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The Auditor and Tupi Business Culture | Recent Surveys (CartaCapital)

Malaysian Navy's French-Spanish Scorpene Submarine. Brazil plans nuclear version by 2018

Malaysian Navy’s French-Spanish Scorpene Submarine. Brazil plans nuclear version by 2018

Topic: The private sector moves against corruption

Source: CartaCapital.

By: Samantha Maia

The perception of Brazil as a country where corruption is a problem exclusive to the public sector has been challenged recently by the recent twists and turns of Operation Car Wash and its focus on crimes committed by private-sector construction companies.  The change in perspective is occurring just as the new Anticorruption Law goes into effect, providing for severe punishments to companies caught engaging in illegal behavior —  a fine of 20% of gross earning, a prohibition on taking part in public tenders for five years, and a veto on funding by public banks, as well as imprisonment of executives. Consultants point to major concern about Brazilian companies, given the consequences of corruption for business, and the fragility of its current compliance structures.

According to a study by global business risk consultancy Control Risks, conducted in July of this year, 54% of Brazilian companies say they intend to increase their investment in combating bribery and corruption, and are forming committees, in their board of directors or independently, and establishing internal controls based on laws and regulations, all focused on this task. Worldwide, on average, 38% of companies plan to increase these investments and 47.5% have assigned top-level executives to focus on the battle against corruption. The survey interviewed 638 executives, 46 of them active in Brazil.

According to the survey, 48% of the Brazilians interviewed conduct risk analysis related to the reputation of new business partners, a number below the international average of 58%. The use of “bribeless” clauses in contracts with third parties was cited by 59% of Brazilians surveyed, compared to a worldwide average of 64%.

Insufficient progress in risk management is a problem pointed out in a recent study by Deloitte. Of the 124 Brazilian companies surveyed, 35% have no formal anti-corruption policy, and 40% have no one assigned to the task. The annual investment in compliance is less than R$ 1 million in 76% of the companies, a sum considered inadequate in light of the fact that 40% of the companies gross more than R$ 1 billion. Under-budgeted, anti-corruption training is not offered by 48%, while 42% say that they do not investigate information on third parties or partners that perform services in the name of the company. The same goes for suppliers and employees.

The companies seem aware of the difficulty of the challenge. Of all the companies surveyed, 55% have faced corruption charges and 57% acknowledge a higher cost of doing business in Brazil.  In the face of this problem, the companies say they intend to improve risk management. For 94%, it is desirable to involve the compliance department more proactively when entering a new market or realizing an M&A deal. In 64% of firms surveyed, this does not happen.

The presence of corporate corruption is pointed to by a survey conducted by the consultancy EY this year.  Of 70% of Brazilian executives interviewed, practices such a payment of bribes are widespread in the business sector. In the global media, that perception is held by 39%. 2,700 executives from 59 countries were heard from. Despite the numbers on the prevalence of bribes, only 12% admit suffering an attempted bribe.

For KPMG, the new Anticorruption Law is influencing the behavior of the companies. One of its effects has been the increase, since last year, of the number of auditing committees, up from 95 to 130. Companies with financial committes have risen from 50 to 56, while companies with risk management have grown from 37 to 45, all in support of the board of directors of listed companies. According to a survey of 235 companies, the annual payment to the auditors of its books has risen, on average.

Auditing is a field in which Brazil needs to invest more, according to the Institute of Independent Auditors of Brazil (IBRACON), Eduardo Pocetti. “The Brazilian market still lacks a culture of auditing. Auditors are hired only by the companies that are obliged to do so, such as listed companies or very large business groups.”  The justice system has closed in on corruption and the risk of being held accountable worries the sector.  “You must not confuse the auditor with the administrator,” says Pocetti.

I remember the day Arthur Andersen, embroiled in the Enron debacle, went down. I was working freelance at another giant consulting and auditing firm, on 6th Avenue. The e-mails coming out of the company were heart-breaking.

I later managed to negotiate a feature story on the innocents of Enron — technical VPs who sincerely believed in what they were doing and wound up with a terrible blemish on their CVs. I never completed the story, however. I was too busy freelancing like everyone else, scrambling to make ends meet as the Wall (Street) came tumbling down.

India, France and the Scorpene Submarines

According to the Telegraph of India, a no-bribery clause has been used for the first time in a military procurement contract — a procurement  for a project for which Brazil has also contracted.

New Delhi, Oct. 6: India today signed a $ 3.5-billion contract for six Scorpene submarines from France with a no-bribery clause that has been included in an international military acquisition agreement for the first time.

The agreement to acquire the Scorpene submarines “which includes five separate contracts” was announced during Prime Minister Manmohan Singh’s visit to Paris last month.

This is the first big-ticket military acquisition contracted by the UPA government and has been signed even as Thales, one of the partners of Scorpene-maker Armaris, is under a cloud after allegations from a former executive that it holds a “slush fund.”

But the Indian Navy, which has been projecting its desperate need for the Scorpene submarines and is clearly thankful after more than a decade of negotiations, believes that the allegations against Thales should not cast a cloud on the contracts.

“There are integrity pacts built into the contracts,” the chief of naval staff, Admiral Arun Prakash, said here just after the signing ceremony. “Also, as far as we are concerned, we are dealing with Armaris (DCMS) and MBDA and no one else”.

The fate of contractors “too strategic to be arrested” resembles the Brazilian case to a degree, do you think? The Thales case, which erupted in 2005, ended with the 2008 acquittal of the defendant, which keeps itself busy turning out yellow submarines for the Indian military.

Transparency International published examples of anti-corruption clauses in cooperation agreements in March 2010.

Brazil and the Scorpene

Wikipedia — In 2009, Brazil purchased four enlarged Scorpènes for US$9.9 billion with a technology transfer agreement and a second agreement to develop a French/Brazilian nuclear-powered submarine. The hull of the first S-BR (S35) was laid down at Cherbourg on 27 May 2010 and is to be jumboized at Brazilian Navy Shipyard in Sepetiba in late 2012.[1] The latter three submarines will be entirely built there and are planned to be commissioned in 2018, 2020, and 2021. The nuclear-powered submarine could be a variant of the Scorpène class (which would make it similar in concept to the Rubis-class submarine) or one of the more powerful Barracuda class.