El Club de las Constructoras 2

Construction of public works in Peru is still rife with corruption.

The World Economic Forum has previously reported the cost of corruption globally as USD 3.6 trillion. According to the World Bank, businesses and individuals pay more than USD 1 trillion in bribes every year. Latin America consistently ranks as the region with one of the highest levels of corruption.

The infrastructure sector has been one of the worst hit by corruption. In more than half of the countries in Latin America, there are ongoing investigations into corruption in public works projects.

Peru is a particularly special case, as a board member of a Peruvian infrastructure company explains bemusedly, “Over the last 20 years a cartel of the 30 largest construction companies (both foreign and domestic) was formed, called ‘el Club de las Constructoras’. These companies formed an agreement over which projects they would win. When former-President Toledo arrived, his Ministry of Transport and Communication asked some of these companies for payments/bribes because agreeing among themselves ‘wasn’t right’. Under the next President, Garcia, the same ministry extended the payments to be required from every member of ‘el Club de las Constructoras’. Finally, under former President Humala, these bribes were institutionalised and a fixed rate of payment was put on all awarded projects!”

This scandal was uncovered 4 years ago, a year after Odebrecht. The ‘Club de las Constructoras’ has since been dismantled but an executive in the infrastructure sector in Peru confirms that “the next tier of smaller construction companies are still doing the same: ‘El Club de las Constructoras 2’. Public officials are still corrupt, so they have moved to smaller companies and the corruption continues, but at a lower level, (governors, mayors etc). Meanwhile, these small and medium sized companies are thriving as the large companies do no participate in these projects anymore.”

“Public officials are still corrupt, so they have moved to smaller companies and the corruption continues, but at a lower level, (governors, mayors etc).”

Executive, infrastructure company, Peru

The Chairman of a multi-billion dollar infrastructure business operating across Latin America insisted, “It is imperative that senior executives and board directors understand their exposure to corruption at all levels. Relying on local managers to mark their own homework is not good enough.”

“It is imperative that senior executives and board directors understand their exposure to corruption at all levels. Relying on local managers to mark their own homework is not good enough.”

Chairman, multinational infrastructure business, Latin America

Several of the large companies involved in the corruption scandals are now trying to rebrand and clean up their act: Odebrecht has rebranded Novonor, Graña y Montero is now AENZA. Executives have been replaced, entire boardrooms have been cleared out, even new shareholders have been brought in to help the purge.

Despite this, the board member of the Peruvian infrastructure company admits, “It will be very difficult to eradicate corruption for as long as the politicians and public officials are corrupt. It is possible, Chile doesn’t have any corruption, their processes are well designed, transparent and use technology to limit corruption risk.”

 

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