What are the anti-corruption compliance issues now emerging in Brazil given that the country is scheduled to host the 2014 World Cup and the 2016 Olympics? FCPAméricas asked this question to five prominent Brazilian compliance professionals.
Their answers, provided below, highlight three key issues. First, public procurement for things like stadium construction has created significant opportunities for corruption (see more on risks in public procurement here [1]). Second, hospitality issues are beginning to arise now that companies will have the chance to host others at the many scheduled events (see a discussion on hospitality and entertainment here [2]). Third, the resulting corruption risks are now a topic of frequent conversation and focus in Brazil, an issue on which FCPAméricas has previously written [3]. The very fact that corruption is an issue on people’s minds, alone, appears to be an important development.
Carlos Henrique da Silva Ayres, Co-Chair of the Anti-Corruption and Compliance Committee of the Brazilian Institute for Business Law (Ibrademp):
Since the Brazilian Government is directly involved right now in several projects related to these two major sporting events, public bidding issues – in which most of the government procurement is taking place – are emerging and are an important area of concern. As a result, companies participating in public biddings, directly or indirectly, should have a strong knowledge of the Brazilian public procurement rules. This allows them to identify red flags that can lead to corrupt behavior. Companies can enhance certain aspects of their compliance programs and implement specific trainings to address these issues accordingly. In addition, hospitality is often troublesome as many companies doing business in Brazil entertain their clients, including those that are public employees, in the context of sporting events like these. We are already beginning to see several such inquiries.
Isabel Franco, Chair of the Anti-Corruption Compliance Practice, KLA – Koury Lopes Advogados:
The greatest challenge that Brazil faces is delays! All stadiums and infrastructure works must be ready in time for the opening of the World Cup. The works necessary for both the World Cup and the Olympic Games are notoriously way behind schedule. These works should always be subject to public bids and we are already experiencing irregular bidding processes and expect more and more contracts being closed without the due bidding process. These works will then be overcharged and distributed among providers, politicians, contractors of all sorts and other parties linked to corrupted agents.
The initial budget for the World Cup, for example, has already been inflated twofold according to the press. Some estimate that, by the end of the process, it will be five times the original amount. Scandals are reported each day. In addition, the specific statute being prepared for the World Cup (called World Cup General Law) was scheduled to be approved in 2007. It is still not approved as of May 2012. The government brags about the transparency it promotes in relation to the works surrounding the preparations of these two events. But a mere check of their site [4] shows an outdated and minimally-informative vehicle. Finally, there is incredibly little monitoring of the governmental expenditures relating to these events. All these loopholes allow corruption to run rampant in Brazil.
Fernando Cevallos, Senior Manager of Forensic Services, PwC Brazil:
The Brazilian market (mainly large Brazilian entities and multinational companies with operations in Brazil) is right now more open to discussing corruption risks and understanding the implications and penalties related to doing business with the government, specifically related to certain main infrastructure projects. In fewer cases, medium-sized Brazilian companies are looking to implement anti-corruption compliance programs. They rightly see it as an investment to attract foreign investors and goodwill for potential future sales of their businesses. For them, the key challenge is how to do this in an efficient way. There is also the challenge of expanding anti-corruption compliance awareness to all other entities. These matters are new in the region, and several initiatives and events related to the major sports events and compliance have the potential to increase the sophistication of the Brazilian market by helping it to understand the risks.
Leopoldo Pagotto, PhD in Economic Law, University of São Paulo, Masters of Science in Regulation, London School of Economics:
The many discussions about the relationship between corruption and large events like the 2014 World Cup and the 2016 Olympic Games seem to be a self-fulfilling prophecy for the Brazilian people. Nearly everyone knew the pattern that would follow: first, there would be delays in the planning as well as in the bidding processes. Following that, as the dates of the events approached, the authorities would panic and would be willing to pay much more than the original estimate in the interest of national pride. Because the government was aware of these potential problems, some of its agencies took measures to minimize potential problems.
The continuing corruption risks should be viewed in connection with both anti-corruption laws and anti-trust laws. The large public contracts at stake have the potential to generate both corruption and collusion risks. In fact, I believe that the growing relationship between antitrust and anticorruption enforcement is the most striking trend for the coming years. The Brazilian Antitrust Authority has gained a worldwide reputation for its thorough enforcement, and, in Brazil, it is quite common for bid-rigging cases to be intertwined with corruption problems: companies colluding with each other often benefit from cooperation with government officials who ask or are offered bribes. One problem is not isolated from the other. For example, quite often, when there are dawn raids to investigate collusion, evidence on corruption also appears and vice-versa. In the lead up to these sports events, companies should take advantage of this scenario and try to implement antitrust and anticorruption compliance programs, trying to maximize the existing synergies.
Daniel Sibille, Compliance Associate, Madrona, Hong e Mazzuco:
The Olympic Games and World Cup in Brazil will bring important issues related to compliance, in particular, those related to the works to be contracted by Brazilian government and to the hospitality offered by the sponsoring companies of the events. In relation to the services contracted by the government, we emphasize those related to infrastructure, since the Brazilian government is the main contractor. Despite the fact that all relevant works are contracted through a public bidding and regulated by law 8666/93, with the proximity of the World Cup some of such works are conducted on “an emergency basis” by the Government, an exception under the Brazilian law. Without a proper bidding process, the risks of bribery and fraud increases greatly.
Regarding hospitality, the question is even more serious since many companies will have access to the advantages offered by the organizing committees. This risk would be minimized if Brazilian companies were prepared to guide their employees on how to interact with their suppliers and customers, respecting the limits of reasonableness. Unfortunately, many Brazilian companies do not yet have an appropriate compliance structure in place with spending limits and conditions of offering of entertainment items. Thus, large abuses are expected by Brazilian private sector.
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