Petrobras creates compliance division amid probe

: Crude oil, Oil products, Petroleum coke
14/11/26

Brazil's state-controlled Petrobras has created a new governance, risk management and compliance division in an apparent response to local and international investigations of an alleged corruption scheme within the company.

The director will be responsible for ensuring "compliance and risk mitigation, including the risk of fraud and corruption, and guaranteeing compliance with laws, norms, standards and regulations," including the rules of the Brazilian securities watchdog CVM and US securities regulator SEC, Petrobras said.

In addition to participating in the decisions of the company's executive board, the still-unnamed director of the compliance division will be responsible for "sanctioning beforehand the governance, risk management and conformity aspects of matters to be submitted to the board."

The director will be appointed for an initial three-year term and can only be removed by a board quorum, including at least one board member elected by minority shareholders.

The compliance position will replace the international executive director position, and will not increase the number of board seats, Petrobras said.

Nestor Cerveró, Petrobras international executive director between 2003 and 2008, was fired in March for his role in the controversial 2006 acquisition of the 100,000 b/d Pasadena refinery in Texas. He was chief financial officer for the company´s distribution subsidiary at the time of his removal.

Cerveró´s successor as international executive director, Jorge Zelada, resigned in 2012. Since then, Petrobras chief executive Maria das Gracas Foster has been covering the role herself.

The Pasadena refinery is among the flashpoints in the alleged corruption scheme, in which major contractors are said to have regularly overcharged Petrobras so part of the money could be diverted to political parties.

The proposal for the new governance division was first brought before the board on 14 November, the same day federal police arrested around 20 executives from the country's biggest companies that do business with Petrobras.

The companies tied to engineering and construction include Odebrecht, Camargo Correa, OAS, UTC, Mendes Junior and Queiroz Galvão. Some firms have denied involvement, while executives from others have confessed their involvement to the police.

The SEC is also investigating. Although the basis for its probe is still unclear, it is believed to involve non-compliance with one or more provisions of the US foreign corrupt practices act (FCPA).

The FCPA sets out rules related to illicit payments made to foreign officials, which has been interpreted by US courts as covering officials of state-owned enterprises like Petrobras, and also failure to adopt appropriate internal control measures. The law is applicable to Petrobras as the company is traded on the New York Stock Exchange.

The rules of the act are enforced by the SEC and the US Department of Justice, usually in parallel. Petrobras confirmed that the SEC has made a request for documentation but has said it has not been notified of any DOJ investigation.

Neither the SEC nor the DOJ have commented on the case.

Petrobras and the company's directors could face criminal prosecution and hefty fines if the company is found to have violated the FCPA.

On a wider political level, the US investigation could complicate already strained relations between Brasilia and Washington. In September 2013, Rousseff cancelled a state visit Washington amid allegations of US corporate espionage involving Petrobras. Relations remain cool.

Rousseff, who narrowly defeated her market-oriented rival Aecio Neves in a heated 26 October presidential election, has blasted her opponents for trying to overturn the election outcome.

Rousseff served as Brazil's energy minister between 2003 and 2005 and chaired the Petrobras board of directors between 2003 and 2009 when the alleged corruption scheme was in force.

She has denied any knowledge of the scheme but has said corruption probably took place.

Some opposition groups are seeking to impeach her.

nw/pg

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