One of the world’s biggest bribery and corruption prosecutions in recent years focused on Brazil. “Operation Car Wash” was an investigation involving the US and Brazilian authorities into an alleged bribery and money laundering scheme involving executives of state-owned oil company Petrobras and other Politically-Exposed Persons (PEPs). All companies operating in Brazil or doing business with Brazilian companies should therefore seek to understand corporate ownership and the relationships between individuals and entities in the country, in order to gain a clearer picture of third-party risk. In this blog, we explain how Nexis Diligence™ allows companies to connect the dots between corporate ownership and key individuals, leading to quicker insights.
The role of individual relationships in a major bribery and corruption scandal
Operation Car Wash started in March 2014 as an investigation into allegations that executives at Brazil’s state oil company Petrobras had taken bribes from construction firms in exchange for unreasonably lucrative contracts. The case alleged millions of dollars in bribes which implicated more than 80 politicians and business leaders.
The investigation brought significant legal, financial, reputational and strategic costs to a wide range of companies and individuals. This included:
- A major $853 million fine for Petrobras to settle charges of breaching US anti-corruption laws, in addition to disgorging any profits made from corrupt practices. The company’s share price plunged to less than a quarter of its 2014 high when the allegations came to light.
- A ruling that ex-President Lula should serve 12 years in prison, and later the impeachment of his successor President Rousseff in August 2016.
- Reputational damage and scrutiny by shareholders and regulators of many companies who had dealings with Petrobras and other Politically-Exposed Persons (PEPs).
Rising regulatory risk in Brazil
Brazil’s regulators have increased their focused on anti-bribery and corruption efforts in recent years. The Clean Company Act was enacted in 2014 following Operation Car Wash, increasing penalties for business entities involved in corrupt practices in Brazil. The increasingly sharp teeth of Brazilian regulators was soon demonstrated when the engineering firm Odebrecht received a fine of $2.6 billion in 2016 after allegedly conspiring with politicians and oil executives to take bribes from Petrobras.
There is also risk for companies and entities based in other countries but doing business with Brazilian firms. Earlier this year, two Austrian citizens were indicted by the US Department of Justice over their roles in an alleged scheme to launder hundreds of millions of dollars through the US financial system on behalf of Odebrecht. The National Law Review said this case highlights a "continued focus on Latin America and Brazil in particular as a target of anti-corruption and anti-money laundering enforcement."
It is therefore critical that companies operating in Brazil, or who do business with Brazilian companies or individuals, carry out due diligence to understand the risks posed by third parties and suppliers. Critical to this is gaining an understanding of the ownership structures of Brazilian companies.
Nexis Diligence: visualizing corporate relations to surface third-party risks
To help companies address the enhanced risks of bribery and corruption when doing business in Brazil or with Brazilian companies, Nexis Diligence now displays corporate ownership charts on companies and individuals in Brazil. These provide a clearer understanding of the corporate relationships within a company, allowing firms to carry out due diligence which could surface potential risks.
Data is delivered by Akire Tecnología Da Informação Ltda, an aggregator of PEPs, sanctions, and watchlist type information in Brazil. Data is sourced from the Brazilian Internal Revenue Service. This is the most authoritative and up-to-date source of Brazilian company ownership. It covers:
- A company’s name.
- Its legal identifier.
- Its address.
- Whether it is active or inactive.
- Persons of interest working for or connected to the company.
Compliance officers need to go a step further to understand the relationships between different entities and individuals – both professional and personal. This information would have been crucial to understanding the extent of major bribery and corruption cases like Operation Car Wash. Nexis Diligence’s visualizations provide this overview with a tree view which allows users to dive deeper into relationships in and around a company by quickly identifying:
- Who has ownership of a company.
- What that person's relationship is to the company.
- That person’s other professional relationships.
The charts are essential for companies who want to do business in Brazil, or who need to do a check on a Brazilian entity. Why not contact a Nexis Diligence specialist today to hear more about how they could transform your third-party risk operation?
For more Information, View our Compliance Product Nexis Diligence™