Mon, Nov 23, 2015

Are You Prepared for Brazil’s New Anti-corruption Policies?

Investors around the world have always shown great interest in Brazil, and continue to do so despite recent economic and political turbulence.

Brazil has a broad portfolio of opportunities in industries such as agribusiness, oil and gas, energy and, predominantly, infrastructure. All of these industries are to a different extent influenced or controlled by the Brazilian government, and as a result are intertwined with Brazilian politics. This makes it more challenging for foreign investors to enter the markets and to navigate an unfamiliar political environment.

During this past year, Brazil has seen a colossal shift of the corporate and political landscape as a result of the highly publicized prosecution of corruption involving Brazil’s oil giant, Petrobras, and the key players within the construction industry. The prosecutions have involved top executives at most of the companies in these promising industries as well as government officials in high-level positions. The prosecutions were the culmination of a mission to fight corruption that was started years ago and were preceded by the passing of Brazil’s Anti-Corruption Law. Both events have been instrumental in changing the way Brazilian companies face and deal with corrupt conduct.

Despite the economic and political turbulence that Brazil is undergoing at the present—economic indicators are not as favorable as those of eight years ago and there is speculation whether or not the president will complete the end of her term—foreign investors remain interested in Brazil. Some even claim that this is a better time to invest than five or eight years ago, as the prices of Brazilian assets are attractive to investors from the U.S., Europe and Asia due to the devaluation of the real.

A key concern for foreign and local investors and their corporate management is preventing their business from becoming entangled in any corrupt activities and the attendant legal and financial liabilities and reputational damage. Kroll has seen a significant increase in awareness as well as efforts by companies to establish sound policies aimed at preventing and detecting corruption.

While multinational companies have been at the forefront in implementing compliance programs worldwide, and especially in Brazil after the passage of the Brazilian Anti-Corruption Law, Brazilian companies have been quickly trying to catch up by implementing compliance programs or improving their existing policies and procedures.

Our Insights

Based on our experience in Brazil, three key elements of an effective corporate compliance program include:

  • Compliance leader with authority, independence and resources
    Usually a chief compliance officer fills this role. Corporations that have successfully transformed their compliance culture have identified candidates with the appropriate experience, competencies, ethics and independence and placed them in positions of authority with a reporting line to stakeholders. Corporations that take a long-term view and see spending resources on compliance as an investment and not a cost tend to be more effective in providing appropriate support to their compliance leader.
  • Robust internal controls
    Corporations that build compliance programs as part of an integrated effort with internal compliance audit and risk management/control are more successful than those who have compliance departments operating in a more isolated manner. Corporations can build robust internal controls only if risk knowledge is shared throughout the organization and if the respective departments actively play a role in preventing and detecting corruption.
  • Increased awareness
    A code of conduct is used by most organizations to establish and institutionalize their key compliance policies. An effective and frequent dissemination of an inclusive and practical code of conduct is the basis for creating awareness. To build and sustain a corporate culture that condemns corruption in the organization, corporations usually rely on a combination of frequent and interactive trainings that are incorporated in the key performance indicators of employees as well as corporate events dedicated to the compliance cause, including other events or campaigns.

Learn more about fraud statistics and trends in Kroll’s annual Global Fraud Report.

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