By Alan M. Field
The bad news has been out for months. Prosecutors in Brazil have claimed the lion’s share of the credit for the world’s single-largest anti-bribery enforcement action, a settlement worth between US$2.5 billion and US$4.5 billion (depending on future ability to pay) against Odebrecht, a huge multinational conglomerate of firms active in engineering, construction, chemicals and petrochemicals.
Odebrecht admitted to having paid US$349 million in bribes in Brazil, US$98 million in Venezuela, US$92 million in the Dominican Republic, US$35 million in Argentina, US$34 million in Ecuador, US$29 million in Peru, US$11 million in Colombia and US$10.5 million in Mexico, according to the U.S. Department of Justice.
Although the impact of the scandal was felt far and wide across the South American breakbulk and project cargo sectors, the longer-term impact may well turn out to be positive for the region’s efforts to combat long endemic corruption in the allocation of public sector engineering and infrastructure projects on that continent. Related investigations have reached two former presidents and the current president, numerous members of the cabinet, an estimated 60 percent or more of the federal legislature, and countless state and municipal officials. Recently, Brazilian prosecutors began an investigation into bribery in the meat packing industry, which has been called the largest police action in Brazil’s history.
Brazil’s troubled brand is now dealing with the repercussions. “Right now, there is a lot of fear” about how far the Odebrecht scandal will extend its tentacles, noted one infrastructure specialist active in South America. In Brazil, he said: “The scandal has reached Brazilian president Michel Temer – the man who replaced President Dilma Rousseff – and has widened to the Brazilian congress. There is a total lack of order, and the police have had to double up and come down even harder on crime.”
Writing a New Chapter
Anti-corruption specialist Andy Spalding, professor of law at the University of Richmond, argued that the Odebrecht debacle represents “a new chapter in the global fight against corruption.” Spalding, who is also a lecturer at the International Anti-Corruption Academy in Laxenburg, Austria, noted that the Odebrecht saga is proving that anti-bribery enforcement at the highest levels is no longer solely the province of the developed world.
“We all know that Brazil is enmeshed in a major bribery investigation, Operation Car Wash,” which triggered the Odebrecht scandal in 2016. “But we may not fully appreciate the way Brazil is emerging as a regional, and perhaps, world leader in both domestic and foreign bribery, and on both the enforcement and compliance sides.
“The world is largely getting the story in Brazil wrong,” Spalding added. “The impression is that the Brazilian government is in some state of decline, however that’s the wrong narrative. The message is not ‘there is systemic corruption in a developing country’s government’, rather it’s ‘systemic corruption has been exposed and prosecuted.’ ”
What’s making that possible? “The global leaders in prosecuting international bribery are the U.S., the U.K. and Brazil,” Spalding noted. “It’s stunning – Brazil’s a developing country where five years ago, corruption was so rampant, people joked about it. Now Brazil is more of a leader than France, Germany, Australia or Japan.”
Brazil didn’t have a good starting point. It transitioned from a military dictatorship to a democracy in 1988, and under the military dictatorship, corruption was rampant. After the transition, the educational curriculum changed, and children in public schools began learning the importance of individual rights, accountability, transparency and democratic values.
“What we see in the prosecutions today, including Dilma, Lula, Temer, et al., is that senior government officials who were educated under the military dictatorship are being prosecuted largely by young prosecutors who were educated under the current Brazilian constitution,” Spalding said. “So, it is a fundamental generational clash that is occurring right now. The older generation accepted or even admired the so-called Jeitinho – a term that refers to the ability to maneuver through a corrupt system and even get ahead, using its own rules. The younger generation does not accept that. And so, what we saw with presidents Dilma, Lula, and Temer was the older generation of officials for which corruption was acceptable. This younger generation of aggressive, idealistic prosecutors is slowly weeding them out, but it’s going to take time.”
A series of legal reforms adopted in Brazil between 2011 and 2013 in response to the public anti-corruption protests gave prosecutors the tools they needed to effectively prosecute corruption. These new tools were used in the Odebrecht case, with seemingly great success. “This is the rise of the rule of law in Brazil. This is the prosecutors holding corrupt officials accountable,” Spalding said.
One tool, the 2013 Organized Crime Bill, had two important provisions: First, it created a new “obstruction of justice” charge that the prosecutors could use. Prior to 2013, obstruction of justice was not an independent prohibition under Brazilian law – it was not a crime. Second, it gave prosecutors enhanced plea bargaining and prosecuting authority.
In a further move to wipe out corruption, in January 2017, the Prosecutors General of Brazil and Peru signed an agreement to increase cooperation between the two countries in the “fight against corruption,” as probes into bribery and fraud involving Brazilian companies spread to other Latin American countries where they operated.
“We will establish dialogue and the transmission of information in a more direct and spontaneous way,” Peru’s Prosecutor General Pablo Sanchez Velarde told reporters after meeting with his Brazilian counterpart Rodrigo Janot. “We are very interested in getting information to improve our investigations,” Velarde added.
Casting the Net Wider
Brazil is now using “its substantial and new-found clout” to build capacity in other countries in South America, he added. In February, officials from 11 countries in the region met in Brazil and formed an agreement to carry out a joint investigation on Odebrecht’s bribery across Latin America. Their ranks included representatives from attorney-general and prosecutor-general offices in Argentina, Brazil, Colombia, the Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, and Venezuela. The meeting was organized by Brazilian Prosecutor-General Rodrigo Janot. At the gathering, the parties signed the Brasilia Declaration for International Judiciary Cooperation against Corruption.
Brazilian enforcement authorities are also building capacity throughout the continent, working in conjunction with enforcement authorities in Argentina or Colombia. “They share information; and they enter into joint settlements,” Spalding said. “In so doing, they are building institutional capacity in these other countries and they are changing cultural norms. Just as the U.S. has been doing this with other countries, Brazil is now doing the same.”
In one notable case, Lima-based engineering and infrastructure firm Graña y Montero, which faces its own Odebrecht-related bribery investigation, recently made several internal corporate governance changes, including the appointment of Fernando Dyer as its new chief risk and compliance officer. Dyer’s task will be to help ensure the firm’s compliance with internal ethics, conduct and anti-corruption policies, under the supervision of the board’s new risk, compliance and sustainability committee. That committee is just one initiative in the firm’s Committed to the Future program for “good corporate governance,” released on May 10 by its board of directors. The changes are especially significant, because the firm is the largest in its sector in Peru, with more than 28,000 employees in five Latin American countries.
Kara Brockmeyer, chief of the U.S. Securities and Exchange Commission’s Foreign Corrupt Practices Act, or FCPA, unit, which prosecutes U.S. corporate bribery cases, said that the agency has “several cases in the pipeline.” Last year was a record fiscal year for FCPA enforcement, she noted. “Of the 87 companies whose 2016 public filings disclose that they are the subject of ongoing and unresolved investigations under the FCPA, 26 are in Latin America.”
In a further sign that the challenge of anti-corruption law compliance is being raised, “companies must consider not only the anti-corruption regulatory regimes in their home jurisdictions, but also the criminalization and prosecution of bribery in other locales – sometimes very distant ones – where they do business,” attorneys Jason Jones, Amelia Medina and Kyle Sheahan wrote in a research note. The team specialize in government investigations at King & Spalding’s offices in the U.S.
“For corporations operating in Brazil and throughout Latin America, anti-corruption compliance has become an especially fraught regulatory challenge. The road to compliance requires navigating not only the FCPA [U.S. Foreign Corrupt Practices Act], but also the Brazilian Clean Company Act,” the attorneys said. “Given this reality of broad, multijurisdictional anti-corruption investigations and the significant consequences thereof, corporations doing business from, or within, Brazil must be mindful of a few key cross-border considerations.”
They warn companies that whenever they eye a tempting new project, “it is critical for multinationals operating in Brazil to perform comprehensive due diligence on all potential business contacts to evaluate whether they are – or resemble in status or function – government officials.”
Alan M. Field has reported on trade, logistics and related technologies from numerous countries in North America, Latin America and East Asia (Japan, Taiwan and Korea) over the past two decades.
Photo credit: Shutterstock
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