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By Samuel Rubenfeld
The top three global commodity trading firms used or engaged middlemen with links to a massive Brazilian corruption investigation that led to the imprisonment of that country's former president, according to an anticorruption group.
Vitol Group, Glencore PLC and Trafigura Group Pte. Ltd. were accused by Global Witness of dealing with men accused or convicted of involvement in Brazil's "Operation Car Wash" investigation, also known as Lava Jato. The probe involves a cartel of construction companies accused of overbilling state oil company Petróleo Brasileiro SA, or Petrobras, for projects and for paying bribes to high-level politicians and Petrobras executives.
Global Witness, a London-based anticorruption activist and investigative group, said it dug through hundreds of Brazilian court documents and spoke with sources across Brazil to compile its report.
The investigation raises questions about the due diligence the commodities firms conducted when selecting the intermediaries, Global Witness said.
All three commodities firms denied wrongdoing and said the Global Witness report didn't provide any evidence of improper payments.
"Contrary to the suggestion by Global Witness that there are 'new' allegations, this is a recycling of ambiguous commentary and conjecture, and beyond that, it provides no substantiated evidence of any wrongdoing by Trafigura," a spokeswoman for the company said.
A Glencore spokesman said: "The allegations do not provide any evidence that Glencore or any of its affiliates made an improper payment, and are based on speculation and inferences from a very limited and ambiguous record [of] information."
Vitol said it was contacted by Global Witness in September and has worked extensively with the group, and that the report "contains no evidence of wrongdoing" by the firm.
The Brazilian Car Wash probe has led to dozens of people imprisoned, including former president Luiz Inácio Lula da Silva, and billions in fines and penalties for the companies and individuals involved. Petrobras, for example, agreed in September to an $853.2 million settlement with Brazilian and U.S. authorities, and several of its executives have been convicted and jailed.
Mr. da Silva has challenged his conviction and his 12-year prison sentence, saying the judge involved was biased.
Vitol and Glencore struck deals with middlemen who were part of a network shown in Brazilian court documents to have drawn up bribery schemes, Global Witness alleges. Trafigura proposed a deal involving a middleman known in Brazil as the "Deacon of Bribes," but it didn't end up working with him, and the man was later sentenced to 13 years in prison for bribery, Global Witness said.
The allegations raised in the Global Witness report highlight the risk of using third parties when striking business deals. Most organizations don't hold third parties to the same risk standards they set for themselves, according to a survey released last month by Deloitte LLP.
The survey, which questioned 200 chief executives and 200 board members, found that while almost two thirds of CEOs believe the risk-management policies of their extended enterprise is weaker than that of their own organization, more than half don't have a monitoring program.
"Many CEOs and board members are risk-aware but not adequately risk-prepared," Chuck Saia, chief executive of Deloitte Risk and Financial Advisory, said in a statement.
Compliance-software provider Navex Global Inc. said that about 35% of the 500 ethics and compliance professions it surveyed last month regarding third-party risk still use paper-based records or disparate software to administer third-party risk assessments.
Companies need to apply a risk-based approach to their third parties, said Bob Conlin, president and chief of Navex.
"For multinationals in high-risk industries, such as commodities and trading, this means investing in additional deep-dive due diligence that leverages local knowledge and investigations," said Mr. Conlin. "Where inadequate due diligence occurs, it can result in some of the largest regulatory fines assessed."
Write to Samuel Rubenfeld at email@example.com
(END) Dow Jones Newswires
November 08, 2018 18:18 ET (23:18 GMT)
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