This morning the DOJ and SEC announced (here and here) that Petrobras, a Brazilian state-owned and state-controlled energy company, entered into agreements with U.S. and Brazilian authorities “in connection with Petrobras’s role in facilitating payments to politicians and political parties in Brazil, as well as a related Brazilian investigation.”
After various credits and deductions for a related law enforcement action in Brazil, the net FCPA settlement is approximately $170 million ($85.3 million DOJ, $85.3 million SEC). Brazil will collect $682.6 million. The remainder of this post provides an in-depth summary of the enforcement action.
Pursuant to a three year NPA, Petrobras admitted, accepted and acknowledged that it is responsible under U.S. law for the conduct set forth in the NPA’s statement of facts and acknowledged that the facts described constitute a violation of law, specifically the FCPA [books and records and internal controls provisions].”
Petrobras is described as follows:
“[A] Brazilian state-owned-and-controlled oil and gas company headquartered in Rio de Janeiro, Brazil, and operating in 18 other countries, including the United States. The vast majority of the Company’s shares traded either on the New York Stock Exchange in the form of American Depository Shares, on the So Paulo Stock Exchange, with the Brazilian government directly owning approximately 50.26 percent of Petrobras’s common shares with voting rights, and an additional 9.87 percent of its common shares controlled by the Brazilian Economic and Social Development Bank as of February 28, 2018. Petrobras’s common and preferred stock was registered with the United States Securities and Exchange Commission (“SEC”) pursuant to Section 12(b) of the Securities Exchange Act of 1934 as amended and currently trades on the New York Stock Exchange.”
Under the heading “The Bribery and Embezzlement Schemes,” the NPA states:
“In or around and between at least 2004 and 2012, Petrobras executives and managers, including Executive 1, Executive 2, Executive 3, Executive 4, Manager 1, and others, and contractors and suppliers of the Company, facilitated massive bid-rigging and bribery schemes that, among other things, allowed contractors to obtain contracts from Petrobras through noncompetitive means and caused Petrobras to remain in the favor of many of Brazil’s politicians and political parties.
The contractors that engaged in the corruption typically paid bribes totaling approximately one to three percent of the value of the contracts obtained from Petrobras, which were then typically split among certain Petrobras executives, Brazilian politicians, Brazilian political parties, and other individuals who helped facilitate the payment of the bribes.
The Petrobras executives and managers, including Executive I, Executive 2, Executive 3, Executive 4, and Manager 1, participated in receiving bribes, and also participated in the facilitation and direction of portions of the corrupt payments to Brazilian politicians and Brazilian political parties, some of which could affect the Company, including because they had oversight over the location in which a Company project was being completed.
The money to pay the bribes was often funneled through fictitious costs, including consultancy agreements, incurred by the contractors in association with Petrobras projects and other projects. Petrobras executives, including Executive 1, Executive 2, Executive 3, Executive 4, and Manager 1, assisted the corrupt contractors by, among other things, creating conditions — in part through the failure to implement adequate internal controls that allowed for the contractors to continue generating the funds needed to make the corrupt payments. Though the precise number is unknown, more than U.S. $2 billion has been estimated to have been generated and used to make corrupt payments, more than approximately U.S. $1 billion of which was estimated to have been directed to politicians and political parties, some of which could affect the Company.
The inflated amounts paid to the corrupt contractors were capitalized as legitimate costs and hidden as part of the particular contracts, which were recorded in the Company’s books, falsely inflating the value of certain of the Company’s assets.”
Executive 1 is described as follows:
“a resident and citizen of Brazil whose identity is known to the United States and Petrobras, was the head of a Petrobras division from approximately 2004 to 2012. Executive I was appointed to his position under the influence of a political party.”
Executive 2 is described as follows:
“a resident and citizen of Brazil whose identity is known to the United States and Petrobras, was the head of a Petrobras division from approximately 2004 to 2012. Executive 2 was appointed to his position under the influence of a political party.”
Executive 3 is described as follows:
“a resident and citizen of Brazil whose identity is known to the United States and Petrobras, was the head of a Petrobras division from approximately 2003 to 2008 and the Chief Financial Officer of one of Petrobras’s largest subsidiaries from in or about 2008 to 2014. Executive 3 was appointed to his position under the influence of a political party.”
Executive 4 is described as follows:
“a resident and citizen of Brazil whose identity is known to the United States and Petrobras, was the head of a Petrobras division from approximately 2008 to 2012. Executive 4 was appointed to his position under the influence of a political party.”
Manager 1 is described as follows:
“a resident and citizen of Brazil whose identity is known to the United States and Petrobras, was a high-ranking manager in a Petrobras division. From approximately 2004 to 2011, he reported to Executive 2.”
The NPA further states:
“Executive 1, Executive 2, Executive 3, Executive 4, and Manager 1 have all been convicted in Brazil of crimes related to their participation in the corruption at Petrobras that is described below. Executive I, Executive 2, Executive 3, and Manager 1, have each admitted that they participated in the corruption at Petrobras, and Executive 2 and Executive 4 are currently serving prison sentences after being convicted at trial in Brazil for their roles in the corrupt schemes that were in place at the Company.
In addition to receiving bribes, these executives also facilitated and directed millions of dollar in corrupt payments to politicians and political parties in Brazil, including, in one instance, directing the payment of illicit funds to stop a Parliamentary Inquiry into Petrobras contracts.
At the time the corrupt schemes were in place, other individuals at the Company, including certain members of the Company’s Board of Directors, were aware that Petrobras contractors were involved in corruption at the time those companies were contracting with Petrobras and yet they did nothing to stop those companies from doing business with Petrobras or to investigate the nature and scope of corruption within Petrobras. Indeed, two members of the Company’s Board of Directors were involved in facilitating bribes that a major Petrobras contractor was paying to Brazilian politicians.”
The NPA specifically describes corrupt schemes involving the “Abreu e Lima Refinery,” “the Petrochemical Complex of Rio de Janeiro,” and “Drillships and Shipyards.”
Regarding the Refinery, the NPA states in pertinent part:
“In or about 2005, Petrobras announced its intention to complete the Abreu e Lima Refinery (“RNEST”) in the Northeast state of Pernambuco. The RNEST project generated more than 300 contracts and more than 950 amendments.
Petrobras executives named above conspired with contractors and suppliers of the Company to facilitate millions of dollars in payments to politicians from contractors that obtained business from Petrobras in association with the RNEST project.”
Regarding the Petrochemical Complex, the NPA states in pertinent part:
“The Rio de Janeiro State Petrochemical Complex (“COMPERJ”) project also involved massive corruption and bribery. COMPERJ covered an area of 42 square kilometers and involved multiple large contracts over a period of more than ten years.
In connection with the COMPERJ project, Executive 1 and the Petrobras contractors directed corrupt payments to a powerful Brazilian politician who had oversight over the location where COMPERJ was being built, and with whom Executive 1 had a close working relationship.”
Regarding Drillships and Shipyards, the NPA states in pertinent part:
“During their respective tenures on the Petrobras executive board, both Executive 3 and Executive 4 conspired with contractors and suppliers of the Company to facilitate corrupt payments from Petrobras contractors to politicians and political parties, and also received bribes for themselves.”
Under the heading “False Books and Records,” the NPA states:
“While the various bribery and bid rigging schemes were ongoing, Petrobras’s American Depositary Shares were traded on the New York Stock Exchange, and Petrobras was an “issuer” within the meaning of 15 U.S.C. § 73dd-1. Accordingly, Petrobras was required to tile an annual report, including financial statements, with the SEC. For each of the relevant years, Petrobras filed its annual report with the SEC using Form 20-F, which is the primary disclosure document used by foreign private issuers that have equity shares listed on exchanges in the United States.
During the scheme, Petrobras failed to make and keep books, records, and accounts which accurately and fairly reflected the Company’s capitalization of property, plant, and equipment (“PP&E”), which was overstated on the Form 20-F as a result of the bribes being generated by the Company’s contractors with the cooperation of certain Petrobras executives.
Moreover, Executive I, Executive 2, and Executive 4, each signed Sarbanes-Oxley (SOX) 302 sub-certifications while they were involved in, and were aware that other executives at Petrobras were involved in, obtaining and facilitating the payment of millions of dollars in bribes to themselves, to Brazilian politicians, and to Brazilian political parties.
The SOX 302 sub-certifications signed by the corrupt Petrobras executives required the executives to certify, in relevant part, that the Form 20-F the Company would be filing with the SEC did not contain materially false or misleading statements, and that the information contained therein was accurate. The executives who signed, or caused to be signed, the Form 20-Fs did not disclose to the market the massive bribery schemes that were ongoing at the company, and each of the corrupt Petrobras executives knew at the time they signed the SOX 302 sub-certification that the Form 20-F did not include that disclosure.
Similarly, Executive 3, while Chief Financial Officer of a subsidiary of Petrobras, signed a management representation letter that was provided to external auditors of Petrobras stating, among other things, that he was unaware of any fraud affecting the subsidiary that involved employees who played a significant role in internal controls or of fraud that would significantly affect the subsidiary’s financial statements. Executive 3 knew at the time a bribery scheme was ongoing at Petrobras such that the appointed officers of certain divisions facilitated bribes to politicians and political parties and in fact received bribes themselves. He also knew that there were bribes paid to him and to politicians and political parties in connection with multiple business ventures of the Petrobras subsidiary.
In or around September 2010, Petrobras closed on a global public offering of equity securities raising nearly U.S. $70 billion in capital from the Brazilian, U.S.. and international capital markets. Of that total, approximately U.S. $10 billion was raised from American Depository Shares listed on the New York Stock exchange. The primary goals of the 2010 Offering were to (I) finance the purchase of pre-salt exploration and production rights in the Brazilian pre-salt basin; and (2) finance a portion of Petrobras’s planned investment program.”
Under the heading “Failure to Implement Adequate Internal Controls,” the NPA states:
“Petrobras officials described above involved in the scheme at the executive level of the company who were responsible, in part, for implementing the Company’s internal financial and accounting controls, knowingly and willfully failed to do so in order to continue to facilitate bribe payments to Brazilian politicians and Brazilian political parties.
The executives described above, among other things, failed to implement internal controls over the process of contracting for services relating to Petrobras’s large investment projects in the E&P, Gas and Power, Refining, Transportation and Marketing (“RIM”), and International business segments.
Throughout the relevant period, the Petrobras executives described above, and others, knowingly and willfully failed to implement a system of internal accounting controls designed to detect and prevent the facilitation of bribes to Brazilian politicians and political parties, and to Petrobras officials. The following internal control deficiencies, among others, facilitated the ongoing corruption schemes: failure to implement appropriate due diligence procedures for the retention of third-party vendors; failure to implement sufficient oversight to prevent the revision of estimates at the conclusion of the bid phase to favor certain bidders; failure to implement sufficient safeguards to prevent the manipulation of bid participant lists or criteria for selecting bid invitees to permit the invitation of companies that were not qualified; failure to implement a selection process that would prevent projects from being improperly awarded through direct contracting instead of a tender process; and manipulation of bid evaluation criteria to favor bribe-paying companies.”
The DOJ and Petrobras entered into the three-year NPA based on the following factors:
(a) The Company did not receive voluntary disclosure credit because it did not voluntarily and timely disclose to the Fraud Section and the Office the conduct described in the Statement of Facts. However, after learning of the allegations of misconduct by Petrobras officials, the Company retained external law firms to conduct an independent investigation, and notified the Fraud Section and the Office of its investigation and intent to fully cooperate;
(b) 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;
(c) by the conclusion of the investigation, the Company provided to the Fraud Section and the Office all relevant facts known to it, including information about the individuals involved in the conduct described in the Statement of Facts and conduct disclosed to the Fraud Section prior to the Agreement;
(d) the Company no longer employs or is affiliated with any of the individuals known to the Company to be implicated in the conduct at issue in the case as of the date of this Agreement, and the Company engaged in extensive remedial measures, including: replacing the Board of Directors and the Executive Board (the Company’s high-level managers) and implementing governance reforms, such as expanding the scope of decisions requiring Board of Director approval; elevating and revamping the Company’s compliance function, including creating and staffing the Division of Governance and Compliance (“DGC”), and mandating that the Officer of DGC cannot be terminated without the affirmative vote of a Board member representing minority shareholders; limiting individual decision-making authority by implementing a “four eyes” approval policy that requires a second review by supervisors from different reporting lines for substantive decisions; creating new corporate investment policies and procedures, including a new Approval Authority Matrix, mandatory collective decision-making, and participation of the Division of DGC in investment committees; enhancing the Company’s policies and procedures related to confidential reporting and investigations, including restructuring the Office of the Ombudsman, implementing a confidential reporting hotline, and enhancing the procedures related to the Company’s Internal Commissions of Inquiry; updating policies and procedures related to compliance; implementing measures to ensure the Company’s operations are insulated from improper political interference, including new hiring and promotion procedures, a comprehensive government relations policy, and uniquely protecting the Officer of DGC within the organization; enhancing anti-corruption training by requiring all employees to complete compliance training, providing specialized training to employees engaged in the procurement of goods and services, and providing anti-corruption training to the Board of Directors and Executive Board; creating an Ethics Committee responsible for guiding, disseminating, and promoting compliance with ethical principles and conduct obligations; creating a committee within the Company’s compliance function to discipline employees and ensure that discipline is meted out consistently; disciplining employees known to have violated Company policies and procedures, including suspending employees, removing their managerial functions, and terminating their employment; and enhancing controls related to procurement and contracting, including centralizing the procurement function, segregating procurement duties, and implementing a risk-based integrity due diligence program for prospective contractors;
(e) the Company has committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment B to this Agreement (Corporate Compliance Program);
(f) the nature and seriousness of the offense conduct;
(g) the Company has no prior criminal history;
(h) the Company has agreed to continue to cooperate with the Fraud Section and the Office in any ongoing investigation of the conduct of the Company. its subsidiaries and affiliates and its officers, directors, employees, agents, business partners, distributors, and consultants relating to violations of the Foreign Corrupt Practices Act (“FCPA”);
(i) the Company resolved with the U.S. Securities and Exchange Commission (“SEC) through a cease-and-desist proceeding that will be filed on September 27, 2018, relating to the conduct described in the Statement of Facts;
(j) the Company settled a private class action shareholders’ suit, In re Petrobras Securities Litigation, No. 14-cv-9662 (S.D.N.Y.), relating to conduct described in the Statement of Facts, pursuant to which it has agreed to pay the settlement class $2.95 billion;
(k) the mitigating factors present in this case, including that, in addition to the misconduct described in the Statement of Facts, a number of executives of the Company engaged in an embezzlement scheme that victimized the Company and its shareholders; and that the Company is a Brazilian-owned company that will separately be entering into a resolution with Brazilian authorities;
(i) accordingly, after considering (a) through (k) above, the Fraud Section and the Office believe that the appropriate resolution of this case is a non-prosecution agreement with the Company, and a criminal penalty with an aggregate discount of 25% off of the bottom of the U.S. Sentencing Guidelines fine range; that the Fraud Section and the Office will credit 80% of the criminal penalty against the amount the Company pays to Brazilian authorities, pursuant to their resolution, and 10% of the criminal penalty against the civil penalty imposed by the SEC. Based on the Company’s remediation and the state of its compliance program, the Company’s agreement to report to the Fraud Section and the Office as set forth in Attachment C to this Agreement (Corporate Compliance Reporting), and the fact that the Company is based in Brazil and will separately be entering into a resolution with Brazil and will be subject to oversight by Brazilian authorities, including Brazil’s Tribunal de Contas da Uniao and Comissao de Valores Mobiliarios, the Fraud Section and the Office determined that an independent compliance monitor was unnecessary.”
As stated in the DOJ release:
“Petrobras entered into a non-prosecution agreement and agreed to pay a criminal penalty of $853.2 million to resolve the matter. This reflects a 25 percent discount off the low end of the applicable U.S. Sentencing Guidelines fine range for the company’s full cooperation and remediation. In related proceedings, Petrobras reached a settlement with the U.S. Securities and Exchange Commission (SEC) and Petrobras entered into an agreement to reach a settlement with the Ministerio Publico Federal in Brazil. Under the non-prosecution agreement, the United States will credit the amount that Petrobras pays to the SEC and Brazil under their respective agreements, with the Department of Justice and the SEC receiving 10 percent ($85,320,000) each and Brazil receiving the remaining 80 percent ($682,560,000).”
In the release, Assistant Attorney General Brian Benczkowski stated:
“Executives at the highest levels of Petrobras—including members of its Executive Board and Board of Directors—facilitated the payment of hundreds of millions of dollars in bribes to Brazilian politicians and political parties and then cooked the books to conceal the bribe payments from investors and regulators. The Criminal Division’s Fraud Section—together with our partners in the Eastern District of Virginia, the SEC, and the FBI—are grateful for the assistance provided by our Brazilian law enforcement counterparts. This case is just the most recent example of our ability to work with our foreign counterparts to investigate companies and other criminal actors whose conduct spans multiple international jurisdictions.”
U.S. Attorney G. Zachary Terwilliger of the Eastern District of Virginia stated:
“Protecting the integrity of U.S. financial markets is one of the highest priorities of this Administration. Those who choose to access our capital markets while failing to disclose the corrupt activities of company executives will be held accountable. I want to thank our law enforcement partners for their diligence and dedication in pursing this important case.”
Assistant Director Robert Johnson of the FBI’s Criminal Investigative Division stated:
“Today’s global resolution demonstrates the FBI’s commitment to thoroughly investigating and holding accountable those international companies who seek to take advantage of our financial system while also facilitating bribes and fraud in other countries. The hefty $853.2 million criminal penalty should act as a deterrent to anyone seeking to perpetrate this kind of fraud in the future. This case proves that no company is above the law and that corruption that spans borders will not be tolerated by the United States. I want to thank the agents, analysts, and prosecutors who investigated this case in parallel with Brazilian authorities. We will continue to pursue any and all companies and individuals throughout the world who disregard the rule of law and threaten our fair and competitive marketplace for their personal gain.”
Special Agent in Charge Matthew DeSarno of the FBI Washington Field Office’s Criminal Division stated:
“Today’s substantial resolution demonstrates the FBI’s continued commitment to working with U.S. and international partners to investigate corruption no matter where it occurs. We remain committed to holding companies and executives who violate the Foreign Corrupt Practices Act accountable for their activity, and we will continue to work diligently to uphold the integrity of an increasingly global marketplace.”
This administrative order is based on the same core conduct as the DOJ’s NPA and states in summary fashion:
“This matter relates to a massive corruption scheme, perpetrated by certain former senior executives of Petrobras—a Brazilian government-controlled oil and gas company—who were appointed by the Brazilian government and who conspired with Petrobras’s largest contractors and suppliers, resulting in material misstatements and omissions by Petrobras.
From at least 2003 to April 2012, Petrobras engaged in a large-scale expansion of its infrastructure for producing oil and gas, a matter of significant interest to investors. During the same period, certain former senior Petrobras executives … (the “Corrupt Executives”) worked with Petrobras’s largest contractors and suppliers to inflate the cost of Petrobras’s infrastructure projects by billions of dollars. In return, the companies executing those projects paid billions of dollars in kickbacks that typically amounted to between 1% to 3% of the contract cost to the Corrupt Executives and conspiring politicians and political parties, including the Brazilian politicians to whom the Corrupt Executives owed their jobs at Petrobras. These same executives submitted misleading documents as part of Petrobras’s internal process of preparing its filings with the SEC. The overcharges caused by the kickbacks resulted in an inflation of property, plant and equipment (“PP&E”) in Petrobras’s financial statements, including its fiscal year 2009 financial statements that were included in its Form 20- F.
The same executives also engaged in other bribery schemes with companies that sought to win contracts with Petrobras or to obtain better terms for those contracts. This scheme generated millions of dollars in bribes that the Corrupt Executives used for their own benefit and for the benefit of their political patrons.
Petrobras failed to detect and disclose these corruption schemes.
As a result of the Corrupt Executives’ failure to implement Petrobras’s internal controls, their exploitation of deficiencies in those controls, and their submission of false certifications in connection with Petrobras’s internal process for preparing its SEC filings, Petrobras made material misstatements and omissions in filings made with the Commission and in documents relating to a $69.9 billion global public offering of equity securities in 2010, which included approximately $10 billion in American Depositary Shares (“ADSs”) in the United States, and the purpose of which was to raise funds for Petrobras’s ongoing expansion of its business.”
The SEC’s order includes this additional finding not mentioned in the DOJ’s NPA:
“Another example [of a bribery scheme] involves Petrobras’s purchase of a Texas oil refinery in 2006 from a Belgium company, which had acquired the refinery for $42.5 million in 2005. Executive 1 knew that the equipment and structures of the refinery had deteriorated, that the oil it produced did not meet Petrobras’s needs, and that it would require a massive overhaul to fix the physical condition of the refinery. Nevertheless, he recommended that Petrobras purchase the refinery. In return, he received a $2.5 million bribe, which he used for his personal benefit and passed on a portion to his political patron.”
Under the heading “Petrobras Did Not Disclose and Maintain A Sufficient System of Internal Accounting Controls” the order finds:
“During the existence of the scheme described above, the Company did not maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles.
Despite operating in a country with a well-known history of corruption in its business and politics, Petrobras did not require employees to receive anti-corruption, anti-fraud, or compliance training. Instead, it left those matters to the discretion of individual managers like Executive 1 and Executive 4. Petrobras also did not devise any policies to prevent political interference, such as policies providing guidance and restrictions on interactions with politicians. Furthermore, despite its obligations under the Audit Committee’s charter, approved on December 2005, Petrobras did not have a Chief Compliance Officer or a typical compliance function until November 2014.
Petrobras’s procurement policies and procedures were also deficient in certain respects. The same executives had the authority to both award and approve contracts. They also could approve the amendment of contracts without review from the legal department, which only reviewed such amendments at the request of the Division Directors promoting the contracts. Although Petrobras had a detailed procurement manual, senior management consistently approved and permitted bidding and contracting outside those procedures. Bids were often conducted by ad hoc committees, whose membership was not controlled by corporate policy, resulting in the inclusion of inexperienced, low-ranking members who were subject to influence by executives with an interest in the outcome.
With respect to filling senior positions, Petrobras did not have a formal process for vetting people nominated to those posts, and did not conduct integrity screenings of its senior executives.
The Corrupt Executives failed to implement internal controls, exploited deficiencies in the Company’s internal accounting controls, and submitted false documents in connection with Petrobras’s internal process for preparing its SEC filings, resulting in both inflation of PP&E and false and misleading disclosures about the corruption scheme in Forms 20-F.”
In the order, the SEC’s finds that Petrobras violated the FCPA’s books and records and internal controls provisions as well as other securities law provisions.
Under the heading “Petrobras’s Cooperation and Remedial Action,” the order states:
“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.
The Commission also took into consideration other significant remedial steps taken by Petrobras, including (i) amending the Company’s bylaws; (ii) replacing the Board of Directors and Executive Board; (iii) limiting individual decision-making authority; (iv) creating several statutory senior manager committees tasked with reviewing, assessing, and making recommendations on matters subject to Executive Board review; (v) enhancing the Company’s compliance policies and procedures; (vi) enhancing the Company’s Compliance Function, including creating the Division of Governance and Compliance; (vii) providing more extensive compliance training and communications to employees; (viii) creating a new Disciplinary Committee; (ix) enhancing the Company’s policies and procedures related to confidential reporting and investigations; (x) enhancing measures to ensure the Company’s operations are insulated from improper political interference; (xi) enhancing controls related to procurement and contracting, including requiring enhanced integrity due diligence for prospective contractors; and (xii) implementing a work program to mitigate the material weaknesses identified by the Company’s independent auditors in 2015, which since have been eliminated in the independent auditors’ 2017 report.”
In the SEC’s release, Steve Peikin (Co-Director of the SEC’s Enforcement Division) states:
“Petrobras fraudulently raised billions of dollars from U.S. investors while its senior executives operated a massive, undisclosed bribery and corruption scheme. If an international company sells securities in the United States, it must provide truthful information about its business operations.”
Petrobras issued this release which states in pertinent part:
“Petrobras announces that it has reached coordinated resolutions of investigations by the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) related to the company’s internal controls, books and records, and financial statements during the period from 2003 to 2012. Petrobras also will enter into an agreement with the Brazilian Federal Prosecutor´s Office, Ministério Público Federal (“MPF”), as the underlying facts were uncovered in the investigation by the Brazilian authorities in Operation Car Wash (“Lava Jato”), enabling 80 percent of the associated payments to be invested in Brazil.
The separate agreements fully resolve the investigations of U.S. authorities. Under the agreements, Petrobras will pay US$85.3 million to the DOJ and the same amount of US$85.3 million to the SEC. The agreements also credit Petrobras’s remittance of US$682.6 million (80 percent of the resolution amount) to the Brazilian authorities to be deposited by Petrobras into a special fund and used according to a consent agreement that will be signed with the MPF.
Through Operation Car Wash, Brazilian authorities, including the Brazilian Supreme Court, have affirmed that certain former Petrobras executives and others engaged in a corrupt scheme that harmed and caused severe financial loss to Petrobras. Petrobras has already recovered more than R$2.5 billion in restitution in Brazil and will continue to pursue available legal remedies from all culpable companies and individuals. Under these agreements, DOJ also recognizes Petrobras’s status as a victim of the embezzlement scheme and the SEC recognizes the company’s status as an Assistant to the Prosecutor in more than 50 criminal proceedings in Brazil.
The agreements that constitute this resolution are as follows:
• A non-prosecution agreement with the DOJ under which Petrobras accepts responsibility under U.S. criminal law for the acts of certain former Petrobras executives and officers that gave rise to violations of books and records and internal controls provisions under Title 15 of the United States Code, section 78m. None of those individuals remain employed by or associated with the company. The agreement acknowledges that, in addition to the misconduct described by the DOJ, the company was victimized by an embezzlement scheme that included the participation of former executives and officers of Petrobras.
• An agreement with the SEC resolving allegations that those same former executives committed violations of certain provisions of the Securities Act of 1933, as well as of the books and records and internal controls and false filings provisions of the Securities Exchange Act of 1934. These alleged violations, none of which require a finding of intent, resulted in misstatements and omissions in filings made with the SEC and in documents relating to a global public offering of equity securities in 2010. The SEC agreement limits the company’s admissions to those facts related to the DOJ agreement.
• A consent agreement to be signed with the MPF without attribution of liability to the company under Brazilian law. The agreement provides that US$682.6 million will be deposited by Petrobras into a special fund in Brazil to be used in strict accordance with the terms and conditions of the consent agreement, including for various social and educational programs to promote transparency, citizenship and compliance in the public sector.
The resolution is in Petrobras’s best interest and that of its shareholders. It puts an end to the uncertainties, risks, burdens and costs of potential prosecution and protracted litigation in the United States.
The SEC also recognized that the payments Petrobras already made under its previously announced settlement of a securities class action lawsuit in the United States will be credited to satisfy the payment of US$933.4 million. As a result, Petrobras will not make any additional payment to the SEC beyond the US$85.3 million referenced above.
The SEC and DOJ agreements also both recognize Petrobras’s compliance program, internal control and anti-corruption procedure enhancements. As part of its agreement with the DOJ, Petrobras has agreed to continue to evaluate and enhance these initiatives.”
Joseph Warin (Gibson Dunn) represented Petrobras.
FCPA Institute - Zoom (May 16-18, 2023)
Elevate your FCPA knowledge and practical skills. Nine hours of integrated and cohesive instruction led by Professor Koehler (an FCPA expert with teaching experience). Learn more, spend less. Professional credential available.Learn More and Register