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Is Brazil's corruption becoming less awful?

Jul 27, 2010 | 0 Comment(s)

In recent years, Brazil has grabbed headlines for its rapid growth, and attracted many property investors. Yet risks remain, including Brazil’s past history of hyperinflation, as well as practical barriers to entry such as weighty bureaucratic processes and legal procedures.

A particular concern is Brazil's reputation as a ‘shark pit’ of corruption. The question on many property investors’ minds: are things changing for the better or worse in this regard?

The most recent Index of Economic Freedom report highlighted uncontrolled corruption amongst the government officials as one of the main factors impeding Brazil´s growth. Examples include the payment of bribes to lawmakers and regulators; collusion / contractual kickbacks between public officials and companies; and tax officials accepting bribes. Other issues include slave labour (practiced in Brazil's north).

Brazil’s real estate industry it is unfortunately no exception; in 2009 the executives of São Paulo's Camargo Corrêa developers were arrested for money laundering.

According to Levy Brandão, the leader of the campaign to oust José Arruda, a Brasília based politician who was filmed handing bags of money to his legislator allies, for Brazil to grow sustainably the political system needs to instil higher ethical standards which, in turn, will filter into the economy and business world.

At the same time, however, other Brazilian commentators believe that change is coming. According to Jorge Gerdau, chairman of Grupo Gerdau, one of Brazil's largest steelmakers: "there is a historical, cultural problem of a certain backwardness which is very hard to overcome, but there is also increasing public demand for transparency."

Some positive steps in recent years include formal signature of the Organisation for Economic Co-operation and Development's Anti-Bribery Convention, ratified in 2007. In 2010, an anti-corruption law provided for punishment of fraudulent governmental bids; bribes (in any way, shape or form) for public bids and/or amendments to specific products as well as services supplied to government with the ultimate aim of monetary gain. Sanctions include fines of between 1 and 30 percent of gross earnings, damage payments, future public procurement bans, suspension of activities and the complete winding down of the company (in severe cases).

The government has also recently created a database of companies that have been punished by the Executive, Legislative and Judiciary courts at federal, state and municipal levels: the Register of Ineligible and Disreputable Companies (Cadastro Nacional de Empresas Inidôneas e Suspensas (‘CEIS’). A similar so-called ‘name and shame’ website has been in existence since 2003 which exposes companies that have or are currently are using slave labour.

In 2005 the Federation of Brazilian Banks (FEBRABAN) stated that they would no longer extend credit to companies on these lists.

Within the business community, one particularly successful organisation is the Pacto Empresarial pela Integridade e Contra a Corrupção (the Business Pact for Integrity and Anti-Corruption) with over 1,300 members, including most of Brazil´s major companies. Participatory organisations are identified by a ‘clean company’ logo which confirms that they adhere to a strict code of practice.

Clearly, however, significant hurdles remain – perhaps the most important being a continuing need to change the mindset of business leaders, to prioritise integrity over short-term financial gain.

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