Edward Jenkins, a British Lawyer and consultant with London Corporate comments on some of the issues raised.
The first thing we can learn about the bribery scandal engulfing the state owned Brazilian oil giant, Petrobras which is drawing in the current government is that it was highly organised and sophisticated, at least in terms of its financial structure with funds allegedly channelled through more than 300 Swiss banks. It also demonstrates that BRIC Governments are actively taking a hard line on corruption. Whilst less organised bribery is still widespread, the evolution of more complex systems of bribery designed to integrate into wider business processes and so in theory become more difficult to detect is on the increase and companies must be ever more vigilant in their international dealings, especially in new and unfamiliar markets. Edward Jenkins, a British Lawyer and consultant with London Corporate, an international legal services and risk consultancy, who advises on international corruption issues for foreign entities considering ventures in Brazil and elsewhere, says “the risks have never been higher but detection has also become more challenging”. This has as much to do with the labyrinthine complexity of local regulations and bureaucracy as it has to do with cultural norms, in particular in markets where bribery is pretty well an accepted fact of life. The issues of bureaucracy and opaque regulation are likely to be more challenging than other more obvious bribery demands and in this respect Edward Jenkins says “It is important to invest time and resource in setting up appropriate systems and protocols, even if the costs may initially seem disproportionate to the potential financial return”.
In Brazil and other countries, foreign companies have often been obliged to pay so-called “grease” or facilitation payments to speed up regulatory processes or fund payments via third-party consultants simply to compete with local players. As Edward Jenkins again puts it “it is essential for companies to put in place clear and auditable protocols that can be checked at all times, especially if there are more limited local operations which could be many thousands of miles away from a company’s headquarters”. It is also all too easy to engage third party consultants who of course can provide invaluable insights into a new market, but then stand the risk of drawing companies into making payments that could constitute bribery. The risks may seem obvious, but perhaps they are not so clear? How else can one explain the roll call of some the world’s largest corporations who have allegedly been caught up in the Petrobras affair such as Rolls-Royce and the Netherlands’ based SBM Offshore who have been accused of paying bribes to win contracts with Petrobras. Singapore’s Keppel and Sembcorp Marine have also been accused of participating in the ‘bribes-for-contracts’ scheme at Petrobras’s drilling provider Sete Brasil. Rolls-Royce has said it will take the necessary action to ensure compliance and SBM Offshore is co-operating with the investigation, but both Keppel and Sembcorp denied participating in such a scheme.
As emerging markets around the world improve in terms of governance and transparency, it makes very real sense to avoid thinking about cultural stereotypes when doing business in these new markets and as Edward Jenkins puts it “The advice I give to foreign companies is to play by your home rules or you’re going to get your fingers very badly burnt”. Also as pointed out by Edward Jenkins, the implications of this extend into the investment required for compliance, which quite simply cannot be at the same percentage of turnover that might apply to more transparent and open home markets. The hard reality is that the investment probably will be disproportionate to the gross revenue returns in the early days, but for companies willing and able to take a long view, the risks of reputational and financial damage due to penalties will be significantly reduced. Especially where public companies are concerned, perhaps shareholders also have a role to play in accepting the risk of more distant returns on investment where emerging markets are concerned.
This article builds on comments made by Edward Jenkins QC for an article which first appeared in The Financial Times on the 17th April 2015 where he was invited to comment on some of the issues raised by the Petrobras bribery investigation currently taking place.
If you would like to discuss some of the issues raised by this article in more detail or you would like to hear more about London Corporate’s consultancy services for governance and anti-bribery compliance, please contact Mark Bevan on 0207 017 2143 email – firstname.lastname@example.org or Paul Townsend on 0207 017 2341 email – email@example.com