The Shadowy Side of Investment Incentives: El Salvador Decree Raises Questions About Due Diligence

Over $5,000 buys a lot these days – including, apparently, a pathway to investment incentives even for individuals with significant legal shadows. The case of José Ofilio Gurdián Lacayo, a Salvadoran businessman linked to a massive environmental disaster and recently granted a decree under Puerto Rico’s Law 60-2019, exposes a critical vulnerability in economic development strategies: the potential for inadequate vetting of applicants and the erosion of public trust. This isn’t just a story about one individual; it’s a warning sign about the growing need for rigorous, transparent, and internationally coordinated due diligence in attracting foreign investment.

A History of Contamination and Controversy

Gurdián Lacayo’s name is synonymous with the devastating lead contamination stemming from the Batteries of El Salvador (BAES), known locally as “Record Batteries.” For years, the factory discharged toxic waste, poisoning water sources and impacting the health of thousands in nearby communities. The Inter-American Commission on Human Rights has investigated the case, confirming violations of human rights. Despite being declared a fugitive from justice in El Salvador as early as 2009, and even serving a three-month prison sentence in Colombia in 2024 while contesting extradition, Gurdián Lacayo successfully applied for and received a contributory decree in Puerto Rico. This decree, designed to incentivize investment, raises serious questions about the thoroughness of background checks.

The Role of Law 60-2019 and Incentive Programs

Puerto Rico’s Law 60-2019, and similar incentive programs globally, are designed to attract investment and stimulate economic growth. However, the Gurdián Lacayo case highlights a potential flaw: a reliance on self-disclosure and limited verification. While the DDEC (Department of Economic Development and Commerce) requires applicants to disclose ongoing criminal investigations, the process appears to have missed crucial information regarding Gurdián Lacayo’s past and present legal entanglements. The DDEC’s Secretary, Sebastián Negrón Reichard, maintains that the decree wasn’t revoked due to a lack of formal convictions and the lifting of an Interpol red alert. This reliance on a narrow definition of “guilty until proven innocent” is increasingly inadequate in a world of complex international legal landscapes.

The Expanding Landscape of Investment Risk

This situation isn’t isolated to El Salvador or Puerto Rico. The increasing globalization of investment means that individuals and companies can easily move assets and establish residency in different jurisdictions, potentially obscuring their past actions. This creates a growing challenge for governments seeking to attract investment while safeguarding their citizens and the environment. The case underscores the need for a more proactive and comprehensive approach to due diligence, moving beyond simple criminal record checks to include investigations into environmental liabilities, human rights concerns, and potential links to illicit activities.

Beyond Criminal Records: The Need for Enhanced Due Diligence

Traditional background checks, like those conducted by firms such as Refinitiv (utilized by the DDEC in this case), often focus on criminal records and financial stability. However, they may not adequately address complex issues like environmental damage or human rights violations. A more robust due diligence process should incorporate:

• Enhanced Investigative Journalism Techniques: Utilizing open-source intelligence (OSINT) and investigative research to uncover hidden connections and potential risks.
• International Collaboration: Sharing information and coordinating investigations with law enforcement and regulatory agencies in other countries.
• Environmental and Social Risk Assessments: Evaluating the potential environmental and social impacts of proposed investments.
• Beneficial Ownership Transparency: Identifying the true owners of companies to prevent the use of shell corporations to hide illicit activities.

The Future of Investment Incentives: A Call for Transparency

The Gurdián Lacayo case serves as a stark reminder that economic development cannot come at the expense of environmental protection and human rights. As governments compete for investment, they must prioritize transparency and accountability in their incentive programs. A failure to do so risks not only reputational damage but also the potential for enabling individuals and companies to profit from past wrongdoing. The trend towards greater scrutiny of ESG (Environmental, Social, and Governance) factors in investment decisions will only intensify this pressure.

Ultimately, attracting responsible investment requires a shift in mindset – from simply offering incentives to actively vetting applicants and ensuring that economic growth aligns with ethical and sustainable principles. What steps will governments take to ensure that investment incentives don’t inadvertently reward those with a history of environmental and social harm? Share your thoughts in the comments below!