If this is Played for Horror, then it's a Town with a Dark Secret, the Sister Trope. This is not just famous in South America Japan also has this phrase, but it refers not only to small towns but to the small communities each of us formed to (close family/friends circle) and how our actions can affect our circles for good or worse. The Spanish saying is very older and known, but the media goes Older Than Television: There're a couple of movies made in South America with this name, a Chilean one (1925) and an Argentinian one (1940). However, it's not exclusive of Latin America, having various other similar plots like this one around the world. The plot is mostly Played for Drama, can be done for Laughs or Horror too, but mostly for Drama. Also can be used in other media as well in other times, being also used in historical drama series and movies, before the big cities were founded. This kind of plot is very much used in Latin America in Telenovelas, where all the action occurs. If a rumor is spread, it's a matter of days (or even hours) before the whole town gets the "news." If a couple gets into a fight and later get separated, people take sides with either of the ex-lovers.
"Pueblo Chico, Infierno Grande" in Spanish is an old and famous saying in Latin America, which is about a Small Town that has its own drama since everyone knows each other, and so when something happens (usually something bad), the whole town gets the news and everyone takes sides.
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