FCPAméricas Blog
Brookfield: Notable Aspects of Corruption in Brazil
2.15.2013
Earlier this month, the Wall Street Journal reported that a prosecutor in Brazil has filed bribery charges against the Brazilian subsidiary of Canada-based Brookfield Asset Management. Brookfield is one of the world’s largest property investors. The civil charges allege that the subsidiary paid $640,000 in bribes to obtain construction permits around Sao Paulo. As part of the scheme, the firm is alleged to have hired an armored truck to deliver cash to city officials. In return, the firm got around having to make improvements to a nearby overpass and received a reduced permitting fee.
The WSJ report brings to light various issues:
FCPA Jurisdiction: Brookfield is listed on the New York Stock Exchange. As such, it is directly subject to the FCPA’s accounting provisions. The IBM Argentina case demonstrates that a publicly-listed U.S. parent can be held liable for the improper books and records of its subsidiary, even if the parent had no knowledge of the underlying wrongdoing. Moreover, in the WSJ report, the prosecutor describes a “high system of bribery.” This might suggest that individuals at the parent firm participated in the wrongdoing, which could implicate the FCPA’s anti-bribery provisions.
Whistleblower Threats: Brookfield told the WSJ that the subsidiary’s CFO was fired in 2010. It was then that the disgruntled former employee brought her complaints to the Brazilian Government. She claims that she was fired because she refused to participate in the bribery scheme. FCPAméricas has discussed the multiple ways in which FCPA enforcement officials can learn about bribery. It appears that whistleblower tips are of growing importance not only in the United States but in Brazil too.
Brazilian Prosecutors and the Press: It is striking that a Brazilian prosecutor would choose to share with the press in such an open way so much information about the investigation, at the beginning stages of the investigation. Such activity would seem inappropriate in a United States jurisdiction. What we learn from the prosecutor’s public report is that the evidence collected so far appears to be robust. The Brazilian Government has interviewed twenty witnesses and reviewed invoices that link permit issuances to payments to officials. In FCPA enforcement, the public would not usually hear so much detail from the government until the resolution itself.
Corruption Risks for Asset Managers: In sectors like asset management, an asset manager’s reputation is essential to his or her ability to raise funds. When there are indications of wrongdoing at a firm, institutional investors are more reluctant to participate. Corruption allegations like the ones in Brazil make it much harder for firms to built support for new funds. For example, though Brookfield claims that the Brazil investigation has not impacted its ability to raise funds, the WSJ quoted the Executive Director of the Illinois State Board of Investment: “[J]ust the hint of that kind of an issue is highly problematic … that conversation would come to an end until that issue is resolved.”
For this reason, it is in asset management firms’ interest to implement anti-corruption compliance safeguards. If Brookfield were to have a strong compliance program in place (it is not clear whether or not it did), it would be positioned to quickly dispel any such allegations. It would have a basis on which to reassure questioning investors. Moreover, employees with complaints or who suspect wrongdoing would have greater incentives to report them to the company first rather than to the government. These are just some of many reasons why robust compliance is essential in the financial services world.
Permitting Risks: The article reports that the alleged bribes are related to permits that Brookfield obtained to renovate malls in Sao Paulo. Such regulatory requirements are common risk areas in Brazil and other parts of Latin America, as discussed here. This is because rules can be opaque and obtaining permits can require multiple interactions with numerous foreign officials. For example, permits are the source of much of the alleged wrongdoing in the Wal-Mart Mexico case. Such risks are even more pronounced when one considers that Brazil is under pressure to complete numerous projects before The World Cup and Olympics take place there (see discussion here).
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© 2013 Matteson Ellis Law, PLLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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