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

In this episode, Jay Rosen reports live from the ABA White Collar Conference at the Fontainebleau Hotel in Miami.  In addition to providing his insights on the highlights of the conference and the buzz around the new Justice Department Evaluation of Corporate Compliance Programs document released in February, we discuss:

  1. Adam Davidson’s piece in the New Yorker Magazine entitled, “Donald Trump’s Worst Dealwhich looks at a Trump organization transaction in Azerbaijan which raises both FCPA and sanctions issues.
  2. The newly revamped Justice Department’s Fraud Section’s website.
  3. Highlight the rollout of the International Association of Independent Certified Monitors’ (IAICM) new website.
  4. Review the week’s FCPA related issues.
  5. Take a deep dive into the blockbuster trade announced between the Houston Texans and Cleveland Browns where the Texans sent their starting QB and a second round pick to the Browns for a fourth round pick in return (who says Texans are not great horse-traders!)
  6. Jay previews his weekend report.
  7. Tom reports on a talk about 3rd party ROI at the upcoming Third-Party Risk Management & Oversight Summit, on March 20 & 21 at the Princeton Club in New York City. Listeners to this podcast will receive a 15% discount off of the regular price of the event. To take advantage of this offer enter the Code CMP 161. For more information on the event, check out the website by clicking here.

Jay Rosen new contact information:

Jay Rosen, CCEP

Vice President, Business Development

Monitoring Specialist

Affiliated Monitors, Inc.

Mobile (310) 729-6746

Toll Free (866)-201-0903

JRosen@affiliatedmonitors.com

In this episode, I visit with New Yorker reporter Adam Davidson, who penned an article in the New Yorker which looked at a hotel deal between the Trump organization and a family of Politically Exposed Persons (PEPs) in Azerbaijan. Davidson talks about what intrigued him about the story, his reporting and most troubling, the PEPs alleged ties to funding from the Iranian Revolutionary Guard. It is a cautionary tale about major construction project in countries with a high perception of corruption, the need to understand who your business partners are and the source of their funding. The article is Donald Trump’s Worst Deal.  

Jay Rosen and I dedicate the entire episode to the FUBAR surrounding the Oscar ceremony where the Best Picture award was given to the wrong picture. We consider the control failures around the incident, look at it from a compliance program perspective, consider the failures in light of the new Justice Department Evaluation of Corporate Compliance Programs and conclude with the lessons to be learned for the compliance practitioner from the entire fiasco.

For some additional reading see, Jay’s piece on Linkedin, “David vs. Goliath; Ethics & Compliance Lessons to be Learned from the Oscars” and Matt Kelly look at the control failures and other issues in his blog post on Radical Compliance, “And the Oscar for Control Failures Goes to…”

 

Jay Rosen new contact information:

Jay Rosen, CCEP

Vice President, Business Development

Monitoring Specialist

Affiliated Monitors, Inc.

Mobile (310) 729-6746

Toll Free (866)-201-0903

JRosen@affiliatedmonitors.com

Ned Garver died earlier this week. Not a familiar name to you? It may be due to the fact he is the only pitcher in the modern era to win 20 games pitching for a team which lost over 100 games in a season; a feat which he accomplished in 1951 pitching for the worse than hapless St. Louis Browns. How dominating was his performance? The next highest number of wins on the pitching staff was 6. He came in second to Yogi Berra for the American League’s (AL’s) Most Valuable Player (MVP) Award for the season. How bad were the Browns? Garver once said, “The crowd didn’t dare boo us. The players had them outnumbered.”

According to his obituary in the New York Times (NYT), “Garver, a right-hander who was just 5 feet 10 and 180 pounds, thrived with sinkers and sliders while changing speeds and taking advantage of hitters’ strengths and weaknesses. He pitched for 14 seasons in the A.L. and won 129 games. He lost 157 times, but never pitched for a first-division team. Satchel Paige, a Browns teammate of Garver’s, recalled in his 1962 memoir, “Maybe I’ll Pitch Forever,” written with David Lipman. “Even with that slow stuff of his, he did right well all along, just using his head.””

One event which promises to be most excellent is the upcoming Third-Party Risk Management & Oversight Summit, on March 20 & 21 at the Princeton Club in New York City. I will be attending and speaking at the event and I hope that you can join me. I have had the opportunity to do podcasts with the Event Chair, Melissa Evans, Lead, Quality Systems – Supply Chain Management, Royal Caribbean Cruises (Episode 307) and Forrest Deegan, the Chief Ethics and Compliance Officer for Abercrombie & Fitch (A&F) (Episode 311).

Melissa discussed the nature of this year’s event and discussed her experience from last year that led her to Chair this year’s Summit. She detailed her role as Lead, Quality Systems – Supply Chain Management, and provided some of the highlights of the conference. She discussed the audience the conference would benefit. Forrest detailed how to perform an return on investment (ROI) analysis of a third-party program for both the sales and supply chain side of things, drawing from his experience at A&F. He related some of the costs for getting it wrong in the short-term, along with smart money investments and cost-cutting ideas and then provided some insight into the cost-benefit analysis on A&F third-party programs.

There is going to be a good mix of corporate compliance practitioners, in-house legal eagles, outside counsel and government regulators, including the always informative Kara N. Brockmeyer, Chief, FCPA Unit, Division of Enforcement, US Securities and Exchange Commission (SEC), who will relate SEC expectations around third-party risk management. With the recent release of the Department of Justice’s (DOJ’s) Evaluation of Corporate Compliance Programs (Evaluation), it will be interesting to hear the SEC take on the document.

Other highlights include Stephanie Meltzer, Vice President, Assistant General Counsel, Chief Compliance Counsel, Pfizer Innovative Health, Compliance Division Pfizer Inc. and Cynthia Roller, Americas Trade Compliance Manager Caterpillar Inc., on the topic of “Conducting Risk Assessments for Different Third Parties: Agents, Vendors, JVs, Suppliers”. They plan to discuss the following topics: evaluating typical and relevant risk factors quantitatively and qualitatively, conducting risk assessment interviews and questionnaires, how to evaluate relationships and connects, how to customize your view based on the relationship, the best use of background and reputation checks and understanding special risks when dealing with family-owned business.

Paul Wear, Director, Channel & Business Compliance – Internal Audit, NetApp, Inc., and Janice Avery, CPA, FCPA, CFF, CHCC, Global FCPA Manager, Arthrex Inc., will lead a discussion on how to best conduct an effective third-party audit. Highlights include where to begin as there is no ‘one size fits all’ approach, how to align your audit to the risks you are addressing, a framework to help you assess what you should be testing, exploring the value for the partner, vendor, or supplier being reviewed to enhance your business relationship and finally reporting the results of your audit.

For the more legal minded among you, James Davis, Counsel American Express, Iskah C. Singh, Director, Global Anti-Corruption, Xylem Inc., and Lindsey Wilson, Corporate Counsel, will lead a panel which focuses on critical compliance terms and conditions which you should include in your third-party agreements. They will speak to the clauses that are a must have, nice to have and one you can negotiate away. They will explain how such legal clauses can help to set firm and unwavering standards and values you insist your vendors follow. Bookending this panel will be one which discusses your termination option for when it all goes wrong and you need to exit from a contractual relationship.

A most interesting panel consisting of James J. Gibson, Global Compliance Counsel, The Coca-Cola Co., Diana M. Jagiella, Vice President, Chief Compliance Officer, The Mosaic Company, and Paul Sullivan, Vice President, International Business Development, Acrow Corporation of America, will lead a discussion of Anti-Corruption Landmines: Risks When Dealing With Third Parties Outside the United States. They plan to discuss the latest Foreign Corrupt Practices Act (FCPA) trends and updates, identifying not-so-obvious bribes and corruption to stay ahead of the game, identify potential government relationships (that may not seem obvious), how anything of value really does mean anything and lay out the specific risks in certain regions of the world (e.g. Chinese agents that are also foreign officials).

As you can see from this detailed discussion it will be a most excellent event and if you are in NYC or somewhere close I hope you can join the event. I will be speaking on the ROI of third-party panel with Forrest Deegan and I have already communicated to him just how much I expect to learn from him.

The best part of having read this blog is you, as a reader of this blog, will receive a 15% discount off of the regular price of the event. To take advantage of this offer enter the Code CMP 161. For more information on the event, check out the website by clicking here.

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