Compliance Is New Buzzword as Scandals Spread in BrazilJuan Pablo Spinetto
For Sao Paulo-based lawyer Shin Jae Kim, times have changed. During Brazil’s boom years she advised on acquisitions and project implementation. Today, her in-box is filled with requests for compliance advice.
As Brazil’s biggest-ever corruption scandal spreads from oil producer Petroleo Brasileiro SA to the nation’s biggest builders, lawyers like Jae Kim are benefiting from a rush by companies to improve corporate governance. The scandal coincides with tougher anti-corporate malpractice rules, resulting in a legal boom in Latin America’s largest economy.
“Eight years ago nobody spoke about compliance,” said Jae Kim, 47, a partner at TozziniFreire Advogados, which has a team of about 30 lawyers working on antitrust issues for clients including companies mentioned in the scandal. Now, the investigation “has generated a big movement at law firms.”
Among firms bulking up their teams is Mattos Filho, Veiga Filho, Marrey Jr. & Quiroga Advogados, Brazil’s top legal adviser on mergers and acquisitions by the number of deals, according to data compiled by Bloomberg. Mattos Filho this year will double the size of a compliance group it started in 2014 to about a dozen people, said partner Joao Ricardo de Azevedo Ribeiro. He said Carlos Ragazzo, the former antitrust official the firm hired this month for its competition law group, will also contribute to the team.
“After the Petrobras probe started, our clients are asking us to do a compliance due diligence on a firm before closing big contracts, even the most usual commercial ones,” Ribeiro said in an interview. “There’s even more caution with companies that do business with state-controlled firms or that are suppliers on government projects.”
The federal investigation known as Carwash into an alleged kickback scheme involving Petrobras has led to the arrest of more than 30 people and prompted the state-run oil producer to temporarily ban 23 construction firms from bidding on new contracts.
“Anybody involved one way or the other in the investigations would end up hiring lawyers,” said Andrew Haynes, who relocated to Rio de Janeiro last year to open the Brazilian office of London-based Norton Rose Fulbright. “It can be hundreds of attorneys working on cases” that range from bankruptcies and debt restructuring to companies trying to recover funds lost to corruption, he said.
Petrobras didn’t respond to e-mails to its press office seeking comment. Petrobras shares rose 1.6 percent to 9.34 reais as of 3:38 p.m. in Sao Paulo.
The criminal and civil allegations against Petrobras may cost the producer billions of dollars in fines and settlement costs, Brandon Barnes, a Bloomberg Intelligence analyst, said in a research note last month.
In October, Petrobras hired Sao Paulo-based Trench, Rossi & Watanabe Advogados and Gibson, Dunn & Crutcher to oversee an internal investigation into allegations of overbilling in contracts. The oil producer also created a special committee to report on the probe to the board, naming former Brazilian Supreme Court Chief Justice Ellen Gracie Northfleet and Andreas Pohlmann, a former chief compliance officer at Siemens AG.
The company this month named Joao Adalberto Elek, a former chief financial officer of pulp maker Fibria Celulose SA, as its first governance, risk and compliance officer.
Petrobras may spend as much as $150 million in legal fees just defending against U.S cases brought by the Securities and Exchange Commission, Department of Justice and investors, Barnes said.
“Most likely, they would try to settle with the SEC and the DOJ,” he said by telephone from Washington. “The potential costs of a trial are too uncertain and no company would like to be exposed to the consequences of a negative ruling by a judge.”
Brazil in late 2013 passed new anti-graft legislation, joining a global trend among nations seeking to crack down on corruption. The new rules, which include fines of as much as 20 percent of annual revenue, is boosting demand for compliance officers even at small- and mid-sized companies, said Leonardo Theon de Moraes, head of corporate and bankruptcy law at Theon de Moraes & Britto Sociedade de Advogados.
A top executive for compliance in a big Brazilian firm may earn as much as 400,000 reais ($148,000) a year, said Henrique Bessa, a Sao Paulo-based director at Michael Page International Plc, a recruiter that operates in 35 countries.
“It’s a super-requested area,” Moraes said in a telephone interview. “Demand for executives doubled last year after also doubling in 2013.”