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widening corruption scandal is swirling around Brazil’s state-run oil giant Petrobras amid allegations that former senior executives, construction companies, and politicians funnelled kickbacks from hefty oil contracts. According to the police, federal prosecutors, and the testimony of former company executives involved in the scheme, Petrobras officials conspired with service companies to overcharge for goods and services. Some of the extra revenue from the inflated contracts was then kicked back to executives and politicians as bribes and campaign contributions. Brazilian authorities said on 29 January 2015 that the kickback scheme involved at least $800 million in bribes and other illegal funds, but the figure could change as the case develops. Several top executives from some of Brazil’s biggest construction and engineering companies remain jailed as the investigation continues. The scandal has dealt Petrobras a heavy financial blow. The company said it would cut its investments in 2015 because of its current financial situation and losses resulting from the corruption case. In an effort to repair its reputation, Petrobras has also hired a compliance officer to head the company’s first compliance programme. Yet, a smart, long-term strategic solution would require the CEO and the board to to proactively lead the anti-corruption effort in a broader, holistic manner, investing in creating a sustainable culture of integrity—with all the right policies, incentives, and performance metrics in place for the long term. Turning the corruption challenge into a reputation opportunity There are many and different opportunities for bribery and corruption in the oil and gas industry, each of them with related reputation consequences. Being prepared for corruption risks means protecting or even enhancing the company’s reputation. First, the central role of government agencies in overseeing virtually all aspects of the oil and gas sector presents multiple risks and opportunities for bribery and corruption. As governments at all levels grant or deny rights to oil and gas companies, businesses have an opportunity to improve their reputation by implementing an effective and predictable due diligence co-ordination and execution protocol that understands the role of the government. In practice, this means co-ordination of the legal, compliance, finance, project, and business development aspects of the business. Second, the complex, extensive and diversified oil and gas supply chains mean that the sector is well exposed to third-party corruption. To mitigate these risks, companies should implement well-defined policies and effective platforms to proactively manage and oversee third parties in all aspects of the business. Third, oil and gas companies are especially prone to suffering reputational losses from environmental, health and safety (EHS) corruption-related incidents. Again, there is an opportunity to enhance reputation by putting in place strong auditing and other EHS controls. Government, Regulation, and Business Ethics 511 Finally, community relations at the local level can be fraught with human rights, labour rights, security, and corruption issues. To mitigate these risks, businesses should develop comprehensive community engagement strategies that work in parallel with their corporate anti-corruption policies. The reputation risk from corruption goes along with other risks, especially ESG (environment, social, and governance) risks. Reputation damage typically arises when a company pretends to have proper anti-corruption measures in place but gets caught in a corruption scandal. As a result, the company incurs fines and suffers business losses, such as plummeting stock market prices. For example, last year the French industrial group Alstom agreed to pay a record $772.3 million fine for bribing officials to win power and transportation projects from state-owned entities around the world. The corollary to such risks is the reputation opportunities associated with corruption—where a company has proper anti-corruption programmes and detectors in place that systematically investigate and report corruption incidents, when necessary, to the authorities. In this case, companies both meet their stakeholders’ expectations and enhance their reputation and business value. In 2012 Morgan Stanley and in 2013 Ralph Lauren, for instance, investigated bribery incidents within their companies and voluntarily disclosed their findings to the government.


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