Saturday, May 28, 2011

C is for Corruption

Let us hope he showered
Transparency International publishes an annual corruption perceptions index, where "the degree to which corruption is perceived to exist among public officials and politicians" ( is measured. A non-corrupt country gets a 10, a corrupt country gets 1. In 2010, ranked first in the list is Denmark with a 9.3. Last on the list is Somalia with 1.1. Brazil is 69th, between Romania and Bulgaria, at a 3.7... improved from 4.0 since 2002.

Alot has changed, especially in the private sector, with more multinationals coming into the country, bringing higher compliance standards in and with Brazilian companies also adapting, often because of compliance codes, but also because of better fiscal controls, such as with the electronic centralized invoicing system nfe: nota fiscal eletronica.

In politics, corruption still is a major issue, such in the Escândalo do Mensalão no Distrito Federal, where the then governor of Brasília José Roberto Arruda was accused of (and subsequently arrested for) siphoning off on significant sums of governmental funds to companies and political companions. What made this case spectacular is that Arruda filmed several of these money hand-overs (as depicted above) - but it is not singular.

But also in the private sector, corruption is still a problem. Having been in Brazil for a few years now and never having lost contact between the early 90s and now, when I was out of the country, I have several accounts of corruption cases which have not made it into the media (yet), which I will post in the next few weeks.

But let us start with a juicy one - to protect those involved, I have anonymized each case:

The Paper Company

A major paper company wanted to install a new factory in one of the poorest states in the Northeast of Brazil. Because the company wanted to have the local political buy-in, they decided to meet with the governor to discuss the licensing and subsequent construction - for this, the president of the company flew in. In the first meeting, the governor clearly stated that no license would be emited unless an upfront payment would be made. This upfront payment was to be a deposit into a personal account of the governor and the value was a significant 6-digit value. Infuriated, the paper company president left the governor's palace and instructed to shutdown all non-crucial activity in the state immediately. The new factory will be built a few kilometers down the road... in the state next door.

1 comment:

  1. Neven,

    I totally agree with you, Brazil has improved a lot regarding corruption, it still has a good way to go.
    I found your perception interesting, you are under the impression that more foreigner companies would bring more "strict" or "higher" standards regarding compliance, I feel the exact opposite.
    I have worked in Banking and compliance with the financial services for 19 years now and always noticed much higher compliance standards in Brazilian companies, for the exact reason of the culture of corruption in Brazil, companies are much more regulated and have always have higher standards of compliance in general.
    When the events of September the 11th forced a wave of radical changes in the American financial services world, ( hence the Patriot Act ), Brazilian banks and financial services companies had absolutely nothing or very little changes to make, because they already had very tight checks and balances in place.
    My experience is that "corruption" is very relative, principally when you are talking about Brazil and the US. Many practices that are considered "corruption" in Brazil are perfectly legal and common places in the US.
    Lobbying for example, is practically illegal in Brazil, with very feel exceptions, and it is common place in the US.
    Powerful industries in the US that have money to PAY politicians to vote in favor of their businesses, do so, and it is perfectly legal. K street in Washington DC is a LOBBY firms meca, it is where the American Congress is defined.
    In Brazil, it is a scandal for a company to give money to a certain politician to "force" him to vote in favor of a certain project that benefits that company directly, in the US, it is perfectly legal, it still doesn't mean it is moral or even ethical, but it is done all the time and it is not considered corruption.
    Long story short, in the US, if something is illegal, they pass a law to make it legal, end of story, no longer considered corruption.
    American politicians still approve huge salary increases for themselves, they still have a shamefully fancy health care benefits, and so forth and so on...we could frankly write a book about it.
    The good news is that Brazil is improving, most people get mad when they see political corruption scandals on TV, I get glad, because it means they are getting caught.
    When you don't hear anything on the media, it only means they are getting away with it. ;)