru, these would result in a significant political watershed: the crisis resulted in a commitment to completely rewrite the country’s constitution – a Pinochet-era document seen by many as the cornerstone of the country’s economic success, and by others as the embodiment of its social woes.

Here too, the market was long led by a circle of sizeable players with a broad (if not necessarily full) service offering. It included Claro & Cía; Carey; Cariola Díez Pérez-Cotapos; what was formerly Philippi, Yrarrázaval, Pulido & Brunner (today the Santiago office of PPU); and Affinitas-alliance member Barros & Errázuriz (BE). A substantial chasing pack that included Guerrero Olivos; Morales & Besa; Prieto & Cía; Bofill Mir & Álvarez Jana; and Baker McKenzie, among others, evidences one of the characteristic distinctions of the Chilean market – its considerable depth in terms of legal service offerings and provision.

‘The key is to keep your people and clients at the centre of what you do. When this is so, empathy, excellence and dedication become your guide. Loyalty to your values can let you weather all storms, even a pandemic.’
José María Eyzaguirre, Claro & Cía

Age-old market stalwart, Claro & Cía (with its broad but by no means full-service offering), and market leviathan Carey (which, with some 260 lawyers, now dwarfs its competitors) have proven adept at managing market pitfalls. In the case of Claro, by staying true to its origins and resisting the siren call of growth; in the case of Carey, by cannily harnessing expansion – from the rapid development of the firm’s IP practice to the opening of a representative office in Miami.

José María Eyzaguirre, managing partner of Claro & Cía, is sanguine: ‘The key is to keep your people and clients at the centre of what you do. When this is so, empathy, excellence and dedication become your guide. Loyalty to your values can let you weather all storms, even a pandemic. We have learnt that open eyes and ears let you understand better their needs and how to make a difference. We take pride in the support that we find, even among competitors, but most of all, from our clients seeing us as distinctive and exemplary in every sense.’

Others have found the going far tougher: the former Philippi has found the transition into being PPU’s Chilean office a challenging process; Cariola has seen its market dominance in the IP sector and the mining industry fade over time; while Barros & Errázuriz – which always had a more domestic footprint than its rivals – is facing the issue of generational handover common to all the firms founded to serve the wave of privatisations that swept the region in the 1990s.

In Chile too, international arrivals have made their mark, with DLA once again steadily developing, and the more recent and aggressive arrival of Cuatrecasas leaving its mark, most notably on Guerrero Olivos and PPU, but also on several other offices, such as the former Baraona Fischer.

Undoubtedly, however, an additional distinguishing factor in the Chilean market is the unprecedented proliferation of boutique firms. While these mostly remain in traditional sectors – tax, IP and particularly dispute resolution – where boutique specialisation is commonplace, this phenomenon is increasingly impacting other areas – notably corporate/M&A, private equity, compliance and data privacy – driven by the inability of many of the largest firms to retain the talent they themselves have developed. With an economy at risk of considerable contraction due to the uncertainty arising from the rewriting of the constitution, many firms are hesitant about making up new partners, increasing the departure rate of talented, trained and experienced lawyers, who are increasingly willing to establish their own operations. While many of these start-ups are not destined to survive (their challenge is one of maintaining market visibility), the sheer number of such firms constitutes a significant factor, especially given their lower overheads. With partners also willing to strike out for pastures new (former Barros & Errázuriz tax head María Teresa Cremaschi’s departure for what is now MBC Abogados; or Gerardo Cruzat’s move from Prieto to Fischer & Cía, or Sebastián Yunge from Guerrero to Grupo Evans, all being cases in point).

International arrivals

It is quite clear that the arrival of international firms has played its part in disturbing the status quo in Latin America’s major markets. While a number of firms have long trajectories in the region – White & Case’s presence in Mexico dates back to the 1990s, for example – in retrospect, it was Baker McKenzie’s 2012 takeover of Peruvian market mainstay Estudio Echecopar that sounded the starting gun not only for the arrival of other international firms, but also an ever-sharper degree of competition in part derived by the sense of vulnerability among market-leading firms in the wake of that takeover.

Since then, the region has not only seen a steady influx of international players: some, such as Greenberg Traurig and Hogan Lovells with just one office, while others – notably CMS, Cuatrecasas, Dentons, DLA Piper, ECIJA, Garrigues, Jones Day and Uría Menéndez – have sought a far greater Latin America footprint. While none to date have achieved leadership of the markets they have entered (Greenberg Traurig in Mexico, DLA Piper in Colombia and, to some degree Chile, are probably the best positioned), there is no doubt that the arrival of all these firms has irrevocably changed the complexion of the markets. As much as simply constituting another competitor, the real significance of these entries has been their offering of a genuine alternative not just to clients but also to talented and ambitious lawyers – heightening competition and costs for talent recruitment and retention, and effectively requiring local firms to modernise to remain competitive.

‘The formula of Marval’s success is the complete conviction that Marval transcends its founders and that no one individual is overly important in the firm, all of which helps build mutual trust and teamwork among its partners.’
Santiago Carregal, Marval O’Farrell Mairal

It is also worth contrasting the developments sketched out above with the region’s two other major jurisdictions, Brazil and Argentina, which in turn show very distinct developments.

In Brazil, which despite the local Bar-mandated exclusion of international law firms and its fluctuating political situation has also been subject to unrelenting competition, there is a pair of firms that have unerringly consolidated their dominance over the last five years. On the one hand, the traditional blue chip Pinheiro Neto Advogados (which celebrates its 80th anniversary this year), and on the other the youthful Mattos Filho, which launched in 1992 and accompanied the changes to Brazil’s financial system that saw the opening of its capital markets to foreign investment and reform that allowed Brazilian companies to issue securities abroad. Pinheiro Neto has just successfully completed the election and handover of the managing partner role from Alexandre Bertoldi to Fernando Meira, over a partnership that is generated strictly via internal promotion.

Mattos Filho, on the other hand, has espoused aggressive growth, particularly over the last decade, and largely via lateral hires. This has seen it outstrip all competitors in terms of size (currently some 847 lawyers, including 119 partners, compared to Pinheiro Neto’s 814, with 114 partners). Both, in turn, have outpaced growth at their nearest competitors with only Machado Meyer and TozziniFreire surpassing 500 lawyers, while other names in the market – such as BMA, Demarest, Lefosse and Veirano – currently number between 300 and 400 lawyers.

Argentina is no less competitive, but as a result of limited economic activity (the country has remained largely excluded from international markets since its sovereign debt default), simply does not have the volume of transactional activity to create the abrasive conditions where firms can really differentiate themselves. Here, instead, the country’s traditional leading group has gone some way to reconstituting itself. Undoubted market leader Marval O’Farrell Mairal has very successfully transitioned to its newest managing partner and chair, as has Bruchou (BFMyL), which has similarly managed the process of generational handover during the last few years.

Santiago Carregal, chair of Marval O’Farrell Mairal, notes: ‘I’m often asked what the formula of Marval’s success is; in my opinion there no single reason, but that probably the most important one is the institutionalisation of the firm. It is the complete conviction that Marval transcends its founders and that no one individual is overly important in the firm, all of which helps build mutual trust and teamwork among its partners. Founder Jorge O’Farrell always said: “what is good for is always good for its partners”. It is a firm that is not scared to make changes if that results in a better service to its clients. We say that we are like the bamboo cane: flexible, willing to adapt to the new circumstances, but very strongly attached to the ground, because the only things that never change are our values.’

Market mainstay Estudio Beccar Varela remains similarly strong, while both Allende & Brea (once tipped to disappear entirely following a series of spin-offs in the early 2000s) and Bomchil (which has recently made notable hires in both tax and energy), despite being smaller firms, are very much back to their former heights and at the forefront of the market.

In the case of Perez Alati (PAGBAM), also an established key pillar of the market, it endured a significant spin-off with the departure of what is today MHR Abogados (itself now a full-service player), back in 2018; it remains to be seen if its subsequent cross-border tie-up with Chilean firm Schwencke Abogados (to create PAGBAM Schwencke Chile), will mitigate this loss.

As the Argentine case bears out, it is the competition fostered by an adequate level of economic activity that has led to the honing of each of these legal markets. It is also clear that the size of the market itself is significant – neither the ban on international firms in Brazil, nor the populist policies of administrations such as that of Andrés Manuel López Obrador in Mexico have dampened competition in those markets. In the cases of Chile (where a re-written constitution faces a plebiscite in early September); Peru (where the left-wing administration of José Pedro Castillo lurches from crisis to crisis); and Colombia (where the country awaits an imminent and polarised electoral run-off between populist presidential candidates Gustavo Petro and Rodolfo Hernández), the near-to-mid-term future of these markets remains very much up in the air. LB

Tim Girven is editor (Latin America) of The Legal 500

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Panama is known for smart corporate structures that function harmoniously with a top-of-the-world financial sector, creating business opportunities for entrepreneurs and investors worldwide.

One of Panama’s most successful and developed strategies to attract foreign investment has been the establishment of special economic zones with investment regimes that offer a broad range of tax, labour, migratory and legal stability incentives.

Some of the active investment regimes in Panama are: multinational headquarters (SEM), multinational company for the provision of services related to manufacturing (EMMA), Colón Free Zone, Panama-Pacifico Area, city of knowledge, multimodal logistic support zone of Barú, free trade zones regime, public-private partnerships regime, petroleum free zones, logistic bonded warehouses and agro parks operators and developers companies.

Particularly, the SEM and EMMA regimes were created to encourage multinational companies to transfer their offices or headquarters and workforce to Panama, allowing the country to become more competitive in the global economy.

What is SEM? In 2007, the Panamanian government enacted Law No. 41 of 24 August, creating the Special Regime for the Establishment and Operation of Multinational Corporations Headquarters, the SEM Regime.

SEM, for its acronym in Spanish, stands for Sede de Empresas Multinacionales and is a special investment regime whereby multinational companies can establish their headquarters or offices in Panama to provide administrative, technical and/or financial services to its headquarters, subsidiaries or branches in other countries (business group), allowing the company to receive tax, labour and migratory incentives, and optimise its work structure.

The SEM Regime was created with the purpose of promoting and stimulating the allocation of foreign investment in Panama.

The SEM Regime was created with the purpose of promoting and stimulating the allocation of foreign investment in Panama, creating job opportunities, transferring technology and knowledge, and competing with the benefits and incentives provided by other foreign special economic regimes, making use of Panama’s paramount geographical position and infrastructure of international services.

Since the enactment of Law No. 41, some of the largest companies in the world have transferred their headquarters to Panama. According to the data from the Multinational Corporation Directorate of the Panamanian Ministry of Commerce and Industries, 181 licences have been issued for SEM companies in Panama, generating over 7,800 jobs and more than US$3,000m in contributions to the national economy.

Even during the pandemic, years 2020-21, 28 multinational companies were established as SEM companies in Panama, propelling the activation of Panama’s economy.

How can a SEM licence benefit my company?

Obtaining a SEM licence comes with several benefits both for the company and its employees, such as:

Tax benefits:

• Fixed rate of 5% income tax in the Republic of Panama.
• Exemption from the goods and services sales tax for services rendered abroad.
• Exemption of the dividend and complimentary tax and branch tax.
• Exemption from the use of fiscal equipment.
• Exemption from the commercial licence tax payment.
• The transfer of shares by the SEM company is subject to a fixed rate of 2% capital gains tax.

Migration and labour benefits:

• Special five-year extendable visas for the SEM’s foreign permanent personnel and their dependants.
• Foreign permanent personnel with a SEM visa can opt for a permanent residence after working for five years in the SEM.
• Special short-term visas for technicians.
• Expedited visa assistance.
• No labour permit is required for the SEM’s foreign personnel with a SEM visa.
• The SEM company can hire the number of foreign workers it deems necessary for the development of its operation, hence, it has no foreign workers limit.

Benefits for foreign executives hired by the SEM:

• Exempt from paying income tax.
• Exempt from paying social security contributions and affiliation to the social security fund.
• Exempt from paying import tax for household goods when the worker moves for the first time to Panama.
• Exempt from paying import tax for a motor vehicle for personal or family use every two years.

Other benefits:

• Automatic legal stability for ten years from the time of issuance of the SEM licence.
• The SEM licence is granted for an indefinite term.
• One-stop service to facilitate procedures concerning the SEM Regime.
• The SEM company may locate its offices in any special economic area in the national territory.

Can my company obtain a SEM licence?

A multinational company can apply for a SEM licence if its business group assets are equal or greater than US$200m or if the multinational company provides services to at least seven affiliates, subsidiaries or branch companies.

The multinational company can provide the following services to its business group:

• Logistics and warehousing of components for production.
• Operation support and products and services research and development.
• Electronic processing of any activity, consolidation of operations and networks.
• Development of construction and design drawings.
• Management and administration of regional operations.
• Consulting services, marketing guidelines and advertising of the group’s goods and services.
• Financial management, corporate treasury and accounting for the business group.
• Technical assistance to group companies or customers who have purchased a product or service.

An additional benefit granted by Panamanian legislation is that the main activity or activities of the SEM company can be performed, in whole or in part, through resources provided by suppliers (outsourcing), as long as the outsourced activity is performed in Panama and the SEM company has the mechanisms to control and supervise the activity in Panama.

What is EMMA?

Capitalising from SEM’s success and with the purpose of mitigating the economic impact of the pandemic, in 2020 the Panamanian government enacted Law 159 of 31 August, creating a new special regime for the establishment and operation of multinational companies for the provision of services related to manufacturing, the EMMA Regime.

EMMA, for its acronym in Spanish, stands for Empresas Multinacionales para la Prestación de Servicios Relacionados con la Manufactura and is a special investment regime whereby multinational companies can establish their headquarters or offices in Panama to provide services related to manufacturing, assembling, maintenance and reparation of products to its business group, allowing the company to receive tax, labour and migratory incentives, and optimise its work structure.

It is important to note that companies that are already registered under the SEM Regime and wish to expand their services and create a manufacturing, assembling or related services division, are able to do so and obtain a fast-track registration for the EMMA licence.

How can an EMMA licence benefit my company?

Obtaining an EMMA licence comes with several benefits both for the company and its employees, such as:

Tax benefits:

• Fixed rate of 5% income tax in the Republic of Panama.
• Exemption of the dividend and complimentary tax and branch tax.
• Exemption from the goods and services sales tax for services rendered abroad.
• Exemption from goods and services sales tax for the purchase and import of goods or services in Panama.
• Exemption from the use of fiscal equipment.
• Exemption from the commercial licence tax payment.
• The transfer of shares by the EMMA company is subject to a fixed rate of 2% capital gains tax.
• Exemption from import tax on all types of merchandise, products and equipment, used by the company for the provision of services related to manufacturing.

Migration and labour benefits:

• Special five-year extendable visas for the company’s foreign permanent personnel and their dependants.
• Foreign permanent personnel with an EMMA visa can opt for a permanent residence after working for five years in the company.
• Special two-year extendable visa for temporary personnel hired to render operative services or training services and their dependants.
• Special work permit for temporary personnel for two years.
• Expedited visa assistance.
• No labour permit is required for the company’s foreign permanent personnel with an EMMA visa.
• The EMMA company can hire the number of foreign workers it deems necessary for the development of its operation, hence, it has no foreign workers limit.

Benefits for foreign executives hired by the EMMA company:

• Exempt from paying income tax.
• Exempt from paying social security contributions and affiliation to the social security fund.
• Exempt from paying import tax for household goods when the worker moves for the first time to Panama.
• Exempt from paying import tax for a motor vehicle for personal or family use every two years.

Other benefits:

• Automatic legal stability for ten years from the time of issuance of the EMMA licence.
• The EMMA licence is granted for an indefinite term.
• One-stop service to facilitate procedures concerning the EMMA Regime.
• EMMA companies may locate its offices in any special economic area in the national territory.

Can my company obtain an EMMA licence?

A multinational company can apply for an EMMA licence if its business group assets are equal or greater than US$75m or if the multinational company provides services to at least three affiliates, subsidiaries or branch companies.

The multinational company can provide the following services to its business group:

• Services related to the manufacturing, machinery, equipment, assembly, maintenance, repair, remanufacturing and conditioning of products, machinery and equipment.
• Product development services, research or innovation of existing products or processes.
• Analysis, laboratory, testing or other services related to the provision of services related to manufacturing.
• Logistic services such as storage, deployment and distribution centre of components or parts, required for the provision of services related to manufacturing.

The EMMA company can also outsource its main activity or activities, as long as the outsourced activity is performed in Panama and the EMMA company has the mechanisms to control and supervise the activity in Panama.

Estudio Benedetti specialises in creating corporate possibilities for multinational companies, allowing them to lessen their expenses while enhancing their work structure by taking advantage of the incentives and benefits offered by the special investment regimes in the Republic of Panama. Our team of lawyers will be pleased to assist you in case you wish to evaluate the benefits your company could acquire when registering in a Panamanian special investment regime.

The post Sponsored briefing: Panama: The multinational hub appeared first on Legal Business.

Bristol-based DAC Beachcroft insurance partner David Pollitt is a regular visitor to Miami. But while tourists may be lured by the tropical climate and art deco architecture, his frequent trips from West Country to East Coast are all about his practice. The emergence of Miami as an operational and service centre for Latin America means its importance to major international insurance players cannot be underestimated.

Miami is fast becoming a gateway to Latin America for the insurance and reinsurance industry, in the same way that Singapore operates as an insurance hub for Asia. Swiss Re established a Miami office in 2011 to service Latin America and the Spanish-speaking Caribbean islands. Back in 2007, Zurich (a key client of DAC Beachcroft) moved its Latin American regional headquarters from Santiago, Chile, to Miami. The trend continues: Hiscox announced the expansion of its Miami branch in January this year.

Randy Bullard, chair of Greenberg Traurig’s Miami corporate and securities practice, has lived in Florida for 17 years and has noticed a significant upswing in business recently. ‘People always talk about Miami as being a business hub for Latin America, but in the last two or three years there have been a stream of new companies locating themselves here. You have the multinationals investing in Latin America and you have the Latin American conglomerates coming to invest in the US. Miami is the natural jumping off point, culturally, linguistically and economically.’

And as the Latin American insurance and reinsurance market becomes increasingly developed in Miami, the same is happening at a more local level throughout the region itself. Mounting demand for infrastructure and an expanding middle class is creating a perfect environment for the international insurance and reinsurance community to flourish in some of the continent’s biggest economies.

Expansive approach

Marta Viegas, head of insurance and reinsurance at Brazilian law firm TozziniFreire, says that the insurance sector in Brazil has experienced double-digit growth for many years. ‘As the market becomes more sophisticated, we expect regulations to change and demand for regulatory work to increase,’ she says.

According to the head of Clyde & Co’s Latin America group in London, Peter Hirst, many global insurance companies used to have small presences in the region and dealt with claims back in London or other large offices, but now many are handling the majority of their claims on the ground in Latin America. Zurich is one example: it has offices in Argentina, Brazil, Chile and Mexico; while insurance and reinsurance group ACE now has a significant Latin American operation based in Santiago. Swiss Re established a representative office in the Colombian capital Bogotá in 2013 and earlier this year it acquired a 51% stake in the Colombian surety company Compañía Aseguradora de Fianzas and also a 14.9% stake in Brazilian insurance company SulAmérica from ING Group. Willkie Farr & Gallagher’s New York office advised Swiss Re on the Colombia deal with Freshfields Bruckhaus Deringer’s New York office advising the reinsurance giant on the Brazilian transaction.

The intricacies of the market, coupled with the internationalisation of the sector, have favourable implications for insurance-focused law firms. Leonel Pereznieto Del Prado, a partner at Mexico practice Creel, García-Cuéllar, Aíza y Enríquez, says that the demand for legal services has risen enormously. ‘It is very common for insurance companies to reach out to external counsel to handle different transactions. Before, portfolio transfers were done on a very elementary basis.’

Firms are certainly increasing their focus on the Latin American insurance sector. DAC Beachcroft established a new presence in Colombia in December 2013 by formalising its association with Bogotá insurance boutique De La Torre & Monroy Abogados and Pollitt says the firm now covers the four main markets in Latin America with further offices in Mexico and Chile, and an association with Brazilian insurance and litigation boutique JBO Advocacia. ‘It requires investment,’ he says. ‘We are putting our money where our mouth is.’

Kennedys is also talking up its Latin American practice. It currently runs its business out of its Miami office but Alex Guillamont, head of the firm’s Latin America practice, says the firm has strong associations with local firms in Brazil, Chile, Colombia and Mexico and is ‘constantly assessing’ other markets to establish whether it should have a presence there: ‘If our clients need a new office in one specific country, we will open it for sure.’ Last year it entered an association with Bogotá insurance boutique Botero Salazar Tobón & Abogados.

Meanwhile, at Clyde & Co, Hirst says that the firm is looking to launch a presence in Mexico and Chile within 12 to 18 months. It already has well established offices in Brazil and Venezuela.

Jonathan Bruce, an insurance and reinsurance partner in the London office of Holman Fenwick Willan (HFW), believes his firm’s historical efforts in Latin America are being rewarded. ‘People have been talking about the potential for a long time and we do see it coming to fruition more and more with reinsurers setting up in the region,’ he says. HFW established a São Paulo office in October 2011 with the hire of Jeremy Shebson and his team from Barlow Lyde & Gilbert. Shebson remarks: ‘Latin America has all the key industry sectors – oil and gas, mining, marine and aviation – all of which are underpinned by insurance and the London market.’

Needing attention

Insurance runs deep in fast-developing economies that require infrastructure to galvanise growth, and Latin America is a classic example of a region where the environment is primitive compared to the US and western Europe. Many Latin American states are sitting on substantial oil and gas reserves (for example, see box, ‘Down Mexico way’), and they are working hard to enable these to meet requirements for domestic consumption and to export to neighbouring and other jurisdictions. Others, such as Chile, are struggling to generate enough power to fuel their quickly expanding economies.

Paulino Fajardo, a partner in DAC Beachcroft’s Madrid office, says: ‘Latin America is still to develop. It has the natural resources, but the need for infrastructure is massive. The market needs financial stability and you need insurance behind all these operations. Risk is normally where we operate. You can’t open a mine or a power station without building a financial services sector.’ Fajardo points to the Panama Canal extension project, which is one of numerous infrastructure enhancements under way in the region.

Social mobility is another reason why insurance products and the insurance industry are flourishing. ‘People have more income,’ says Marcelo Mansur Haddad, a partner at Brazilian firm Mattos Filho, Veiga Filho, Marrey Jr e Quiroga. ‘There is growth in the purchase capacity of Brazilians and there are many big infrastructure projects still to do. There is a boom in both areas.’ Last year, Mattos Filho advised on the privatisation of IRB Brasil Re and also worked on the $4.25bn IPO of BB Seguridade Participações – Banco do Brasil’s insurance arm.

The same trend is occurring throughout Latin America. Rafael Corzo de la Colina, partner at Miranda & Amado Abogados in Peru, says that although international insurance companies have a limited presence in the jurisdiction, there are mounting domestic needs: ‘Peruvian economic growth has determined an important growth in the middle class and, as a consequence, in life, health, home and automobile insurance.’

Luis Alfonso Fernández, a Madrid-based insurance partner at Hogan Lovells, believes that all these factors are creating a near-perfect environment in which the insurance industry can prosper: ‘We have seen a growing interest from insurance giants in the region to offer a wide range of traditional products, but also of specialised players, focused on special classes of insurance such as credit and surety.’

With increasing demand for insurance products, the industry is also contending with the gradual liberalisation of domestic markets. Brazil is the major jurisdiction that has opened up its insurance sector in recent years. Until 2007, when the Brazilian reinsurance market was liberalised, IRB Brasil Re had a total monopoly over reinsurance activities in the jurisdiction.

Since then, the reinsurance sector has blossomed and there are now some 80 reinsurance companies active, according to Bruno Balduccini, a partner at Pinheiro Neto. However, ‘the market is still virgin as far as products and services are concerned,’ he comments.

Claudia Freire, the head of the Latin America desk at JLegal London, the recruitment company, says that these sort of reforms are creating additional demand in the legal community. And this is despite restrictions placed on foreign law firms by the Brazilian Bar Association. She points to the recent arrival of Norton Rose Fulbright in Rio de Janeiro and the extension of Hogan Lovells’ presence in Brazil by launching an additional office in São Paulo in January 2014. ‘Despite the restrictions placed on foreign law firms by the Brazilian Bar Association, Brazil has continued maturing as a legal market for international law firms, attracting an ongoing flow of firms wishing to set up offices in 2014 or expand their presence in Brazil,’ she explains.

Even with this optimism, Viegas believes that the rapid evolution of the market poses numerous challenges to the insurance industry specifically. With international players coming in, the industry has been forced to mature very quickly. ‘Insurance companies had to adapt to working in a more complex and sophisticated environment, with many different international reinsurers, as opposed to only dealing with IRB, which was viewed as a “friendly” business partner. In this regard, negotiations have become more complex,’ she says.

By contrast, Chile’s insurance sector is still very much in its infancy, despite its recent economic success, says Jorge Martín, a partner at Chilean firm Claro & Cia. ‘Given that we are still a developing country, the penetration of insurance in Chile still has a long way to go.’

Like Chile, Mexico has a burgeoning economy and has opened up its insurance sector as part of its recent market liberalisation efforts. Previously, foreign companies were limited to a 49% stake in Mexican insurers and reinsurers, although Pereznieto Del Prado says that the deregulation of the market has been largely symbolic as most foreign insurance companies were able to circumvent the restrictions by using European Union (EU) and North American Free Trade Agreement investment treaties.

With its attempts to encourage international investment and participation in the economy, Mexico is also adopting new insurance industry regulations based on the EU’s Solvency II Directive, which seeks to harmonise insurance sector regulation. The Mexican rules are due to come into force in April 2015 and are expected to have a profound effect on the domestic market. ‘It is an interesting time for the insurance market here with Solvency II kicking in in a year’s time. There’s likely to be quite a bit of M&A activity here in Mexico,’ says Pereznieto Del Prado.

Carlos Ramos Miranda, a partner at Barrera, Siqueiros y Torres Landa, is also enthusiastic about the regulatory overhaul. ‘Mexico’s regulations are among the most sophisticated and developed, so that companies are properly capitalised and have proper corporate governance rules. Mexico decided in the best interests of the industry to have stronger institutions. I think we will be a leader in Latin America and worldwide, given the scope of these amendments.’

Ramos believes that insurance companies are faced with a significant but surmountable challenge to stay attuned to the existing regulations while making provisions for the new environment in 2015. He suggests that many Mexican companies will struggle to find the resources to commit to the new regulations. ‘Many companies, including smaller companies, will face a big challenge in getting up to speed and being fully compliant,’ he explains. ‘They’ll need to invest resources that they simply may not have. The situation is ripe for acquisitions of smaller companies and consolidation of mid-sized and big companies. And there is room for new players in the market.’

Mexico itself represents a particularly dynamic environment for the insurance industry given the government’s recent efforts to liberalise the economy (see ‘Down Mexico Way’). Yves Hayaux-du-Tilly, a London-based partner at Mexican firm Nadar, Hayaux & Goebel, says that the government’s proposals to allow international oil majors into Mexico’s energy industry and to end the monopoly held by Petróleos Mexicanos (Pemex), will be a monumental development for the insurance industry: ‘The energy reform that will now permit private companies to compete with Pemex, will continue increasing the demand for insurance. We are experiencing a demand for the development of new insurance products, the growth of non-traditional distribution channels and to a certain extent more demand for opinions on coverage related issues and for advice on claims and alternative resolution methods.’

Multi-dimensional

With very little political, fiscal, economic and regulatory uniformity across the region, Latin America still represents an enormous challenge to international insurers and reinsurers that wish to target the whole region. Not every country is experiencing healthy growth and volatility is still in evidence. Political instability is a big problem, with Argentina and Venezuela particularly suffering a decline in cross-border trade and investment.

This has implications for the insurance industry as well. Boston-based insurance group Liberty Mutual sold its Argentine insurance business to Kranos Capital in March this year. Liberty had only established its Buenos Aires reinsurance operations in 2012.

Pablo Cereijido, a partner at Argentine firm Marval O’Farrell & Mairal, is understandably circumspect. ‘Things have been difficult. We have not seen big players coming in or big transactions. It was different three or four years ago when there was heavy investment in Latin America and Argentina was part of that wave of investment. We have had to adjust to the new environment.’

Freshfields Bruckhaus Deringer New York corporate partner Doug Bacon says that the fragmented market necessitates more sophisticated and intensive legal assistance. ‘As much as buyers want detailed predictions about risks in a market when doing a transaction, it can be very challenging in some Latin American markets in fields such as tax, litigation and regulatory compliance. We often spend more time on diligence and digging into issues and there is often more partner time involved.’

Clyde & Co’s Hirst also says that most international insurance programmes are common law-based and it is a significant challenge to ‘shoehorn these into civil law states’.

Jeremy Irving, a London-based insurance partner at Eversheds who recently advised IRB Brasil Re on its re-entry into the London market as a live participant, says that Latin America is an intricate landscape. ‘What we have found is that there is a whole mixture of rules around licensing, compulsory types of insurance, and whether a regulatory offence is criminal offence or civil. It is fair to say there is a real mixture and there are hazards in different jurisdictions. It is much easier in Europe with the single market, but you have to be mindful of the patchwork of regulations that make up the rest of the world.’

Fajardo says that international insurance companies need to have a global approach to business, but a local approach to compliance, using experts in each jurisdiction. ‘People can think of Latin America as one big country, but we feel that is a huge mistake.’

Nonetheless, João Marcelo Máximo dos Santos, a partner at Brazil’s Demarest, feels that although there are sizeable differences between the regimes in states such as Brazil, Chile and Venezuela, there are still common characteristics that effective legal counsel can overcome. This requires a keen understanding of each market according to Bruce at HFW. ‘It is recognised by the London market that Latin America is one of those regions where it is quite tricky to have the local contacts, and the knowledge and experience, to navigate all the issues that arise down there. So people really do need our help. The local regulatory scenario changes quite frequently. The markets can open up and then close down.’

Therefore, all this optimism about the prospects for insurance law firms is tempered by a whiff of Latin America’s renowned volatility. Chile’s earthquake in 2010 was foremost a humanitarian disaster, but from a commercial perspective it led to insured losses of over $8bn, according to reports. And just as Latin America is increasingly linking into global markets, the political climate in individual states can change dramatically and lead to recluse-like status, such as with Argentina.

Many recognise that the heat can quickly evaporate from a supercharged market. Pinheiro Neto’s Balduccini even considers the significance of the FIFA World Cup this year and jokes: ‘If Brazil loses, then we close the business.’ LB

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