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Jan 31, 2016

Norges places Petrobras on exclusion watch for ‘severe corruption’

Announcement comes weeks after ZTE became first company ever excluded for corruption

Norges Bank, which manages the world’s largest sovereign wealth fund for the government of Norway, has placed Petrobras under observation due to the risk of ‘severe corruption’ following a series of scandals at the Brazilian state-run oil company.

The bank made the move after its council on ethics recommended placing Petrobras on watch throughout this year and, by the end of 2016, deciding whether to withdraw all investments in the oil company due to corruption.

The move comes weeks after Chinese telecommunications giant ZTE became the first company ever excluded from Norges Bank’s investment list for ‘risk of severe corruption’. To exclude ZTE, Norges created a ‘corruption’ subcategory in its blacklist of companies, which had previously been used to ban only companies involved in tobacco production, violation of individual rights, production of land mines and other activities.

‘Petrobras is linked to Brazil’s most extensive corruption case ever,’ the council says in its recommendation. ‘Senior executives of the company and its most important suppliers are accused of organizing a system of paying large bribes to top politicians, political parties and civil servants over a period of 10 years. The senior executives also received kickbacks. The total amount paid as bribes probably equals several billion US dollars.’

The company must show co-operation with investigators in Brazil and improvement in its governance to stay off Norges’ exclusion list. The council says measures the company has taken in recent years to prevent corruption in the future will likely not be enough.

In recent months Petrobras has been at the heart of a series of corruption scandals that has hit senior political figures and other companies in the country. Investigators estimate $2 bn in bribes were paid over a decade of corruption.