This recent post posed the question of whether “foreign” in the FCPA’s “foreign official” element means as it relates to the U.S. or as it relates to the specific company at issue. The post highlighted how in recent years the FCPA enforcement agencies have adopted the former interpretation in bringing FCPA enforcement actions against foreign companies for allegedly bribing their own “domestic” officials – but “foreign” as it relates to the U.S.
In yet another example, the DOJ and SEC announced yesterday (see here and here) that J&F Investimentos S.A. (J&F a private investment holding company based in Brazil that owns approximately 250 companies primarily involved in the meat and agriculture business) and a related entity resolved a net $155 million FCPA enforcement action for allegedly bribing Brazilian officials.
The enforcement action involved a: (i) DOJ component against J&F resolved through a plea agreement in which the company paid net $128.2 million; and (ii) an SEC component against J&F, a related entity, and two individuals in which the related entity paid approximately $26.8 million and the two individuals each paid a $550,000 civil penalty.
DOJ
As alleged in this criminal information:
“In or about and between 2005 and 2017, J&F, together with others including J&F Executive 1 [a Brazilian citizen and high-level executive and partial owner of J&F], J&F Executive 2 [a Brazilian citizen and high-level executive and partial owner of J&F], Intermediary 1 [a Brazilian businessman who was a close associate of Brazilian Official 1] and Intermediary 2 [a close associate of Brazilian Official 5], knowingly and willfully agreed to violate the FCPA by corruptly promising and paying bribes that it understood were to, and for the benefit of, foreign officials in Brazil, including Brazilian Official 1 [a high-ranking executive at BNDES between 2004 and 2006, and a high-ranking official in the executive branch of the Brazilian government between 2006 and 2015 who had significant influence over whether BNDES would enter into transactions in support of private companies] , Brazilian Official 2 [a high-ranking official in the executive branch of the Brazilian government between 2003 and 2010], Brazilian Official 3 [a high-ranking official in the executive branch of the Brazilian government between 2010 and 2016], Brazilian Official 4 [a high-ranking executive of Petros] and Brazilian Official 5 [a high-ranking official in the legislative branch of the Brazilian government between 2003 and 2016], to secure an improper advantage in order to obtain and retain business for J&F, specifically, to ensure that BNDES, Petros and Caixa would enter into financing and equity transactions benefiting J&F that J&F Executive 1 and other J&F personnel had negotiated with those entities.”
BNDES is described as a Brazilian state-owned and state-controlled bank that performed government functions, including providing financing to private companies for endeavors that contributed to the development of Brazil. BNDE’s President and Board of Directors were ultimately appointed by the President of Brazil and BNDES was an “instrumentality” of the Brazilian government.
Petros is described as a Brazilian state-controlled pension fund that performed government functions and was established to administer pension, retirement and death benefits for Petrobras employees. Petrobras [Brazil’s state-owned and state-controlled oil and gas company] appointed half the members of Petros’s Deliberative Board, which was Petros’s highest governing body. Petrobras also appointed the Board President, who could exercise a tiebreaker vote in the evnet of a split board. The Deliberative Board had the power to appoint the President of Petros and Petros was an “instrumentality” of the Brazilian government.
Caixa is described as a Brazilian state-owned and state-controlled bank that performed government functions. The Brazilian government directly owned 100 percent of Caixa and Caixa was an “instrumentality” of the Brazilian government.
Under the heading “Bribery Related to BNDES,” the information alleges in pertinent part:
“[B]etween 2005 and 2014, in furtherance of the bribery scheme, J&F agreed to corruptly promise and pay bribes for the benefit of Brazilian Official 1 for the purpose of improperly ensuring that BNDES would enter into certain financing and equity transactions with J&F-related entities that J&F Executive 1 and other J&F personnel had negotiated with BNDES personnel. J&F Executive 1 understood and intended that the bribes were also for the benefit of Brazilian Official 2 and Brazilian Official 3.
To facilitate the bribery scheme and conceal the true nature of the bribe payments, J&F and its co-conspirators created shell companies, opened bank accounts for the shell companies in the United States and made payments to those accounts for the intended benefit of foreign officials in Brazil, including Brazilian Official 1, Brazilian Official 2 and Brazilian Official 3.
J&F and its co-conspirators, using bank accounts based in New York, New York caused more than $148 million in corrupt payments to be made for the benefit of Brazilian Official 1. J&F Executive 1 also understood and intended these payments to be for the benefit of Brazilian Official 2 and Brazilian Official 3.
In furtherance of the scheme, co-conspirators, including J&F Executive 1, Intermediary 1 and Brazilian Official 1, held meetings in the United States to discuss the bribery scheme.”
Under the heading “Bribery Related to Petros,” the information alleges in pertinent part:
“[B]etween 2011 and 2017, in furtherance of the bribery scheme, J&F agreed to corruptly promise and pay bribes to, and for the benefit of, Brazilian Official 4 for the purpose of ensuring that Petros would enter into transactions with J&F-related entities that J&F Executive 1 and other J&F personnel had negotiated with Petros personnel.
To facilitate the bribery scheme and conceal the true nature of the bribe payments, J&F and its co-conspirators, among other things, created shell companies, purchased real estate in New York City and transferred the real estate to entities controlled by Brazilian Official 4.
In total, from in or about and between 2011 and 2017, J&F and its co-conspirators caused approximately $4.6 million worth of corrupt payments to be made, and items of value to be transferred, for the benefit of Brazilian Official.
In furtherance of the scheme, certain co-conspirators, including J&F Executive 1, travelled to the United States and took acts to further the scheme’s purpose.
Under the heading “Bribery Related to Caixa,” the information alleges in pertinent part:
“In or about and between 2011 and 2014, in furtherance of the bribery scheme, J&F agreed to corruptly promise and pay bribes that were intended to, and for the benefit of, Brazilian Official 5 for the purpose of ensuring that Caixa entered into certain transactions with J&F-related entities that J&F Executive 1 and other J&F personnel had negotiated with Caixa personnel.
In total, from in or about and between 2011 and 2014, J&F and its coconspirators caused approximately $25 million in corrupt payments to be made with the understanding that the payments were for the benefit of Brazilian Official 5. In furtherance of the scheme, certain co-conspirators, including J&F Executive 1, J&F Executive 2 and Intermediary 2, discussed the bribes while located in the United States.”
Based on the above, J&F was charged with conspiracy to violate the FCPA’s anti-bribery provisions.
This plea agreement sets forth an advisory fine range of $284.9 million – $569.9 million. The parties agreed that the “appropriate total criminal penalty is $256,497,026” (Total Criminal Fine) which reflects a 10 percent discount off of the bottom of the applicable Sentencing Guidelines fine range for J&F’s partial cooperation and remediation.
Pursuant to the plea agreement, J&F will pay the U.S. $128,248,513 equal to 50 percent of the Total Criminal Fine. J&F agreed to pay $47 million to the U.S. Treasury within 10 days of the court entering judgment and to pay the remaining $81.2 million within six months. According to the plea agreement, the DOJ “determined, after conducting an independent analysis, that this limited payment period was necessary in light of current circumstances in order to mitigate any potential impact the payment may otherwise have on J&F’s ability to continue to make the full payments owed to Brazilian authorities …”.
The DOJ agreed that the remaining amount of the Total Criminal Penalty will be offset by $128.2 million for penalties J&F will pay to the Brazilian authorities.
The plea agreement was based on the following facts and circumstances:
a. J&F “did not receive voluntary disclosure credit … because it did not voluntarily self-disclose”
b. J&F “received partial credit for its cooperation … by, among other things: (i) conducting an internal investigation; (ii) making factual presentations to the DOJ; and (iii) voluntarily making foreign-based employees available for interviews in Brazil;
c. J&F “did not receive full credit for cooperation and remediation … because, among other things, J&F initially declined to produce all relevant materials and failed to produce all relevant documents and information in a timely manner;
d. J&F “entered into a resolution with [Brazil law enforcement authorities} in Brazil relating to the same conduct … and has agreed to pay a fine of [approximately $1.44 billion] and to contribute [approximately $414 million to social projects in Brazil in connection with the Brazilian Leniency Agreement and the DOJ is crediting a portion of the Brazilian fine in connection with the penalty in the Agreement;
e. “although J&F did not have anti-corruption controls or an anti-corruption compliance program at the time of the conduct …, J&F has since engaged in remedial measures, including: (i) creating and establishing an anti-corruption compliance program that is audited annually by an independent party; (ii) significantly, increasing the importance of anti-corruption compliance messaging within the company; and (iii) conducting regular and robust anti-corruption compliance training with all executives and senior managers;
f. based on J&F’s remediation, the state of its compliance program, including ensuring that its compliance program will satisfy the minimum elements set forth in Attachment C to this Agreement, as well as the fact that the Brazilian Leniency Agreement requires the implementation of an independent commission responsible for monitoring and reporting on internal investigations and compliance audits conducted at J&F with ongoing reporting requirements to the Brazilian authorities, and J&F’s agreement to report to the DOJ as set forth in Attachment D to this Agreement, the DOJ determined that an independent compliance monitor is unnecessary;
g. the nature, seriousness and pervasiveness of the offense conduct, which included executives at the highest levels of the Company, including payment of bribes to high-level government officials in Brazil over a period of years;
h. J&F has no prior criminal history; and
i. J&F has agreed to continue to cooperate with the DOJ; and
j. accordingly, after considering (a) through (i) above, the DOJ believe that the appropriate resolution of this case is for J&F to plead guilty to one count of violating the anti-bribery provisions of the FCPA; an aggregate discount of 10 percent off of the bottom of the applicable U.S. Sentencing Guidelines fine range; and J&F’s agreement to report to the DOJ.
In the DOJ release, Acting Assistant Attorney General Brian Rabbitt stated:
“With today’s guilty plea, J&F has admitted to engaging in a long-running scheme to bribe corrupt officials in Brazil to obtain financing and other benefits for the company. As part of this scheme, executives at the very highest levels of the company used U.S. banks and real estate to pay tens of millions of dollars in bribes to corrupt government officials in Brazil in order to obtain hundreds of millions of dollars in financing for the company and its affiliates. Today’s resolution demonstrates the department’s continuing commitment to combating international corruption and holding companies accountable for violations of the FCPA.”
Acting U.S. Attorney Seth DuCharme for the Eastern District of New York stated:
“Today’s resolution and guilty plea, including a $256 million fine, demonstrates our office’s full commitment to holding accountable those entities that seek to gain an improper advantage over competitors by bribing foreign officials and using the U.S. financial system to carry out the crimes. Protecting the integrity of the financial system is a core priority of the Department of Justice.”
Special Agent in Charge James Dawson of the FBI Washington Field Office Criminal Division stated:
“No matter where it occurs, the FBI and our global partners are committed to diligently rooting out corruption which betrays public trust and threatens a fair economy. Today’s plea demonstrates the FBI’s commitment to combatting foreign corruption reaching the United States, and today’s actions send a strong message that we will not relent in our efforts to uphold the law and hold everyone accountable to play by the same, fair rules.”
SEC
This SEC administrative order concerns the same core conduct alleged by the DOJ regarding the BNDES bribery scheme. In summary fashion, the administrative order finds:
“This action arises from a bribery scheme by Joesley Batista and Wesley Batista (hereinafter “the Batistas”), their company J&F, and JBS, a company which J&F and its affiliates control, and which is the largest meat and protein producer in the world with net revenues in 2019 in excess of $50 billion. JBS’s shares trade on the Brazilian stock exchange and its American Depositary Shares trade in the U.S. over-the-counter market. In 2009, the Batistas sought to continue to expand their meat business into the United States through acquisitions of multiple U.S. companies. From 2009 through 2015, the Batistas made illicit payments totaling approximately $150 million for the benefit of then Brazil Finance Minister (“Minister”) and various political parties and candidates in Brazil at the request and direction of the Minister. The Batistas made the payments in return for the Minister’s assistance, among other things, in obtaining and maintaining $2 billion in equity financing (“BNDES Investment”) from the Brazilian National Development Bank and its affiliate (together “BNDES”) in order to facilitate JBS’ acquisition of U.S. issuer Pilgrim’s Pride Corporation (“Pilgrims”).
At the time of the acquisition in December 2009, Pilgrims was under Chapter 11 bankruptcy protection as a result of the financial crisis’ impact on its operations. The BNDES Investment, which the bribes facilitated, and which was preserved by the bribe scheme, allowed the Batistas to acquire Pilgrims and successfully have it exit bankruptcy and continue to operate as a going concern under the Batista family-controlled conglomerate. Following the acquisition, Wesley Batista served as CEO of JBS and Chairman of the board for Pilgrims, and Joesley Batista served as CEO of J&F and a member of the board of Pilgrims. As provided for in the share purchase and investment agreements, JBS acquired Pilgrims. After the acquisition, unbeknownst to Pilgrim’s management, the Respondents carried out the bribery scheme and its funding using, at times, JBS operating accounts which contained funds that were commingled with funds obtained from Pilgrims through intercompany transfers, special dividends, and other means. The Respondents then paid bribes at the direction of the Minister. Pilgrim’s books did not reflect this.
The Batistas, individually and through J&F and JBS, exerted significant control over Pilgrims. Pilgrims shared office space, overlapping board members and executives, accounting and SAP systems, and certain internal accounting controls and policy documents with JBS and its U.S. affiliate, JBS USA. Throughout 2009 to 2015, unbeknownst to Pilgrims management, the Batistas continued the bribery scheme using, in part, certain JBS operating accounts which contained funds that were commingled with funds obtained from Pilgrims, through intercompany transfers, dividend payments, and other means. To further conceal their conduct, the Batistas did not disclose to Pilgrims’ accountants and independent public accountants during due diligence and audits that certain funds transferred to JBS were commingled with funds used to pay bribes in Brazil. As a result of this conduct, Joesley Batista, Wesley Batista, J&F, and JBS caused Pilgrims’ books and records to inaccurately record the transfers and payments and caused Pilgrims’ failure to maintain an adequate system of internal accounting controls in violation of the books and records and internal accounting controls provisions of the FCPA.”
Joesley Batista is described as:
“A Brazilian national who owned J&F and held multiple positions in J&F entities, including the roles of CEO and board member of J&F, CEO of JBS from 2006 through 2011, Chairman of the Board of Directors for JBS between 2011 and 2017, Director of JBS USA through 2017, and Director of Pilgrims from December 2009 through May 25, 2017.”
Wesley Batista is described as:
“A Brazilian national who owned J&F and held multiple positions in J&F entities, including the roles of Director for J&F, CEO of JBS from 2011 to 2017, CEO of JBS USA from 2007 to 2011, board member of JBS and JBS USA until 2017, and Chairman of Pilgrims’ board of directors and compensation committee between December 2009 and June 14, 2017.”
Based on the above, the SEC found that J&F, JBS and the Batista’s caused Pilgrim’s violations of the FCPA’s books and records and internal controls provisions. The SEC also found that the Batista’s: (i) knowingly circumvented or knowingly failed to implement a system of internal accounting controls and knowingly falsified books and records; and (ii) made materially false or misleading statements or omissions to an accountant or auditor.
Under the heading “Cooperation and Remediation,” the order states:
“In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondents and cooperation afforded the Commission staff. Respondents’ cooperation included providing translations of certain relevant documents, making current or former employees available to the Commission staff, including witnesses located overseas, and timely providing facts developed during the course of J&F’s internal investigation. Respondents Joesley Batista and Wesley Batista also voluntarily provided the Commission staff with documents located overseas and participated in interviews.
Respondents’ remediation included creating a compliance program that employs approximately 35 individuals at J&F and its affiliates to cover its operating entities including Pilgrims, updating its Code of Conduct, and creating anti-bribery policies and training programs. Respondents Wesley Batista and Joesley Batista resigned from board and management positions at Respondents J&F and JBS and also from JBS USA. JBS also removed other executives involved in corrupt activities in Brazil from their executive positions. In addition, Respondents hired an independent firm in April 2018 to oversee their compliance with the obligations in the Brazilian leniency agreement and a public accounting firm to help implement an integrity program throughout the companies in the J&F group. J&F will also create a compliance committee, hire auditing for due diligence of suppliers and customers and provide training to more than 120 directors at J&F and its affiliates in the areas of conflicts of interest, money laundering prevention and anti-corruption.”
To resolve the matter, JBS agreed to pay disgorgement of approximately $26.8 million and the Batistas agreed to each pay a civil penalty of $550,000.
As a condition of settlement, J&F, JBS and the Batista’s agreed to undertake to review, evaluate and report to the SEC periodically during a three-year term, the effectiveness of the anti-corruption policies, procedures, practices, internal accounting controls, recordkeeping, and financing reporting processes for J&F and JBS and any U.S. issuers that are under J&F’s, JBS’s or the Batista’s direct or indirect control, including Pilgrims, and report on ongoing efforts to improve the effectiveness of the policies and procedures. In addition, the Batista also agreed to undergo enhanced ethics and FCPA training and submit annual certifications of completion.
As noted in the SEC’s order, in 2017 the Batista entered into collaboration agreements with Brazilian authorities.
In the SEC’s release, Charles Cain (Chief of the SEC’s FCPA Unit) stated:
“Engaging in bribery to finance their expansion into the U.S. markets and then continuing to engage in bribery while occupying senior board positions at Pilgrim’s reflects a profound failure to exercise good corporate governance. This brazen misconduct flies in the face of what investors should expect from those occupying the role of an officer or director of a U.S. issuer.”
Quinn Emanuel Urquhart & Sullivan attorneys Ben O’Neil, William Burck and Michael Carlinsky represented J&F.
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