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Contributing Editor

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Tom Fox: For Odebrecht, the cost of bribery is still climbing

There is often discussion of the costs of bribery and corruption. Yet one question not often considered is the state of company after it goes through a corruption enforcement action.

The name Odebrecht is well known in the anti-bribery/anti-corruption world for having the world’s second largest corruption fine ($2.7 billion) in the United States, Brazil and Switzerland. The breadth and scope of the company’s bribery scheme was literally up and down the continent of South American, through Central America and into North America.

Now the test is whether the company can remain a viable business concern, given the costs involved and its uncertain status regarding debarments from countries from Brazil to Mexico and several in between. 

On Wednesday of this week, the company’s construction division faced a bond payment of $144 million. Reuters reported the company was not able to make this payment. It is a clear sign the company is not generating enough cash to service its debts.

This technical default could lead to an acceleration of other debt payments and start a spiral which could force not only the construction division but the parent company into bankruptcy. The company has responded that it intends to make the payment during the 30-day grace period and is simply working out details of a bank loan to do so.

Odebrecht faces bans and debarments across three continents. Even if it could do business in many of those countries, the taint of corruption is still on the company and many politicians and civil servants will literally run the other way from an Odebrecht bid.

The company is trying to sell assets and other divisions to raise cash but it finds itself only receiving fire sale price offers, as it does not take too great a lens to see where the company is heading.

Even if a willing buyer is found, the problem is the same as garnering new contracts; the residual risk of corruption is so great that a purchase becomes too risky.

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Tom Fox is the Compliance Evangelist™. He leads the social media discussion on compliance with his award-winning blog, The FCPA Compliance and Ethics Blog and eight podcasts; The FCPA Compliance Report, Compliance into the Weeds, Everything Compliance, This Week in FCPA, 12 O’clock High-a Podcast on Business Leadership, Compliance Report-International Edition, Countdown to GDPR and Across the Board. 

He’s the author of 12 books on compliance, ethics and leadership, including the international best-selling “Lessons Learned on Compliance and Ethics” and “Best Practices Under the FCPA and Bribery Act” and his series Fox on Compliance. His book “The Complete Compliance Handbook” will be published by Compliance Week in April 2018. It is available for PreSale by clicking here.

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2 Comments

  1. Unfortunately, in certain cases, paying bribes was viewed as a necessary part of doing business with public companies and several largest private companies gained improper advantage on it.

    If we compare with the conditions of “The Fraud Pentagon” (1.Rationalization/Attitude, 2.Opportunity, 3.Incentive/Pressure, 4.Ability and 5.Risk Disposition), two of them can be highlighted:

    1.Rationalization (Moral Perception) – absence of a compliance culture (inadequate tone at the top – private and public positions- setting the wrong and unethical examples, spreading like an infection, undermining corporate compliance programs, fueling inefficiency and incalculated distrust of government).
    4. Ability/Capacity of the fraudsters (individuals in high public and private management positions) to operate in complex public bidding processes, as well as, to think, if were detected in a fraudulent situation, they will be easily free (no guilty), impunity feeling.

    As a Brazilian Citizen, I hope, in a near future, the Lavo Jato Operation, as one of local initiatives, can bring a better Compliance environment, prevailing a culture of integrity in the market place.

    SILVIO SOUZA, CIA,CRMA

  2. Dear Mr. Thomas Fox, congratulations for the article. Actually, a sensitive issue for all companies and management. As mentioned by Mr. Silvio Souza, the "tone at the top" is critical in order to establish a culture of compliance and ethics. How can we do it if the recruitment routines have not taken into consideration these aspects in relation to technical skills in a proper manner ? Culture is about values …from the "top" mainly. There, it is the leaders´s example ! Vlamir Ramos CEO, CFO


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