Brazil’s Car Wash Scandal Fallout Promises to Clean Up Corporate Sins

Brazil’s Car Wash Scandal Fallout Promises to Clean Up Corporate Sins

Former manager of Petrobras Marcio de Almeida Ferreira, arrested in connection with the Car Wash probe, arrives at Instituto Medico Legal escorted by the police on May 05, 2017 in Curitiba, Brazil.

SourcePaulo Lisboa/Brazil Photo Press/LatinContent/Getty

Why you should care

It took a crisis, but Brazilian businesses may be starting to move to greater corporate compliance norms. 

As Brazil’s investigation into its Car Wash (Lava Jato) corruption scandal enters its fifth year, Eduardo Staino, the head of compliance at Andrade Gutierrez, one of the country’s largest construction companies, recalls how the scandal took a toll on him.

“I am not going to say Lava Jato is the only reason for my marriage’s failure,” says Staino, who divorced last year. “[But] I had my head in the job,” he adds, referring to the work hours and stress that he attributes to the scandal.

The continuing criminal investigation into bribery at Petrobras, the state-controlled oil producer, which came to light in 2014, has implicated a sizable part of Brazil’s business and political establishment. Following the arrest and jailing of some Andrade Gutierrez executives and the imposition of a 1 billion reals ($269 million at present rates) fine on the company, Staino was put in charge of strengthening its compliance rules.

We can see clearly today that if we do something wrong again, we are finished.

Eduardo Staino

Just like other managers in a similar position at other companies caught in the Car Wash deluge, much was left to him to protect the organization from further legal exposure and to repair a sullied reputation. “We cannot make such a mistake again,” says Staino. “We can see clearly today that if we do something wrong again, we are finished.”

Such efforts as Staino’s may, in the long term, help clean up the image of Brazil’s politics and business. In the meantime, the probe into graft at Petrobras, which revealed that a considerable number of companies received public contracts in exchange for bribes, has fueled a regulatory compliance boom in Brazil. As a result, companies have been compelled to develop codes of conduct and ethics. Such procedures as hotlines for complaints to limit opportunities for illicit payments have also become a feature of the business landscape.

The basis of a stronger legal framework came in the form of Brazil’s Clean Companies Act, in effect since 2014. This has forced many companies to take compliance more seriously, not least because those found guilty of graft face potential fines of up to 20 percent of their previous year’s gross income. This was followed by a 2016 law that set governance and compliance rules for Brazil’s state companies, or those in which the state has a controlling interest, such as Petrobras. Government ministers and members of political parties are banned from being appointed to such companies’ boards of directors.

Lava Jato has turned corruption into a “huge worry for everyone,” says Marcello Hallake, partner at Jones Day, international lawyers. In Brazil, compliance officers, heads of compliance and legal aides for compliance, he adds, are “much in demand these days.”

Staino notes that it is not easy to develop and oversee compliance schemes. “This is not something you learn at school,” he says, and it is “superchallenging and complex.” A good compliance program “is not something you can simply buy at a supermarket.”

At Andrade Gutierrez, robots have been brought in to help. Before the company makes a payment to a supplier, Staino explains, a software robot can go through a database to check what links that supplier might have to politicians.

Where once Brazilian companies boasted about profits, now they may be as likely to emphasize how they stick to compliance rules. Fábio Januário, chief executive of the construction and engineering unit at Odebrecht, a company which found itself very much a part of the Lava Jato drama, says: “The company is going through a profound moment of transformation, perhaps like no other.”

A 2018 study by Berlin-based Transparency International, a nongovernmental organization, suggests a trend toward anti-corruption compliance and ethics in Brazil.

The 110 companies assessed on the strength and transparency of their anti-corruption programs scored an average 65 out of 100, compared to 55 two years ago.

Katja Bechtel, Transparency International’s head of business integrity, warns that it is too early to say if “Brazil’s compliance hype” is part of a serious commitment to change things. “Cultural change does not happen overnight, but needs continuous efforts,” she adds.

Adopting anti-corruption and ethics schemes is a necessary but not sufficient measure, suggests Wagner Giovanini, former compliance chief for Latin America for German conglomerate Siemens and now a director of São Paulo-based consultancy Compliance Total.

“The vast majority” of companies in Brazil, says Giovanini, have not yet realized the benefits to their business of having “a well-established compliance system.” Having a complaints hotline as part of a compliance scheme “is not enough to make things right,” he adds.

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By Andres Schipani

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