The Challenge of Compliance in State-Owned Enterprises

Photo Credit: Puro Periodism

Last month I was in Panama, attending the 17th International Anti-Corruption Conference (IACC). Not surprisingly, the Panama papers were looming large over the event and became a major point of discussion. To me, however, an equally important thread concerned another key issue: governance of state-owned enterprises (SOEs) and its significance for fighting corruption.

The highlight of the conference was Transparency International presenting its Anti-Corruption Award to the Operation Car Wash (Lava Jato) Task Force from Brazil. The Lava Jato scandal, involving the country’s state-owned oil & gas giant, Petrobras, began as a money laundering investigation and has grown into a large investigation uncovering cases of egregious corruption. Brazilian prosecutors from the Task Force have been bravely investigating these cases, resulting to date in more than 240 criminal charges and 118 convictions totaling 1,256 years of jail time, involving influential politicians and businesspeople.

Prosecutorial successes obviously are something to celebrate as an important step toward ending impunity. Crucially, though, to fully address the Lava Jato scandal and make sure similar abuses do not occur in the future, the government needs to focus on the root cause of the scandal. It comes down to the history of effective corporate governance and lack of anti-corruption compliance at Petrobras, and many other SOEs.

Applying the OECD Guidelines on Corporate Governance for State-Owned Enterprises, updated in 2015, would be a good start. Brazil did pass federal Law 13.303 in July 2016 that reformed the governance regime for SOEs. The new law requires independent audits of balance sheets and establishes minimum requirements for transparency of how SOEs conduct business (including financial data, risk factors, and management compensation), similar to publicly listed companies. The law seeks to professionalize management of SOEs and decouple them from party politics. Crucially, it also mandates anti-corruption compliance measures by adopting risk management and internal control structures.

The SOEs have two years to implement the new rules. The central question remains: will they? As Brazil struggles with a broader governance crisis, many remain skeptical that the new law will be able to overcome the “business as usual” of politically entangled SOEs. Petrobras’s first-ever chief compliance officer, João Adalberto Elek – who spoke at the IACC – has his work cut out for him. He must ensure that the company’s systems and culture truly undergo a transformation and not end merely as a box checking exercise.

Anna Kompanek is Director of Multiregional Programs at the Center for International Private Enterprise