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Argentine Corruption: Skanska’s Version

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Skanska's statement on the Argentine corruption scandal.

More than a year ago, the judicial authorities in Argentina contacted Skanska regarding an ongoing investigation of false invoices. Their investigation covered hundreds of companies that were suspected of having paid false invoices to a company called Infinity and other associated companies.

INTERNAL INVESTIGATION

Skanska immediately started an internal investigation to find out what had happened. The investigation was lead by Skanska Latin America’s (the Company) internal auditor.

The internal auditor made a thorough investigation, interviewing about 15 persons inside Skanska in Argentina, and completed an internal audit report. In May 2006 he presented a summary of the investigation in a report to the Skanska Latin America management and Board and to the Skanska Group Management.

The report revealed a breach of Skanska’s Code of Conduct in the local operations in Argentina. Invoices had been paid for goods and services that could not be properly verified. In addition to the invoices identified by the authorities, the internal investigation found more supposedly false invoices. Incorrect costs had been charged to Skanska Argentina’s accounting records, resulting in incorrect VAT reporting.

In the internal audit report there were also allegations saying that the issue might not only be about tax evasion, but potentially also that money might have been used for some kind of inappropriate payments.

As a result of the report Skanska took firm action: Seven employees, including senior officers that lead the aforementioned local operations, were dismissed by the Company. Skanska Latin America also corrected its VAT returns, paying all taxes due and the corresponding interests. The correction had a negative impact on Skanska Latin America’s operating income of USD 1.7 M.

COOPERATION WITH AUTHORITIES

Skanska handed over the entire internal investigation, covering some 3,000 pages of documents and material, to the Argentine authorities to contribute to their further investigations. The material also included a recording of an interview between the internal auditor and one of the seven dismissed employees. In the internal audit report the existence of the recording was mentioned. The Company had no reason to believe that the recording included any other substantial information than what was included in the internal audit report, which was handed over to the authorities.

NEW MANAGEMENT

Following these events, the Skanska Latin America Business Unit President Gustavo Vago decided to resign from his position. Hernàn Morano, who at the time of the Code of Conduct violations was heading the Skanska’s biggest project in Chile, was appointed new President of Skanska Latin America.

To inform important stakeholders about this violation of Skanska’s Code of Conduct, Skanska AB published an international press release about the events in Argentina on July 20, 2006.

Following the internal audit investigation, Skanska decided to hire an external consultant (Control Risks Group) to further investigate the matter. No further substantial information was found in this investigation. The Company has also made a review of its internal procedures, external auditors have reviewed the Company’s balance sheets and KPMG reviewed the corrected tax return.

TWO COURT INVESTIGATIONS

As a consequence of the Skanska internal audit report stating that inappropriate payments could have been made; the judicial investigation was divided into two separate investigations conducted by two separate judges.

A. Tax investigation: Investigation regarding alleged tax evasion by a number of companies (Skanska among them) that presumably used false invoices for goods and services that apparently were never performed. This investigation is conducted by Judge Javier Lopez Biscayart.

B. Criminal investigation: Investigation regarding alleged payments of kickbacks and surcharges by a number of companies (Skanska among them) on several works for government bodies. This investigation is conducted by Federal Judge Mr. Guillermo Montenegro.

Since Skanska was the first (and so far the only) company to come forward and provide its information to the authorities and to publicly address this issue, the case has been called “the Skanska Case” among authorities and media.

The past few weeks, Argentine and international media have reported about Skanska employees having been brought in for questioning. These events mostly refer to former Skanska employees, including several of the seven employees that Skanska dismissed in the second quarter of 2006. Current Skanska employees are also brought in for questioning as a normal part of the investigation.

Representatives from the court investigations have also visited offices of companies involved in the case, including Skanska’s local offices, to ask for documents and other information that could be helpful in the case. Skanska has on these occasions provided authorities with all requested information.

In line with the Company’s view on openness and its Code of Conduct, Skanska will continue to actively cooperate and contribute to the ongoing court investigations.

SKANSKA'S CODE OF CONDUCT IMPLEMENTATION IN ARGENTINA

In 2002 Skanska introduced the Code of Conduct and stressed the importance of strict adherence including a zero tolerance policy.

In Argentina the implementation has included:

• Translation and distribution of more than 2,500 copies of the Code of Conduct throughout Latin America;
• Distribution of the Code of Conduct to all new employees ;
• Online availability of the Code of Conduct on the Skanska Latin America intranet and web site;
• Articles related to the Code of Conduct in the internal magazine;
• Publishing and distribution of more than 2,500 copies of the Skanska Corporate Social Responsibility brochure;
• Design and distribution of a Code of Conduct e-learning tool to all countries throughout the Latin American region;
• Internal training programs for Skanska employees and inclusion of a special module on the Internal Skanska Management Program addressed to more than 80 managers in the region;
• Organization of the Conference “Ethics and Business”, conducted by Skanska, and organized jointly by Swedish Chamber of Commerce and Universidad Católica Argentina.

Further, in the third quarter of 2006 Skanska conducted an internal review of the implementation of the Code of Conduct throughout the Group. This review was conducted by peers from other Skanska business units. Some suggestions for improvements were made, but generally Skanska Latin America was found sincere in their adherence to the Code of Conduct.

The CEO of Skanska emphasizes the importance of 100% compliance to the Code of Conduct in every meeting with employees in Argentina as well as in all Skanska Business Units. He is also a founding member of the Partnering Against Corruption Initiative (PACI) of the World Economic Forum.

Still, the actions of a few can undo the efforts of thousands of others. It is impossible to guarantee that not one single person out of 56,000 employees will not act contrary to the Company’s values expressed in the Code of Conduct.

This case is not representative of Skanska but rather the actions of a few individuals acting against our values.

EDITOR'S NOTE: This statement was issued by Skanska in May 2007.

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