World’s largest pension fund dumps shares in beef firm in wake of corruption scandal

Tuesday, July 24th, 2018

The world’s largest sovereign wealth fund has decided to divest from the Brazilian beef processor JBS SA due to its role in a major, sprawling corruption scandal.

The Ethical Council of the Norwegian Government Pension Fund Global (GPFG), a trillion-dollar fund managed by Norges Bank, commissioned an investigation into the Brazilian firm’s activities after evidence emerged of its central role in the so-called Car Wash scandal – considered possibly the biggest corruption scandal in history.

Former members of JBS’ management and board of directors have admitted to bribing more than 1,800 politicians from 28 different political parties in Brazil. The recipients of the bribes reportedly include almost 200 members of parliament, a number of district governors, and former presidents. In total, the bribes could amount to almost $180 million, paid out over the past 15 years.

The pension fund decided to divest from JBS on the basis of the investigation earlier this month, on the grounds that there was “an unacceptable risk” that a company is “contributing to or is itself responsible for gross corruption”.

JBS is the world’s second largest food company and largest meat producer. By the end of 2017, the GPFG held 1.78 percent of its shares. The fund has established a set of ethical guidelines, that determine the circumstances under which investments can be prohibited – including corruption.

Wesley and Joesley Batista, the sons of JBS founder, who served as its CEO and chairman respectively, were central to the bribery. They entered a plea bargain at the Brazilian Supreme Court in May 2017, after which recordings of their statements were leaked to the public, in which they admitted bribing the politicians, directly or indirectly. The bribes were intended to allow it to access public financing, tax breaks and other advantages.

Soon after the plea bargain was announced, it emerged the Batista brothers were under investigation once again, for insider trading and suspicious transactions made before news of the plea bargain leaked.

Originally an investigation into money laundering, Operation Car Wash expanded as the evidence of systemic corruption connecting the highest levels of Brazilian business and politics emerged.

The GPFG’s Ethical Council assessed that the corruption admitted by JBS was of such a scale and seriousness that “the company, at an early stage, should have investigated the allegations, cracked down on the corrupt acts and implemented measures to prevent new incidents of corruption”. It concluded that this was not the case, noting that the Batista brothers were not suspended when they came under investigation.

The Council assessed that the company had failed to systematically address the evidence that corruption had taken place, and that it had instead “primarily, been concerned to avoid a negative focus on the company”.

Last year Brazil’s environmental agency, Ibama, found that JBS had also bought livestock raised on illegally-deforested land. “Operation Cold Meat” revealed that two slaughterhouses belonging to JBS had bought 49,468 heads of cattle from embargoed ranches. It was hit with a fine of more than $7 million.

JBS has also bought cattle from ranches that used labourers as “modern-day slaves”. A Guardian investigation found that JBS meat had reached supermarket shelves in the UK.