A compliance professional and regular reader of the FCPA Blog sent a fascinating note about the multi-billion graft scandal now brewing in Brazil involving the state-owned oil giant, Petrobras.
Here’s what he said:
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Dear FCPA Blog,
I’ve been thinking a lot about the Petrobras scandal and investigation. It’s so fascinating on a number of fronts. It reminds me somewhat of the Oil-For-Food investigations.
As you recall, the Oil-for-Food Program was set up by the United Nations in December 1996. It allowed Iraq to sell its oil for humanitarian purposes, during an otherwise extensive international sanctions regime. The program was scaled down in 2003, in part because of widespread corruption, and discontinued in 2010.
In the Oil-for-Food case, the SEC became privy to bribe recipients’ records that it normal doesn’t get. The SEC received that gift after the U.S. takeover of Iraq in the 2nd Gulf War.
This “once in a lifetime opportunity” led the SEC to many registered companies which were ultimately investigated and issued enforcement actions based on violations of the book and records and internal controls provisions of the FCPA. The SEC would never have been able to make so many cases without the Volcker Commission’s work. The key was getting the bribe recipients’ records. The Volker report said about 2,200 companies paid at least $1.8 billion in kickbacks. (The 630-page report is here in pdf).
Some companies prosecuted by the United States for Oil-for-Food offenses were Chevron, Weatherford, Daimler, Innospec, Johnson & Johnson, GE, AGCO, Novo Nordisk, Fiat, Volvo Constr. Equip., Flowserve, Akzo Nobel, Ingersoll-Rand, York Int’l Corp., El Paso Corp., and Textron. The SEC or DOJ or both alleged the companies paid kickbacks to the Iraq government to win or keep business. There were also at least a half dozen prosecutions of indidivuals.
The investigation of Petrobras is similar to the Oil-for-Food scenario. Petrobras is subject to the SEC and the FCPA, enabling the U.S. potentially to gain access to its books and records. Once inside, the SEC may find evidence of kickbacks paid by other SEC registered companies and others. I think we’re seeing the first wave right now through the media.
Looking ahead, I also wonder about other international companies subject to the SEC that also may be considered state-owned enterprizes. A few that come to mind are YPF SA (Argentina), China Eastern Airlines, Sinopec, PetroChina, EcoPetrol (Colombia), NTT (Japan), and Pemex (Mexico).
You can see the most recent list of international companies registered with the SEC conveniently published here.
Cases against these companies may be political, but you could see how regulators could apply the Petrobras model to one of these companies in order to target a much wider collection of registered companies.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.