I'm in Brazil this week working with a client on their integrity risk management systems
and I thought it would be a good opportunity to re-examine one of the
biggest bribery corruption scandals in Latin American history - the infamous
Odebrecht scandal. It's been a few years now since this scandal initially broke
even though it continues to entangle business leaders, politicians and
associated companies in a swampy and fetid mess up until present day.
Let's talk about what lessons we can learn from this scandal and what it
means for organizations doing business internationally? (particularly in Latin
America)
Hundreds of prominent Brazilians including CEOs, members of Congress and
even a former president have been implicated in the Odebrecht scandal.
In what was a landmark decision in 2016 Odebrecht admitted to paying $800 million
dollars in bribes in dozens of countries and was forced to pay a whopping fine of
$3.5 billion (with a B) as part of a settlement deal brokered by authorities
in Brazil, the US and Switzerland. In the years since it initially broke the
scandal continues to ripple through Brazil leaving many communities across
this country and in Latin America devastated in its wake. So how did we get
here? Back in 2012 police were investigating
suspicious transactions at a gas station in Brazil. Criminals would bring an
illegal cash report it as gas station earnings and then funnel it out to
someone else, making it difficult to trace. The police arrested the person at
the center of that criminal activity and offered him a plea deal in exchange for
his cooperation. When he testified he revealed that he was not only laundering
money for criminals, but also for top executives at Petrobras, Brazil's
state-owned oil company and the largest oil company in Latin America. The police
then subsequently launched an investigation known as Operation "Lavo Jato"
or operation car wash and soon discovered that Petrobras was at the
center of an intricate and complex corruption scheme. The company used its
projects to enrich criminals, engineering companies and government officials
throughout Brazil. It worked something like this... When Petrobras needed
suppliers to develop a project, it started a bidding process for the job.
Typically engineering firms would compete for the contract which should in
theory drive down project costs. However, a group of these companies got together
and formed an agreement. Instead of competing against each other, they
colluded to fix prices and take turns accepting projects. Petrobras executives
would then take bribes as incentives to keep giving contracts exclusively to the
cartel and politicians took the bribes in exchange for their influence and much
of the of money would end up being used in various re-election campaigns. The
subsequent investigation into Odebrecht revealed that the company was engaged in
systematic corruption, not only in Brazil but also in many other Latin American
countries which ultimately resulted in a number of political leaders and business
leaders all going to jail including Odebrecht's former CEO. So what can we learn
from this scandal today in the years since it broke? Firstly there's been a
noticeable increase in awareness of bribery and corruption in Latin American
society since this scandal broke. Now people always knew that corruption
existed on the margins but had no idea about the depth and the extent or the
rot. The scandal is now the basis for a major Netflix series called "The
Mechanism" and has served to help to raise awareness of negative impacts of
corruption not only within the business community but also within society itself
as a whole. When the scandal initially broke some 17 projects worth millions of
dollars were reportedly halted in seven countries due to the corruption charges.
The end of those projects meant a lot of layoffs for thousands of workers. Indeed
one report suggested that the corruption scandal wiped
out 500,000 jobs in Brazil alone. So this had some very real impacts and
this helped to erase the image (that sometimes held) that
corruption is a "victimless crime" and hopefully this will translate into
support for greater anti-corruption efforts among businesses and government
leaders. Another early takeaway is that anti-corruption and anti-bribery laws
are being enforced like they've never been before.
Argentina has issued a new decree which lays out harsh sanctions for companies
engaging in corruption. Brazil is implementing a "Clean Companies Act".
Colombia is introducing legal protection for whistleblowers. Mexico has
implemented a National Anti-corruption System which bolsters liability for
public officials individuals and companies, and Peru has introduced the
concept of corporate administrative liability for companies involved in
bribery, and there is some evidence that more resources are being committed to
enforce those laws already on the books. Countries like Peru are also turning
their attention to prevention efforts by mandating the use of anti-bribery
management systems like ISO 37001 as part of their procurement
processes and Brazil has made ISO 37001
certification a mandatory element in some of its anti-corruption monitoring
schemes as a way of putting wayward companies back on track towards best
practice. So there's a lot of activity in this area and it will have an impact.
Another takeaway from this scandal is that prosecutors in Latin America are
more willing to cooperate and collaborate with their peers in other
countries to investigate and prosecute transnational bribery schemes, and
they're more willing to use plea deals to secure criminal convictions of those
higher up the food chain - an option that wasn't always available in Latin
American countries. There's also a lot more willingness among prosecutors to
cooperate with each other. At the height of the scandal Brazil sent over 200
cooperation requests to more than 40 different countries, which were critical
to its efforts to end impunity involving corruption and to secure
convictions against those who violate anti-bribery laws. Finally we've also
learned from this scandal, and others like it in the region, that corruption in
Latin America is becoming much more sophisticated - using complex financial
structures and offshore banking vehicles to receive payments and often involving
third parties and shell companies to disguise the purpose of various payments
Sometimes it also involves hidden collusion with public officials in order
to manipulate the public tendering process in order to favor a particular
bidders. As a consequence of this, it has increased a
sophistication around bribery and corruption more prudence and greater
attention has been required when assessing bribery risks. This means that
organizations will need to go beyond mere box-ticking exercises when assessing
their risks and adopt a more detailed and risk-based approach which
takes into consideration multiple scenarios and risk options. So the
outcome of "Operation Car Wash" and the Odebrecht scandal in Brazil continues
to reverberate throughout Latin America. Much of this has been positive in terms
of its renewed emphasis on combating corruption in Latin America but it has
also signaled that the problem of corruption continues to evolve and that
anti-corruption law enforcement and experts
in the fight against corruption (including companies) must remain vigilant
about the ongoing risks of corruption in the region and ensure that adequate controls
and procedures are in place to guard against these ongoing risks,