The stench of corruption continues to bedevil Brazil, even as the clean-up initiated with Operation Car Wash is ongoing. This time, allegations of bribery and corruption have reached one of Brazil’s most prestigious exports, its beef. Two of Brazil’s biggest beef producers are mired in a scandal where they are alleged to have paid bribes to meat inspectors who would sign off on health certificates for beef export.

A Financial Times article by Joe Leahy, entitled “Meat scandal intensifies the corporate stink in Brazil”, states the scandal began “When Flavio Evers Cassou, an employee of the world’s biggest meatpacker, JBS, dropped off a large cooler of meat at a friend’s home last year in southern Brazil, he could not have foreseen the crisis of confidence it would cause in the industry and the country’s wider corporate sector. The friend in question happened to be Maria do Rocio Nascimento, the chief inspector of products of animal origin in Paraná. And the meat, delivered together with some cash, was allegedly a bribe for signing off on health certificates for JBS products, according to a court order detailing the deal. Unbeknown to the pair, federal police officers were secretly filming the drop-off and wiretapping conversations between them and scores of other suspects.”

In addition to obtaining fraudulent health certificates for tainted food, “it is alleged that the officials turned a blind eye while lesser known producers converted putrefied meat into mortadella or illegally ground pig heads into sausages. China, Hong Kong, Japan, the EU, Canada, Egypt and Chile have announced full or partial suspensions of imports of Brazilian meat as a result.” Further, similar allegations have been brought against Brazil’s largest poultry exporter BRF. Both companies say they are cooperating with prosecutors but “vehemently denied the more extravagant allegations, such as that they sold rotten meat or products infected with salmonella bacteria.”

Meat and poultry exports make up almost 1% of the country’s GNP, with an amount of approximately $12.6bn.  Arnaldo Francisco Cardoso, professor of foreign commerce at Mackenzie Presbyterian University in São Paulo, was quoted in the piece, “The cases show very clearly the promiscuous relations between the private sector, public sector employees and the state.” After the Petrobras investigation and the Odebrecht prosecutions, one might think businesses in Brazil would wake up to the new reality that the old way of doing business is long since passed.

This large national industry is now under intense scrutiny for these and other actions. In addition to the above allegations, in “one conversation secretly taped by police, two owners at a smaller meatpacker allegedly discuss illegally putting 2,000 kilogrammes of pigs’ heads into sausage mix.

“It’s prohibited to use meat from the head in sausage,” acknowledged one. “Yes, but it would be only 2,000 kilos to complete the cargo,” said the other, according to the court order. The same company, Peccin, was also alleged to have covered up the smell of rotten meat by adding excess amounts of acid, the court order alleges. Peccin has denied wrongdoing.”

All of these claims have led to taint the entire industry. One commentator, Sérgio de Zen, a researcher into the cattle industry at Brazil’s center of advanced studies in applied economics, said “This issue needs to be resolved fast. China, for example, is a huge importer of Brazilian beef. We cannot replace such a market overnight.” Yet, Leahy noted, “The reputational damage to the industry will linger. Brazilian social media was rife with jokes parodying the scandal, with pictures of toilet rolls being prepared for a barbecue in reference to a police comment that cardboard had made its way into processed meat — a point later disputed by agriculture ministry officials.”

As if all of the above were not bad enough, the poultry exporter BRF, although located in Brazil, has American Depositary Receipts (ADRs) listed in New York. This makes the company subject to the Foreign Corrupt Practices Act (FCPA). While the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) might be willing to allow Brazilian prosecutors to take the lead in this matter, one might well assume that if tainted meat or poultry products or even those products which did not receive the legally required examinations, US regulators would come down very hard on such companies.

These scandals also point toward the need for more robust compliance. Brazilian businesses are beginning to see the advantage of actually doing compliance. Rogerio Jelmayer and Samantha Pearson, reporting in a Wall Street Journal (WSJ) article entitled “Brazil Corruption Scandal Has Companies Rushing to Bulk Up Compliance Ranks”, noted that companies in Brazil are taking this approach in response to the country’s more aggressive enforcement against endemic corruption in commercial businesses. This is partly in response to the allegations and investigations brought forward by Operation Car Wash and the attendant Odebrecht anti-corruption enforcement action. Jorge Abrahão, president of Brazil’s Ethos Institute, a corporate social responsibility organization, said “We are witnessing a big change in Brazil—there is an understanding in society now that whoever doesn’t take the issues of corruption and transparency seriously will not have a place in the market in the future.”

There has been a large rise in the hiring of corporate compliance specialists, Chief Compliance Officers (CCO’s) and the creation of corporate compliance programs. Moreover, companies are now requiring those entities that wish to do business with and through them must have functioning compliance programs. Luís Fernando Martins, of Hays Brasil, “said the recruitment firm saw a rise of around 20-25% in demand for compliance professionals since last year.” Foreign companies operating in Brazil have also started taking compliance issues more seriously after these events and in response to Brazilian companies demand for greater compliance.

Yet the Brazilian meat packing industry does not seem to understand the new paradigm. Leahy ended his piece with the following, “Mr Cassou, the employee of JBS’ Seara, captured the mood in a post on his Facebook page before his arrest. He noted that “ethics is what you do when the whole world is watching. What you do when no one is looking is what is called character”. By his own measure, he and at least part of the industry have a lot of character building to do.”

 

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, 2017

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