By Andrew Watson, Senior Consultant- Latin America
The Lava Jato operation in Brazil began with the investigation of a single gas station making illicit money transfers. Now, its long tail has made its way to the upper echelon of business and political institutions across Latin America, promising to ensnare many in the country’s elite.
This week testimony revealed that Odebrecht, the Brazilian infrastructure construction giant, had paid at least $3.3 billion in bribes over the last nine years. Besides implicating some of the country’s own top politicians (Lula, Dilma, Aécio, just to name a few), the company also admitted to peddling influence in neighboring countries, which has cast a long shadow over the region.
Odebrecht officials testified that the company had contributed millions of dollars to presidential campaigns in Peru and El Salvador. As a remedy, the Peruvian government is formally investigating its former president and has since banned Odebrecht from government contracts. Further to this, the former CEO of PEMEX, Emilio Lozoya Austin, was just named in court documents as a benefactor of bribes, and Mexican authorities will likely push ahead with a formal investigation.
Who will guard the guards?
The claims of corruption seem to be a rampant theme throughout Latin America; however, its full extent has always been a muddy subject, hard to quantify, and often isolated to individual countries and specific cases. The Lava Jato investigation has changed this. A culture of corruption has been exposed. Clearly, some of those in power (both private and public) have been complicit.
And so the question begs, who will remedy this problem and how? Already, we’ve seen different reactions from foreign governments (Brazil and Peru being aggressive while Mexico still lags). Can the same public institutions accused of corruption be trusted to self-remedy? Quis custodiet ipsos custodes?
Swift Action through talent
Multinational companies in the energy/infrastructure sector with operations in Latin America are already taking swift action to mitigate potential compliance risks. We have seen a strong increase in hiring across the corporate functions area—specifically in controlling, legal, and compliance – but also in senior commercial leadership roles. Ideally, these professionals have cycled through Western European and North American companies where stricter compliance cultures and procedures are in place. Much of this talent pool has left the region (and even the sector) during this commodity cycle’s trough, often requiring a global search (and firm) to tackle the project. Certainly, for such hires to be successful the entire leadership needs to be fully committed to the change.
It’s worth noting that these positions have historically been important. But in light of these corruption scandals, both U.S. and European companies (with exposure to Latin America) have significantly invested in hiring top professionals from this field as an extra security measure. We will continue seeing more of these hires even after Lava Jato’s long tail has uncovered the rest of the corruption.