FCPA Compliance and Ethics Blog

October 23, 2014

Hammer Films’ Frankenstein and the Monster of Corruption in Brazil

Filed under: Best Practices,Corruption in Brazil,Frankenstein,Hammer Films — tfoxlaw @ 7:37 pm

Peter Cushing as Dr. FrankensteinToday we celebrate the initial two Hammer Films Frankenstein entries into the horror pantheon. These classic films, from the 1950s, were the The Curse of Frankenstein and The Revenge of Frankenstein. In both films Peter Cushing played the monster’s creator, Dr. Frankenstein. In the first film Christopher Lee played the monster and Michael Gwynn was cast in the role for the second movie, but he was in a purely human form, not the disfigured creature that Lee played. In both films, Cushing played the Baron as inherently evil, dismembering medical patients and even murdering people to obtain body parts for his experiments. The Baron did not have the internal conflict that E.E. Clive brought to the role in the Universal classics Frankenstein and Bride of Frankenstein. Further, neither Lee nor Gwynn brought the pathos to the role of the monster that Boris Karloff was able to imbue into the character. Notwithstanding these criticisms, I hardily recommend both films for your October FrightFest viewing pleasure.

I thought about the nefariousness that Cushing brought to the role of Dr. Frankenstein when I read a recent article about the ongoing bribery and corruption scandal in Brazil and how it may affect the country’s Presidential election. These issues were explored in a piece in the New York Times (NYT), entitled “Scandal Over Brazilian Oil Company Adds Turmoil to the Presidential Race”, by Simon Romero. In the article, Romero details the bribery scandal involving a former official of Petrobras, the Brazilian national oil company, named Paulo Roberto Costa. Mr. Costa was the person who oversaw the company’s refining operations. He has admitted to having engaged in the receipt of bribes for at least a 10 year period “equivalent to 3 percent of the value of the deals from the Brazilian construction companies that obtained the contracts” to build refineries. This amounted to literally millions being “stashed in bank accounts in Switzerland and the Cayman Islands.”

Costa who “was first arrested in March as part of a money laundering investigation by the federal police, has already agreed to surrender the $25 million fortune he hid in offshore accounts, his yacht and his luxury car, in addition to paying a fine of more than $2 million.” He “inflated budgets for new projects” by 3% and then had that amount kicked back to him as bribes. Costa’s allegations were “corroborated Mr. Costa’s claims through an associate, Alberto Youssef, a black-market money dealer who testified that he helped launder funds in the scheme. Mr. Youssef, who has also accepted a plea deal, testified that more than a dozen of Brazil’s largest construction companies had paid hefty bribes to obtain lucrative Petrobras contracts.”

The political angle comes from the following allegation by Costa, “He testified that a portion of the money was then handed to João Vaccari Neto, the treasurer of the Workers Party. Mr. Costa said that other top political allies of President Rousseff, including the leaders of both houses of Congress, Henrique Eduardo Alves and Renan Calheiros, also benefited from the kickbacks, according to a report by Veja, a Brazilian magazine.” Interestingly President Rousseff “has also effectively acknowledged the prevalence of corruption inside the executive suites of Petrobras, while denying that she had known about the kickbacks when they were taking place.” She was quoted for the following, ““If anything happened, and everything indicates that it did, I can guarantee that all of the bleeding that eventually may have existed has been stanched,” Ms. Rousseff told the newspaper O Estado de S. Paulo in an interview.” She also went in the other direction, as “She has railed against the public disclosures of his testimony, calling them the equivalent of a “coup” aimed at thwarting her re-election bid. The judge in the case, Sergio Moro, has responded by saying that the law requires that evidence in the case be made public.”

The scandal has the potential to be devastating to the country. Romero said, “If their testimony is proven true, the oil scandal would dwarf previous corruption cases in Brazil, including a vote-buying scheme that resulted in the imprisonment of senior figures from the Workers Party in 2013. Their convictions and punishment were viewed as a precedent-setting shift in a political culture in which impunity has long prevailed.” Moreover, “the scandal has hurt the campaign of Ms. Rousseff, who has overseen Petrobras for more than a decade. As a cabinet minister and protégé of Brazil’s former president Luiz Inácio Lula da Silva, she was chairwoman of the board at Petrobras during the period when Mr. Costa said he assembled the bribery scheme within the company. She no longer sits on the board at Petrobras, but chooses its top executives.”

There are several lessons learned for the compliance practitioner. The first is the mechanism for funding the bribery scheme via overcharging. This requires vigilance and oversight from the corporate office by persons who understand the bidding process and the costs involved in any project. Another internal control should relate to the ability to pay rebates for overcharges. Yet another consideration demonstrated is that sometimes your customer can get you into corruption hot water under such laws as the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act. Now that the scandal has become so public, companies doing business with Petrobras are on notice of potential issues. Not only should they consider them when doing business with Petrobras but also companies need to review and possibly revisit their internal controls over these issues.

Unfortunately, the corruption issue may prove more endemic for Brazil and Petrobras. Near the end of his piece Romero quotes Sérgio Lazzarini, an economist at Insper, a São Paulo business school, who has written widely on Brazil’s state capitalism. Lazzarini noted, “It’s Corruption 101: You get control of a state enterprise and then channel resources from it to the parties in your coalition,” and “The situation is endemic, unlikely to change regardless of which president is in power.” Like the evil of Dr. Frankenstein in the Hammer Films, that may be the most lasting commentary on the scandal.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

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