Odebrecht: Can the Largest Foreign Bribery Case in History Lead to More Compliance?


Odebrecht probably sounds familiar to the majority of us, either as a great example of internationalization or for its infamous financial crime allegations. This colossal bribery scandal has been running in the headlines of major newspapers in Latin America for years, bringing to light several related corruption cases.

But, let’s take a step back and remember that Odebrecht gained its notoriety for being the 10th largest construction firm in the world, with 181,000 employees in 23 countries, being a symbol of true national pride for Brazil.

The ongoing Odebrecht investigation has shown details and numbers of a shocking magnitude – even for Brazil, a country that is no stranger to bribery scandals. Sometimes it takes a scandal of this scale to generate awareness of the importance of strong due diligence and risk assessments. These continue to be an indispensable tool for protecting companies and financial institutions.

Operation Car Wash: how it all began

“Operation Car Wash” started as a money laundering investigation three years ago, but quickly escalated into a colossal corruption probe. The investigation uncovered a scheme involving the country’s state-controlled oil company, Petrobras. Executives received bribes in exchange for overpriced contracts.[i] This investigation resulted in a dozen politicians and executives in jail, and several others facing charges.

Every plea bargain deal led to new information and, with it, new people involved and different corruption strategies exposed, including the extent of Odebrecht’s scheme.

According to the U.S. Department of Justice, every dollar “invested” in bribes resulted in 12 dollars in contracts for Odebrecht.

In a collaborative investigation, the governments of the United States, Brazil and Switzerland determined that bribes had become a vital part of how Odebrecht conducted business. So much so that a “Bribery Department” was created in 2006 to control illicit transactions through their network of foreign offshore shell companies and bank accounts. Marcelo Odebrecht, who headed the company until 2015, was sentenced to 19 years in prison.[ii]

Web of corruption: Odebrecht scandal in numbers

As prosecutors chased the trail of cash, they began to outline the web of corruption across the globe. According to recent plea deal testimonies, this number could be as high as US$3.3 billion in 9 years. In Brazil, this has already led to investigations into five former presidents and several current ministers.

It is still too early to know the final figures for the rest of the region.

So far, according to the U.S. court ruling, these are the numbers behind the scandal:

  • US$1.104 billion paid in bribes by Odebrecht and its petrochemical subsidiary Braskem[1]
  • Bribes paid in 12 countries: Brazil, Angola, Argentina, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru and Venezuela
  • Odebrecht and Braskem agreed to pay a penalty of at least US$2.6 billion[2] to resolve charges with the authorities of Brazil, United States and Switzerland
  • Odebrecht also agreed to pay a penalty of US$59 million to Panama[iii] and US$189 million to the Dominican Republic [iv]
  • Plea bargain deal in Brazil resulted in 77 executives providing over 900 sworn statements about 415 politicians who received briberies from Odebrecht.

New revelations are slowly coming out, which could implicate other politicians and government officials, including senior members of the current Brazilian administration, as well as other countries. The table below has information from the U.S. court ruling and gives a glimpse into the extent of the corruption.

COUNTRY BRIBERY[3][4] SECURED CONTRACTS IN THE ORDER OF HIGH LEVEL GOVERNMENT OFFICIALS ALLEGEDLY INVOLVED
Brazil $599 million $2 billion Ongoing investigations
Angola $50 million $261.7 million
Argentina $35 million $278 million Current President’s Intelligence Chief
Colombia $11 million $50 million Former Transportation Minister & current President
Dominican Republic $92 million $163 million
Ecuador $33.5 million $116 million
Guatemala $18 million $34 million
Mexico $10.5 million $39 million
Mozambique $900 thousand Projects never got approved
Panama $59 million $175 million Former President’s son and brother
Peru $29 million $143 million Former presidents
Venezuela $98 million To maintain participation in public works

The Odebrecht effect: what have countries been doing?

What “Operation Car Wash” brought to light was unsettling, but it could be the beginning of much-needed reforms and change in Latin America.

In Peru, for example, President Pedro Pablo Kuczynski issued a decree barring corrupt politicians from public office. He also mandated that government contracts have an “anti-corruption clause” and said publicly that whistleblowers in bribery cases would be rewarded. Odebrecht was asked to leave Peru and a former deputy minister was arrested.[v]

The Panamanian government identified 17 individuals connected to the US$59 million bribe[vi]. Despite presidential efforts, the Supreme Court is putting off the case against former President Ricardo Martinelli.

In Venezuela, President Nicolas Maduro declared that the country will arrest those who received bribes from Odebrecht. The government also seized the company’s offices, as well as froze their bank account and assets in the country.[vii]

While some governments in the region have realized that transparency and accountability are essential for their reputation, others have remained quiet on the matter. There is still hope that this scandal will push countries to get some much-needed political and judicial reforms that focus on transparency and accountability.

Conclusion: how can businesses protect themselves?

So, has the largest foreign bribery case in history led to more compliance awareness? It’s still too early to tell. However, the flood of bribery investigations has resulted in a heightened interest in compliance. Companies operating in the region understand the high risks of doing business and are racing to create or re-enforce anti-corruption trainings and re-vamp their anti-bribery policies and contracts.

As said before, strong due diligence and risk assessments continue to be critical to protect companies and financial institutions. Identifying these risks is complex and requires good expertise. The use of big data and analytics has become the most reliable solution for accurately detecting risks.

Businesses and financial institutions are responsible for implementing thorough due diligence, so they know who they are doing business with and can assess their counterparties’ risk level. These headlines have increased the perception of risk and companies are focusing on doing proper due diligence and conducting investigation activities. “Online Compliance” is an easy-to-use online tool and can be a valuable instrument for your company to have accurate and comprehensive sanctions, politically exposed persons (PEP), adverse media, and enforcement data in a single source.

Notes:

[1] https://noticias.terra.com.br/brasil/odebrecht-entenda-o-maior-caso-de-suborno-da-historia,2ad4c9f40bf9d93e1b2fba08935c112cokpstq92.html

[2] Sentencing has been scheduled for April 17, 2017.

[3] http://brasil.elpais.com/brasil/2016/12/21/politica/1482360664_921109.html

[4] https://noticias.terra.com.br/brasil/odebrecht-entenda-o-maior-caso-de-suborno-da-historia,2ad4c9f40bf9d93e1b2fba08935c112cokpstq92.html

[i] http://g1.globo.com/economia/negocios/noticia/2016/11/petrobras-espera-receber-mais-r-55-bilhoes-desviados-por-corrupcao.html

[ii] https://www.bloomberg.com/news/articles/2016-03-08/brazil-s-marcelo-odebrecht-gets-19-years-in-jail-in-carwash-case

[iii] http://epocanegocios.globo.com/Empresa/noticia/2017/01/odebrecht-pagara-us-59-milhoes-ao-panama-por-caso-de-subornos.html

[iv] http://epocanegocios.globo.com/Empresa/noticia/2017/01/odebrecht-pagara-republica-dominicana-us-184-milhoes-por-escandalo-de-propinas.html

[v] http://www.economist.com/news/americas/21716105-revelations-wholesale-bribery-may-mark-turning-point-latin-americas-battle-against

[vi] http://www.panamatoday.com/panama/former-finance-director-panama-will-be-taken-anti-corruption-prosecution-odebrecht-case-3364

[vii] http://g1.globo.com/mundo/noticia/venezuela-pede-prisao-de-suspeito-em-caso-de-corrupcao-da-odebrecht.ghtml