Petrobras Reaches $1.78+ Billion Resolution of Foreign-Bribery Investigations with U.S. and Brazilian Authorities

On September 27, the Brazilian state-owned and state-controlled oil and gas company Petróleo Brasileiro S.A. – Petrobras (Petrobras) entered into agreements with the United States Department of Justice, the Securities and Exchange Commission (SEC), and Brazilian authorities, under which Petrobras agreed to pay a combined total of more than $1.78 billion to resolve two foreign-bribery investigations: (1) the U.S. investigation into violations of the Foreign Corrupt Practices Act (FCPA) in connection with Petrobras’s role in facilitating payments to politicians and political parties in Brazil; and (2) a related Brazilian investigation.  According to the Department’s Assistant Attorney General for the Criminal Division Brian Benczkowski, “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 Department’s press release summarized the admissions that Petrobras made in connection with the resolution:

[W]hile the company’s American Depository Shares traded on the New York Stock Exchange, members of the Petrobras Executive Board were involved in facilitating and directing millions of dollars in corrupt payments to politicians and political parties in Brazil, and members of Petrobras’s Board of Directors were also involved in facilitating bribes that a major Petrobras contractor was paying to Brazilian politicians.  During this period, for example, a Petrobras executive directed the payment of illicit funds to stop a parliamentary inquiry into Petrobras contracts, and the executive also directed payments received from Petrobras contractors to be corruptly used to pay millions of dollars to the campaign of a Brazilian politician who had oversight over the location where one of Petrobras’s refineries was being built.

Petrobras admitted that it failed to make and keep books, records and accounts that accurately and fairly reflected the company’s capitalization of property, plant and equipment as a result of the bribes being generated by the company’s contractors with the cooperation of certain Petrobras executives, and that certain Petrobras executives signed false 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 Brazilian politicians, to Brazilian political parties and to themselves.  Petrobras also admitted that certain executives failed to implement internal financial and accounting controls in order to continue to facilitate bribe payments to Brazilian politicians and Brazilian political parties.

The resolution consists of three agreements:

• Petrobras entered into a non-prosecution agreement (NPA) with the Department. Under that agreement, Petrobras agreed to pay an $853.2 million criminal penalty to be divided as follows: (1) the Department and the SEC would each receive 10 percent of the total penalty (i.e., $85,320,000 each); and (2)  Brazil would receive the remaining 80 percent ($682,560,000).   In addition, Petrobras “agreed to continue to cooperate with the Department in any ongoing investigations and prosecutions relating to the conduct, including of individuals, to enhance its compliance program and to report to the Department on the implementation of its enhanced compliance program.”
• Petrobras entered into an agreement with the SEC based on Petrobras’s misleading U.S. investors by filing false financial statements that concealed a massive bribery and bid-rigging scheme at Petrobras. Under that agreement, Petrobras agreed to pay the SEC disgorgement and prejudgment interest totaling $933,473,797.  That amount is to be reduced by the amount of any payment that Petrobras makes to the class action Settlement Fund in the matter of a civil case pending in the Southern District of New York.
• Petrobras agreed to reach a settlement with the Ministerio Publico Federal in Brazil, whose terms are covered above.

Note: This tripartite resolution is another significant milestone, after the 2016 guilty pleas of Odebrecht and Braskem, in the multinational enforcement efforts to root out the pervasive political and commercial corruption that has plagued Brazil.  Because Petrobras played a central role in that corruption, it is worthwhile to compare the Petrobras resolution with the Odebrecht and Braskem resolutions:

1. Justice Department Three-Part Standard for Resolution

Since the Department established its FCPA Pilot Program in 2016, it has applied a three-part standard for resolving corporate FCPA investigations: i.e., the company must (1) voluntarily self-disclose FCPA-related misconduct, (2) fully cooperate with the Department (specifically the Criminal Division’s Fraud Section); and (3) where appropriate, remediate flaws in its controls and compliance programs.  The FCPA Corporate Enforcement Policy retained that standard in modified form, stating that a company is entitled to a presumption of declination without a criminal resolution if it has voluntarily self-disclosed misconduct in an FCPA matter, fully cooperated, and timely and appropriately remediated, unless the Department finds aggravating circumstances that may warrant a criminal resolution such as (1) involvement by the company’s executive management in the misconduct; (2) a significant profit to the company from the misconduct; (3) pervasiveness of the misconduct within the company; and (4) criminal recidivism.

1. Voluntary Self-Disclosure: Petrobras, Odebrecht, and Braskem did not voluntarily self-disclose.
2. Full Cooperation: The Department credited Petrobras with “notify[ing] the government of its intent to fully cooperate after learning of the allegations of misconduct” and full cooperation in the investigation.  It added that the cooperation including, according to the “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 Department, making regular factual presentations to the Department, facilitating interviews of and information from foreign witnesses, and voluntarily collecting, analyzing and organizing voluminous evidence and information for the Department in response to requests, including translating key documents.”  In contrast, the Department credited Odebrecht with full cooperation, and Braskem with partial cooperation, without elaboration.
3. Timely and Appropriate Remediation: The Department stated that Petrobras “also took extensive remedial measures, including replacing the Board of Directors and the Executive Board (the company’s high-level managers) and implementing governance reforms, as well as disciplining employees and ensuring that 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.” It stated that Odebrecht and Braskem “also engaged in remedial measures, including terminating and disciplining individuals who participated in the misconduct, adopting heightened controls and anti-corruption compliance protocols and significantly increasing the resources devoted to compliance.”
4. Aggravating Circumstances: Although the Odebrecht and Braskem resolutions occurred before the adoption of the Corporate Enforcement Policy, several aggravating circumstances can be compared and contrasted:
   1. Involvement by Executive Management: For Petrobras, the Department stated that executives “at the highest levels . . . including members of its Executive Board and Board of Directors” facilitated the payment of hundreds of millions of dollars in bribes and falsified corporate books and records to conceal the misconduct from investors and regulators. For Odebrecht and Braskem, the Department stated that the offenses “involved the highest levels of the companies.”
   2. Profit to Company: For Petrobras, the Department did not list a single bottom-line total of profit that the company obtained through its misconduct. That may well have been due to the sheer volume of contracts associated with the misconduct.  For example, the Petrobras NPA’s Statement of Facts stated that a refinery-completion project that Petrobras intended to complete “generated more than 300 contracts and more than 950 amendments.”  For Odebrecht and Braskem, the Department stated that Odebrecht’s “corrupt payments and/or profits total[ed] approximately $3.336 billion” and Braskem’s “corrupt payments and/or profits totaling approximately $465 million.”
   3. Pervasiveness of Intracorporate Misconduct: Although the Corporate Enforcement Policy does not define “pervasiveness of the misconduct,” it is reasonable to assume that the term includes the duration and geographic scope of the misconduct as well as the number and amounts of bribes paid.  By that test, all three companies engaged in pervasive misconduct.  Petrobras’s misconduct, which extended from at least 2004 to 2012, involved company executives and managers facilitating “massive bid-rigging and bribery schemes.”  Odebrecht’s “massive and unparalleled bribery and bid-rigging scheme” began in at least 2001 and lasted for more than a decade, and during that time involved payment of “approximately $788 million in bribes to government officials, their representatives and political parties in a number of countries.” So elaborate was the extent of Odebrecht’s bribery that it established a “Division of Structured Operations”, “which effectively functioned as a stand-alone bribe department within Odebrecht and its related entities.”  Braskem “acknowledged admitted to engaging in a wide-ranging bribery scheme and acknowledged the pervasiveness of its conduct,” which included, between 2006 and 2014, Braskem‘s payment of approximately $250 million into Odebrecht’s “secret, off-book bribe payment system.” Braskem used that system to authorize “the payment of bribes to politicians and political parties in Brazil.”
   4. Criminal Recidivism: If “recidivism” under the Corporate Enforcement Policy means the commission of one or more FCPA offenses after the prior commission of an FCPA offense, none of the three companies engaged in recidivist conduct, though all three certainly involved vast numbers of bribe payments.
   5. Other Factors: In Petrobras, the Department stated that the resolution was “based on a number of unique factors presented by this case, including that Petrobras is a Brazilian-owned company that entered into a resolution with Brazilian authorities and is subject to oversight by Brazilian authorities, and that, in addition to the significant misconduct engaged in by Petrobras, a number of executives of the company engaged in an embezzlement scheme that victimized the company and its shareholders.”  The first factor, as it is worded, is not unique when one considers the Odebrecht and Braskem  Odebrecht is a Brazil-based conglomerate and Braskem a Brazilian company, and both entered into separate resolutions with Brazilian authorities.  In addition, for all three companies Brazil was to receive the majority of the criminal financial penalty: 80 percent for Petrobras and Odebrecht, and 70 percent for Braskem.  The second factor, embezzlement by corporate executives, is a unique factor for Petrobras, though the Department’s statements do not
5. Discount from Sentencing Guidelines: Consistent with the Corporate Enforcement Policy, both Petrobras and Odebrecht received a 25 percent discount off the low end of the Sentencing Guidelines fine range for their cooperation and remediation, while Braskem received only a 15 percent discount because of its partial cooperation.

Ultimately, the Petrobras resolution is important for at least two reasons.  First, it represents continuing progress in the long-running pursuit of high-level corruption in Brazil.  Second, it continues to signal to foreign law enforcement authorities that U.S. authorities are prepared to cede the lion’s share of FCPA-related penalties to foreign authorities, in cases in which the level of engagement (including human and fiscal resources) and “sweat equity” that those foreign authorities have invested in the investigations make such a distribution fair and equitable.