PBR Petroleo Brasileiro ADR

By Kjetil Malkenes Hovland 

OSLO--Norway's sovereign-wealth fund, the world's largest, said Thursday it had placed Brazilian oil company Petrobras under observation due to the risk of corruption, amid accusations of bribery and kickbacks.

The decision to observe Petrobras was taken by the board of Norway's central bank, which manages the fund, and was based on the advice from the fund's Council of Ethics. Petrobras, also known as Petróleo Brasileiro SA, is the largest listed company in Latin America.

"The [central bank] executive board hasn't independently considered all the details of the recommendation, but finds that there is sufficient basis to conclude that the criteria for observation have been satisfied, " the central bank said.

"Senior executives of the company and its most important suppliers have apparently for a decade organized a system of paying large bribes to top politicians, political parties and civil servants," the fund's Council of Ethics said. "Several of the company's senior executives also received large kickbacks."

The council said three former Petrobras employees have already been convicted of such offenses. The case is still being investigated by Brazil as well as U.S. authorities, it said. The council said it had commissioned two studies by consultants to assess the allegations of corruption, and that it had been in dialogue with the Brazilian company.

Petrobras declined to comment.

The council said it had refrained from asking the fund to exclude Petrobras because the company's anticorruption procedures were recently established, and because the continuing investigations and negative attention toward Petrobras would likely reduce the risk of further corruption.

The Council of Ethics said it would make a new assessment of the matter later this year, and if further cases of corruption crop up and Petrobras can't show that its anticorruption program is working, the condition for exclusion may be met.

The fund held 0.61% or $297 million worth of Petróleo Brasileiro SA shares at the end of 2014. It also held $162.6 million worth of shares in Luxembourg-incorporated Petrobras International Finance Co SA and $38.4 million worth of shares in Netherlands-incorporated Petrobras Global Finance BV. The fund's end-2015 holdings will be published in March.

The fund has previously excluded more than 60 companies from its investment range for ethical reasons, including companies producing land mines, tobacco or nuclear weapons, and companies at risk of violating human rights or causing severe environmental damage.

Write to Kjetil Malkenes Hovland at kjetilmalkenes.hovland@wsj.com

(END) Dow Jones Newswires

January 28, 2016 09:16 ET (14:16 GMT)

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