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Oil On Troubled Waters

1 June 2015

Why the Petrobras bribery scandal in Brazil serves as a warning to all companies about the dangers of bribery.

Brazilian oil giant Petrobras has written off $ 2 billion as the cost of a decade-long bribery scandal.

Man with umbrella

The company made the announcement as it disclosed total losses of $7.2 billion for the year. Its scandal, which has seen 40 politicians being investigated, has led to the resignation of Petrobras’ Chief Executive Officer and five executives. As we write this, 80 people have been charged in connection with money laundering and bribery and more than 750 major infrastructure projects are now being investigated.

As business crime scandals go, it is one of the largest and most all-encompassing; having shaken the financial and political elites in Brazil. In one way, it is not a major shock as wrongdoing in business has always gone on. But the fact that this has now been investigated and acted upon is another indicator – if any more were needed - that there is now a stronger appetite among the authorities to prosecute those responsible for business crime.

Anti-corruption
Compliance can go a long way towards avoiding prosecutions and also in establishing a defence. Not everyone in business has a kind word to say about compliance. Its detractors say that it costs too much time, money and effort. Many in business feel sure that their companies are either doing nothing wrong or are unlikely to be found out even if they were. It is worth noting, however, that this is a view that may well have been held by senior figures at Petrobras, not to mention Rolls-Royce, GSK, Alstom or Hewlett-Packard or any other high profile company that has come under investigation for wrongdoing in various places at various times.

Their troubles stem from a desire by the authorities to get to grips with corruption. In the UK alone, we have had the Bribery Act in effect since 2011; making UK companies responsible for the activities of their staff, agents and representatives anywhere in the world. The Fraud Act has made it easier to bring fraudulent trading prosecutions against sole traders, trusts and partnerships, the Enterprise Act has been used to tackle anything regarded as anti-competitive measures and the Money Laundering Regulations place a huge responsibility on companies to comply.

Cooperating authorities
There is also now greater cooperation between authorities such as the police, the Serious Fraud Office (SFO), HM Revenue and Customs, the Financial Conduct Authority (FCA) and their foreign counterparts. At the same time, technological advances have made investigations into business wrongdoing easier to conduct.

In a nutshell, more potent legislation, more effective investigating authorities and a desire to attack business wrongdoing have made things increasingly difficult for the company or individual who wants to act illegally or turn a blind eye to it. According to recent research, about three directors are disqualified in the UK each year, for periods ranging from two to 15 years. That figure is unlikely to drop unless companies make a deliberate effort to ensure that all their staff and other representatives are acting legally in their home country and abroad. The only alternative appears to be prosecution.

Complying with the law wherever you do business – and in the case of the Bribery Act, in the UK – sounds simple. It isn’t. You need to be certain that you are complying with the relevant laws wherever you do business. You have to be sure that your staff, agents and representatives are acting legally at all times, wherever they may be. This is not something that can be assumed or taken for granted. But it can be made possible by instigating the correct compliance measures.

Such measures cannot be token gestures. They have to be devised after scrutiny of the business’ workforce, customers, suppliers and any other individuals or organisations it has dealings with. They must be carefully devised and rigorously promoted within the business, monitored, reviewed and revised when necessary and adhered to by everyone; from the top down.

Advice
At Rahman Ravelli, we advise companies, organisations and individuals on compliance. Senior business figures face many demands that they may place more emphasis on than the need to ensure a company is legally compliant. But they have to consider whether they got their priorities correct if the company subsequently found itself the subject of a bribery investigation, money laundering accusations or a tax avoidance scandal.

Being linked to an investigation, prosecution or conviction is not good for business. We have helped many firms instigate robust compliance procedures to avoid such outcomes. We have met many people who have been disqualified as directors who have altered their dismissive stance regarding compliance.

It is fair to say that legal advice can both reduce the scope for problems arising and minimise them should they still arise. There is an argument for saying that a lack of compliance can produce legal problems that no amount of expertise can erase. But if a firm discovers wrongdoing being carried out in its name then the very least it should do is contact experienced lawyers who can evaluate what scope there may be for a plea bargain or leniency (see eg rosecution Agreements (DPAs ). But, as we mentioned earlier, business crime is attracting more attention than ever – and that means it is far better to take steps to prevent problems rather than react to them or simply hope they will go away.

Business people know their work and their markets. They are not so familiar with the way the law works. They need to make the connection between making their company legally compliant and their desire to succeed – because without the former, the latter will always be at risk.

Compliance does cost. But it costs far less than being ignorant or arrogant when it comes to the law. Just ask the dozens of people caught up in the fall-out from Petrobras.

Bubbles


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