Odebrecht’s new chief compliance officer takes steps to leave bribery scandal behind
07 May 2018 8:41 pm
As it enters the second year of an unprecedented anticorruption monitoring program agreed upon with the US Department of Justice and Brazilian Federal Prosecutors’ Office, Brazilian conglomerate Odebrecht continues to take action to leave its bribery scandal behind, with its chief compliance officer working to put the company's house in order.
April was the two-year anniversary of the appointment of Chief Compliance Officer Olga Pontes, and May marked the end of the first year of the unusual dual monitorship implemented under the terms of the $3.5 billion global settlement that Odebrecht signed in December 2016 with American, Brazilian and Swiss anticorruption authorities.
In the settlement, the company accepted an unusual arrangement that will put it under the observation of two monitors: American lawyer Charles Duross for the US Department of Justice, and Otavio Yazbek, a former director of Brazil's Securities and Exchange Commission.
Ensnared in the huge Lava Jato corruption investigation, which involves bribes paid by companies to do business with Brazilian state-controlled energy company Petrobras, Odebrecht still faces skepticism from lenders, and from governments and private firms that would contract with the company for infrastructure work. Since signing the global settlement, however, the company has ramped up its compliance and governance, acknowledging that there is no alternative if it wants to survive.
This month, Odebrecht is also going to nominate a new chairperson to its board of directors, and from now on members of the Odebrecht family will no longer be eligible for that position.
The appointment of the new chairman, months before that was required by the settlement, is a gesture of good faith. Under the terms of current Chairman Emilio Odebrecht’s plea deal with Brazilian federal prosecutors, he could have stayed with the company until December, but he chose to step aside before that deadline.
As part of that plea deal, Emilio Odebrecht had to disclose bribes paid by the company and agree to serve a four-year sentence of house arrest with an ankle monitor after his departure from the company.
It has been Pontes' job as chief compliance officer to set the company's house in order. In an exclusive interview with MLex on the 15th floor of the Odebrecht Building in Sao Paulo, Pontes detailed the company's strategy to honor commitments made in its global settlement.
“Our motto here is continuous improvement," said Pontes. "Every best practice we learn of, we try to implement in our group. Compliance is a huge commitment, and must permeate everything we do.”
Pontes joined Odebrecht in 2006 as information security officer for Braskem, the company's petrochemical joint-venture with Petróleo Brasileiro, or Petrobras. She has been Odebrecht’s chief compliance officer since April 2016, when the company was negotiating the settlements.
Pontes acknowledges the company's difficult position with the public. “The facts revealed in our settlement are still a major driver of the news cycle as charges and judicial decisions against politicians and high-level officials continue to come up across the continent, getting huge media attention. But that was the Odebrecht of the past. We’re here to build the Odebrecht of the future,” she said.
The past, however, still haunts Odebrecht. In April, the company missed a $144 million debt payment on offshore bonds because of trouble getting further credit. Odebrecht is holding talks with potential lenders, and hopes it will meet its bond obligation in the next 30 days.
Pontes’ daily tasks include meetings with compliance officers from banks as they perform due diligence before doing business with Odebrecht. “Earlier today, in this very meeting room, I met the [chief compliance officer] of a London-based bank," Pontes said. "By the end of the meeting, he told me he was impressed with our initiatives.”
Words and presentations, though, aren’t enough for external observers and business partners or governmental authorities, so the company, under the terms of the global settlement, accepted the dual monitorship program in which independent monitors appointed by the US Department of Justice and by the Brazilian Federal Prosecutors’ Office will work within Odebrecht for three years to verify the progress made.
For this year, 72.5 million reais ($20.45 million) has been budgeted for compliance departments in the Odebrecht group, which currently has eight business units, including transport, real estate, oil and construction.
In 2015, the last year before the company decided to cooperate with the authorities, the budget was much lower: 11.3 million reais ($3.19 million). The costs associated with the monitorships, paid by Odebrecht, aren’t included in these figures.
“I can’t tell you the figures of other companies. But I can say that, from informal chats with other compliance officers, we know our budget is miles ahead of what Brazilian companies usually allocate to this area. Many of these officers joke with me that they’d love to have my job — and my budget,” Pontes said.
The boost in the budget allows Odebrecht to come up with new ideas on compliance, such as the creation of a global advisory counsel that meets twice a year to assist the board of directors in fostering anticorruption and sustainability ideas. The counsel has national and international members, such as Transparency International Business Advisory Board Chair Jermyn Brooks, Harvard University scholar Lynn Paine, and former International Bank for Reconstruction and Development Vice President Vinod Thomas.
Pontes sees the council as the icing on the cake of the company’s new efforts. More important than innovation is the adoption of compliance and governance standards, Pontes said.
“We’re really pleased with progress so far. If you check the DOJ's 10 hallmarks, we cover the whole ground. If you look at the 17 initiatives recommended by the Brazilian Ministry of Transparency, you’ll see we’re already putting them in place. All of them,” Pontes said.
Odebrecht decided in 2016 that every business unit should have its own board of directors, and the holding company would provide governance, human resources and compliance guidelines for the entire group. At least 20 percent of all boards' members will ultimately be independent directors.
Odebrecht hired executive search firm Russell Reynolds to find the new board members. The candidates will be subject to due diligence checks, in line with a policy that all new hires go through integrity checks to avoid conflicts of interest.
Last December, Odebrecht implemented a 75-year age limit for board members and a maximum of four consecutive two-year terms in office.
With a new governance structure well-defined, Odebrecht began to implement compliance initiatives, such as outsourcing its ethical and compliance hotline.
That move proved fruitful, Pontes said. Since last May, when Odebrecht hired international consulting firm ICTS, the company has opened internal investigations based on 50 percent of the matters reported to the hotline. That figure was 15 percent when Odebrecht managed the hotline.
“Interestingly, we actually received less wrongdoing reports, but were able to open more investigations from those calls," Pontes said. "As the new system allows the whistleblower to talk anonymously and to monitor the status of his complaint, it gives more confidence to those willing to disclose information.”
The ethics hotline is available in Portuguese, English, and Spanish. For Braskem, the petrochemical joint-venture with Petrobras, the service is also offered in German.
The company is also performing a thorough review of its database of suppliers.
Pontes said that from now on, suppliers must undergo due diligence checks before getting approval to contract with the company. Existing suppliers that haven't rendered services for Odebrecht in the last 24 months must prove compliance.
“I can’t emphasize enough how serious our commitment is. Recently, our real estate unit canceled one sale because due diligence on a potential buyer showed concerns with the origins of the money," Pontes said. "From a company that paid bribes to one that rejects a deal for compliance concerns, that’s a major shift.”
Odebrecht’s compliance efforts are evenly distributed across the whole group. Each Odebrecht company now has a separate compliance department led by a chief compliance officer who reports to Pontes. Pontes, in turn, reports directly to the board of directors of the parent company. In her opinion, this design allows quick decision-making and timely implementation of new policies.
Pontes said she is pleased with what her department has achieved so far, but she also acknowledges that the clock is ticking and Odebrecht needs to change quickly.
“All these things we’re doing, it’s not about checking boxes," Pontes said. "We’re concerned with the consequences, the recognition of the best practices in our environment. Having them is important, sure, but recognition is our target. It demands time, though. I believe we’ll be closer to a public recognition of all we’re doing in five years time.”