Norges Bank Investment Management, which oversees the $1.1 trillion Norwegian Government Pension Fund Global, has removed Petroleo Brasileiro (PBR) from a list of companies that it monitors for ethical reasons.
The Brazilian petroleum company had been under observation for the past three years due to the risk of “severe corruption.” In 2015 the council on ethics had recommended that Petrobras be placed under observation. This was based on reports that senior executives at the company, and its most important suppliers, had operated a system in which paying off bribes was a prerequisite for winning contracts with the company.
The Norwegian central bank said, however, that after the company entered into a legal settlement with US authorities the risk has been diminished. It also said Petrobras agreed to report on the further implementation of its compliance program and internal control measures each year until 2021.
The decision to revoke the observation was made by the bank’s executive board based on a recommendation from its council on ethics, which regularly assesses whether reasons for observation or exclusion still exists.
The council on ethics said Petrobras’ legal settlement with US authorities confirms that the company has implemented comprehensive improvement measures since the bank’s investigation into the company began in 2014. It is for this reason that the council said it has recommended the bank revoke the observation.
“Despite the risk inherent in the fact that the Brazilian government, as the controlling shareholder, appoints a majority of Petrobras’s board members, the council considers that the risk of corruption in the company has decreased,” the recommendation said..
The council on ethics said there have been several changes in the composition of Petrobras’ board of directors and executive board since it was put on the watch list. It said a new chair and CEO were appointed in January, and that the company’s CEO replaced four executive board members.
The council also said that Brazil’s federal prosecution service and supreme court have officially defined Petrobras as a victim in the Lava Jato (Operation Car Wash) investigation. The company is therefore assisting prosecutors in criminal proceedings. Operation Car Wash is an ongoing investigation by Brazil’s federal police into corruption involving Brazilian politicians and Petrobras. It is considered to be the biggest corruption investigation in the country’s history.
Norges Bank said the internal investigation into allegations of corruption against Petrobras concluded at the end of October 2018 and resulted in a total of 82 recommendations for the company. Petrobras said that as of July,72 of the recommendations have been fully implemented, two were cancelled, and the remaining eight were being implemented. The council on ethics said it asked for access to the list of recommendations, but Petrobras said the information is not available to third parties as it is protected by attorney-client privilege.