Brazil Scandal Sends Multinationals Running to Attorneys
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1:56 pm ET April 16, 2015 (Dow Jones)
By Joel Schectman
Multinationals with operations in Brazil are making frightened calls to their lawyers, as the country's spreading corruption scandal reaches more companies.
The bribery investigation known as "Operation Carwash," which has already sent Brazil's state-run Petroleo Brasileiro SA into a tailspin, is spreading across the country's largest construction companies and its third largest bank. Brazilian prosecutors say shipbuilding arm of South Korean conglomerate Samsung paid bribes to a former executive at Petrobras. Brazilian prosecutors have also accused Swedish builder Skanska AB of taking part in the corruption at Petrobras. Skanska didn't respond to requests for comment. Samsung couldn't be immediately reached for comment.
Brazilian investigators have said they are investigating large international firms that they believe have paid bribes, Reuters reported.
Attorneys say companies with operations in Brazil are scrambling to assess whether they could get swept up in the probe. "They are very worried," said Ruti Smithline, an anti-bribery specialist at Morrison & Foerster LLP. "The investigation is so widespread. If you have business in Brazil, the likelihood that this is going to touch you in some way is very high."
Companies are racing to discover questionable activities before authorities in Brazil do. "They are asking: 'Is our house clean? If authorities look at these relationships what are they going to find?'" Ms. Smithline said.
In theory, it shouldn't be that hard for a multinational to discover its exposure to the scandal. The starting point is for compliance staff to ask its Brazil unit for a list of all its partnerships and vendors. Any match with the growing number of companies already under investigation should raise a red
If a company discovers it has business with a firm under investigation in Brazil, the next step is to learn the depth of the relationship. If the international firm is simply using an embattled Brazilian firm as a local vendor for "off the shelf" products, the risk is lower, said Lucinda Low, an anti-bribery specialist at Steptoe & Johnson LLP, although the relationship may still require some auditing. But a deeper relationship, for example a joint venture, would require tougher questions and an assessment of whether it's worth maintaining, considering the risks.
"Boards are asking these questions," Ms. Low said.
Complicating this effort is Brazil's new anti-corruption law, the Clean Companies Act. The law holds companies to even higher standards and stricter liability than the U.S. Foreign Corrupt Practices Act. For example, unlike the FCPA, under the Brazilian law a company can be prosecuted for corruption even if didn't realize it was paying a bribe and had a great compliance program in place, said Salim Jorge Saud Neto, a partner in the Rio de Janeiro-based firm law firm Tauil & Chequer Advogados. "I've seen a number of foreign companies that have compliance procedures in place in line with FCPA requirements now trying impose even stricter [anti-bribery] guidelines because of this environment," he said.
James Koukios, a former anti-corruption prosecutor at the U.S. Justice Department, says that for years Brazil was seen as not taking corruption seriously. Now "there's a greater risk of getting caught," said Mr. Koukios who recently joined Morrison & Foerster LLP.
Often the problems are far more basic that understanding the difference between different legal systems, said Ms. Smithline. A surprising number of multinationals don't even maintain a list of the outside consultants and contractors they use overseas, making any kind of risk assessment difficult, she said. "Can you answer the question 'what is my company doing in Brazil?" said Ms. Smithline.
