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By Tatiana Bautzer and Gram Slattery
SAO PAULO/RIO DE JANEIRO, March 8 (Reuters) - Five years after Brazilian prosecutors exposed a long-running bribes-for-contracts racket at state-run oil firm Petrobras, the company is proclaiming it has cleaned up its act.
It has run TV spots touting its whistleblower hotline as well as a compliance department created in the wake of Brazil's epic "Car Wash" corruption scandal, which damaged the oil giant, helped tip Brazil into recession and landed a former president behind bars.
In late November, citing progress it had made in rooting out graft, Petrobras closed down a special committee constituted in 2014 to aid investigations into corruption.
But interviews with six people with direct knowledge of the company's graft-busting efforts, including former Chief Compliance Officer João Elek Jr., paint a picture of an organization still struggling to root out bad behavior.
These individuals said Petroleo Brasileiro SA, as the firm is formally known, has strengthened its internal watchdog processes significantly.
However, Elek and the others cited a series of obstacles that have hampered the firm's attempts to stamp out corruption. Among them, the people said, is an investigations unit which at times has been severely understaffed.
In addition, the people said, bureaucratic hurdles for dismissing anyone at the state-owned company, along with unwillingness by many employees to cooperate with compliance investigators, means Petrobras in some cases has left it to law enforcement to gather needed proof of wrongdoing.
"There was great cultural resistance" to graft probes, said Elek, who led the Petrobras compliance department from January 2015 through April 2018. A former AT&T Inc executive, Elek described his departure from Petrobras as amicable and said it was never meant to be a long-term post.
All six people were directly involved in designing or implementing Petrobras compliance programs in recent years. Four still work on Petrobras compliance issues.
In a detailed statement, Petrobras vigorously denied that compliance investigators have faced significant internal obstacles. It said it has "zero tolerance" for corruption and that it is committed to "immediate interruption" of misconduct.
But the company's ongoing troubles, the people said, were on full view in December with the bombshell indictments of six former and current Petrobras employees. The workers stand accused of taking kickbacks in the latest phase of Car Wash, this one centered on irregularities in the company's oil trading division from at least 2011 to 2014.
Petrobras was alerted to potential problems in its trading operation since at least 2014, when a whistleblower went public with claims that the energy giant was overpaying for some of its oil purchases. The alleged scheme was also cited by two former Petrobras executives and a former senator in subsequent plea deals with prosecutors.
But Petrobras did not move quickly to investigate suspicious activity, identify potential suspects and sideline them, the people said.
Five of the workers indicted in December had already left Petrobras by the time authorities issued their charges.
The sixth, a Houston-based trader named Rodrigo Berkowitz, was still on the payroll when prosecutors issued a warrant for his arrest on Dec. 5. Petrobras fired Berkowitz the same day. The alleged scheme may have been ongoing through the time of his dismissal, police inspector Felipe Pace said at the time.
'TIP OF THE ICEBERG'
Berkowitz did not respond to multiple requests for comment. His lawyer confirmed he had agreed to plead guilty in the United States to conspiracy to commit money laundering. Berkowitz is now cooperating with U.S. authorities investigating the alleged oil trading scheme, people familiar with the matter told Reuters. Legal representatives for the other five people indicted did not respond to requests for comment.
Petrobras said one reason the firm could not break up the suspected oil-trading racket earlier was that it lacked surveillance resources reserved for authorities, such as phone wiretaps and access to bank accounts to follow the money.
Prosecutors said Berkowitz and the others accepted $31 million in bribes from intermediaries connected to some of the world's largest commodities trading firms, including European heavyweights Vitol SA, Glencore PLC and Trafigura AG.
In exchange for the kickbacks, the trading companies got oil contracts at advantageous prices, defrauding Petrobras in the process, authorities said.
Glencore and Trafigura declined to comment. Vitol said it has a "zero tolerance" policy with respect to bribery and corruption and that it is cooperating with authorities.
Petrobras has steadfastly portrayed itself as a victim of illegal schemes perpetrated by a few rogue insiders colluding with unscrupulous contractors and greedy politicians. It downplayed the significance of the December indictments, saying they relate to alleged bribes paid years ago.
"The latest phase does not involve high ranking executives, politicians or big construction companies," Petrobras said in a statement.
Brazilian authorities do not share that view.
Some prosecutors said they are just beginning to unravel what they contend is a complex web of payoffs and players. What they know at present is just the "tip of the iceberg," prosecutor Athayde Ribeiro Costa said during a December press conference.
2,000 WHISTLEBLOWER TIPS
The Car Wash scandal was a kickback scheme on steroids.
Suppliers formed a cartel to divvy up work with the state-run oil behemoth, inflating contract prices to hide their payoffs to Petrobras collaborators and politicians. The illicit operation rolled along for at least a decade before Brazilian prosecutors blew the lid off.
The fallout helped force President Dilma Rousseff from office in 2016 and landed former President Luiz Inacio Lula da Silva in jail last year on corruption charges.
The ongoing investigation by Brazilian authorities has spread to nearly every corner of Petrobras' massive operations.
Elek, the former compliance chief, said Petrobras has taken meaningful steps to prevent a repeat. Supplier vetting has gotten much tougher, he said, and there is now better tracking of project budgets and spending.
But transforming Petrobras' culture into one that champions transparency will be a long-term undertaking, according to Elek and the others interviewed.
Five of the people said the compliance team's inquiries were frequently slow-walked by management as well as by rank-and-file workers. For example, requests for records that should have taken days to deliver might not arrive for weeks or months, they said.
In addition, Elek said powerful unions and internal company committees could sometimes hold up an employee's dismissal when evidence against him or her was not bulletproof, which he attributed in part to the bureaucratic structure of state-run companies.
Elek said the modest size of his internal investigations team also hampered some compliance work. He said he started with just two subordinates in the investigations unit in 2015, building it to around 40 employees by the time of his departure in 2018.
He said he had hoped to recruit as many as 100 people to help tackle the workload in a sprawling company with more than 60,000 employees. But Elek said qualified workers were repeatedly blocked by their managers from joining his team.
At one point in 2017, he estimates, his backlog of whistleblower complaints had reached some 2,000 cases.
Petrobras disputed those staffing numbers in part, saying it had hired some 78 people for the investigations team by 2017, a figure that has since grown to 164 employees assisted by more than 180 external advisors.
TOSSING OUT BAD APPLES
In its written responses to questions from Reuters, Petrobras emphasized that it has been continually improving and refining its compliance program since Car Wash emerged in 2014.
The company also said it took steps late last year to make it easier to punish workers found to be involved in corruption, fraud or harassment.
As part of that push, the firm overhauled an internal oversight body that used to report to the CEO. Now known as the "Discipline Committee," the three-person group has two independent members, including a former federal prosecutor, Marcelo Zenkner. The committee now reports its punishment actions directly to the board of directors.
But Petrobras has yet to impose independent oversight of Rafael Mendes, the current chief compliance officer, who still reports to the chief executive.
The risks of that structure, some lawyers and corporate governance specialists say, were illustrated by Elek's first boss at Petrobras: Aldemir Bendine. The former CEO is now serving an 11-year jail term following his 2018 conviction for pocketing nearly $1 million in bribes from a contractor in the Car Wash scandal.
Bendine was disdainful of the compliance committee and never attended one of its meetings, one person with direct knowledge of the situation said.
Elek said he had no personal issues with Bendine, but that his position as chief compliance officer created natural tension with the former CEO.
Alberto Toron, Bendine's lawyer, denied that his client was disdainful of the Petrobras compliance committee. Toron said Bendine's conviction related to his activities as CEO of Banco do Brasil SA, a post he held before moving to Petrobras.
A sentencing document, however, cited accusations from federal prosecutors that Bendine had received the bribes while he was Petrobras CEO, after soliciting them at Banco do Brasil.
Petrobras did not make Mendes available to comment on the matter. In a statement, the company said the current chain of command functions smoothly. It said the chief compliance officer has access to the board "whenever needed" and can only be fired by a full board vote.
"It is wrong to say that, from the beginning, the Petrobras chief compliance officer has encountered resistance," the firm said.
(Reporting by Tatiana Bautzer and Gram Slattery; Additional reporting Brad Brooks in Sao Paulo and Gary McWilliams in Houston; Editing by Christian Plumb and Marla Dickerson)