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Issues To Consider From The Petrobras Enforcement Action

Issues

This previous post went in-depth into the DOJ and SEC’s recent Foreign Corrupt Practices Act enforcement action against Petrobras which resulted in a net approximate $170 million enforcement action. This post continues the analysis by highlighting additional issues to consider.

First

The Petrobras enforcement action is believed to be the first ever FCPA enforcement action against a foreign government. As stated by the DOJ, Petrobras is a “state-owned and controlled oil and gas company.” As stated by the SEC, Petrobras is a “Brazilian government-controlled oil and gas company.” Reflective of this unusual aspect of the Petrobras enforcement action, the DOJ’s NPA states:

“By entering into this Agreement, notwithstanding anything contained herein, the Company does not prospectively waive any arguments that, as an instrumentality of the Republic of Brazil, it is protected by sovereign immunity from criminal prosecution in the United States, and it reserves the right to assert this argument in any future prosecution or civil action by the United States.”

This unusual aspect of the Petrobras enforcement action was previously flagged in this 2014 post when the company first became the subject of FCPA scrutiny.

Anytime the U.S. government exercises power (be it legal power or other forms of government power), it is always prudent to take a look in the mirror and consider the flip side. The flip side here being a foreign government bringing a bribery and corruption enforcement action against what the foreign government considers the U.S. government.

[Note: some have suggested that the 2006 Statoil enforcement action also involved a “company directly owned and controlled by a foreign government.” However, there is no reference of this in either the DOJ’s resolution document or SEC’s.]

Further Unique

This previous post highlighted the December 2016 Odebrecht / Braskem FCPA enforcement action as being unique in the sense that it was believed to be the first ever enforcement action against a foreign company based on its alleged interactions with its own alleged government officials.

This type of enforcement action did not occur for the FCPA’s first 39 years and then in January 2017 it happened again in the SQM enforcement action (see here).

With the Petrobras enforcement action, it has happened yet again.

As highlighted in the above-linked Odebrecht / Braskem post, are we prepared for the flip-side? In other words, a foreign law enforcement agency bringing a bribery and corruption enforcement action against a U.S. company (based on the company’s mere listing of shares on its exchanges) based on the U.S. company’s alleged interactions with U.S. officials?

But Then Again?

But then again, the Petrobras enforcement action was technically not a bribery and corruption enforcement action. Sure, those were the bulk of the allegations, but technically the DOJ’s NPA references the FCPA’s books and records and internal controls provisions and the SEC’s administrative order does the same (as well as invoke other securities laws provisions). The SEC is rarely shy of using the term “FCPA” yet notably that term is nowhere in the SEC’s release which has the headline “Petrobras Reaches Settlement With SEC For Misleading Investors.”

“Piling On”

As highlighted in this prior post, the DOJ’s “anti-piling” policy sounds great, but it all depends on what “piling on” means. While Deputy Assistant AG Miner insisted in yesterday’s speech that the DOJ did not “pile” on Petrobras – that is exactly what the DOJ did (as it also did in the Societe Generale enforcement action – see here).

As highlighted in prior posts here and here, much of the largeness of modern FCPA enforcement has resulted from corporate enforcement actions against foreign companies (based in many instances on mere listing of securities on U.S. markets and in a few instances on sparse allegations of a U.S. nexus in furtherance of an alleged bribery scheme).

A substantial majority of these enforcement actions (such as the Petrobras and Societe Generale enforcement actions) have been against companies headquartered in countries that, like the U.S., are parties to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention). In other words, “peer” countries with mature FCPA-like laws governing the conduct of their companies coupled with reputable legal systems to prosecute such offenses.

Given this reality, as well as the specific provision in Article 4 of OECD Convention that “when more than one Party has jurisdiction over an alleged offence described in this Convention, the Parties involved shall, at the request of one of them, consult with a view to determining the most appropriate jurisdiction for prosecution,” is it “piling on” when the U.S. brings FCPA enforcement actions against such foreign companies for their interactions with non-U.S. officials?

I believe the answer is yes.

Victim

On a number of occasions, the DOJ termed Petrobras and its shareholders victims. For instance, the DOJ’s release notes:  “a number of executives of the company engaged in an embezzlement scheme that victimized the company and its shareholders.” The NPA contains the same statement.

If the DOJ was being intellectually honest, the “victim” term could be used in several other FCPA enforcement actions that also included allegations that single actors or a small group of actors circumvented internal controls and received kickbacks from their alleged conduct.

I foresee the DOJ’s use of the term “victim” in the Petrobras enforcement as complicating – and rightly so – the DOJ’s steadfast position in several FCPA related proceedings that companies (and its shareholders) who resolve certain FCPA enforcement actions are not victims. (See here and here for prior posts).

Timeline

As highlighted in this prior post, Petrobras become the subject of FCPA scrutiny sometime during Fall 2014.  Thus, from start to finish its scrutiny lasted approximately 4 years.

At the risk of sounding like a broken record to regular readers … if the FCPA enforcement agencies want the public to have confidence in their FCPA enforcement programs, they must resolve instances of FCPA scrutiny much quicker. The validity and credibility of FCPA enforcement depends on this. Having FCPA scrutiny linger for over four years is inexcusable particularly since Petrobras in the words of the DOJ:

“the Company received full credit for its cooperation with the Fraud Section and the Office’ investigation, including conducting a thorough internal investigation, proactively sharing in real-time facts discovered during the internal investigation and sharing information that would not have been otherwise available to the Fraud Section and the Office, making regular factual presentations to the Fraud Section and the Office, facilitating interviews of and information from foreign witnesses, and voluntarily collecting, analyzing, and organizing voluminous evidence and information for the Fraud Section and the Office in response to requests, including translating key documents”

In the words of the SEC:

“In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Petrobras and significant cooperation afforded to the Commission staff. After learning of the corruption and bribery scheme described above, Petrobras immediately cooperated with the Brazilian authorities’ investigation, and has served as an Assistant to the Prosecution in 51 proceedings in Brazil. Petrobras conducted a thorough and timely internal investigation and identified significant documents for the Commission staff, translating them from Portuguese. Petrobras also provided summaries of the investigation’s findings and assisted in other SEC investigations.”

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