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Petrobras Reaches $850M Settlement for U.S. Corruption Charges

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By The Maritime Executive 09-28-2018 03:21:33

Brazilian state-owned oil firm Petrobras, the dominant player in Brazil's offshore oil industry, has agreed to an $850 million criminal settlement with the U.S. Justice Department over corrupt payments to politicians and political parties in Brazil. It is the latest development in the long-running "Lava Jato" investigation into illicit links between Petrobras and Brazil's top leadership, a scandal that has upended the nation's political landscape over the past four years. 

“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," said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division in a statement. 

As part of the settlement, Petrobras admitted that its top executives made millions of dollars in corrupt payments to Brazilian politicians, and that they facilitated similar bribes from a contractor. Petrobras also admitted to improper book-keeping and to failing to set up internal financial controls. 

While most of the conduct described in the settlement occurred in Brazil, it falls under U.S. jurisdiction because Petrobras has significant business connections in the United States: it is a Nasdaq-listed company, with American investors and regular disclosures to the U.S. Securities and Exchange Commission. This means that it is subject to the terms of the Foreign Corrupt Practices Act, which criminalizes bribery of foreign officials. 

“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,” said Special Agent in Charge Matthew J. DeSarno of the FBI Washington Field Office’s Criminal Division. “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."

The DOJ also took pains to highlight Petrobras' proactive cooperation in the investigation, its work to clean up in the wake of the revelations, and the fact that the company was itself a victim of its executives' actions. Petrobras has since replaced all of its board and its top-level executive leadership, and it has reached a separate settlement agreement with Brazilian authorities. 

SEC settlement

Separately, Petrobras has also agreed to pay the U.S. Securities and Exchange Commission a penalty of $930 million on related charges. According to the SEC's account, Petrobras recorded a complex system of overpayments and kickbacks as money spent to improve its infrastructure, resulting in an estimated $2.5 billion overstatement of its assets. Based on this overstatement, the firm made false and misleading statements to U.S. investors about its worth in the lead-up to a $10 billion stock offering in 2010. 

“If an international company sells securities in the United States, it must provide truthful information about its business operations," said Steven Peikin, co-director of the SEC Enforcement Division.

The SEC penalty will be reduced by the amount that Petrobras pays out to a class action settlement fund for civil damages related to the bribery scandal. The SEC's order also sets up a so-called "Fair Fund" to distribute any remaining penalty amount to investors who were harmed by Petrobras' actions.