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Tom Fox: The Petrobras scandal reaches into Texas

For those who think the U.S. government shouldn’t be concerned with the Petrobras scandal, allegations of bribery and corruption have reached the great state of Texas.

As reported in the Houston Chronicle, in an article entitled, Scandal in Brazil Snares Refinery, Mihir Zaveri, Susan Carroll and Ben Tavener wrote about a refinery just outside Houston, in Pasadena which has become a focal point in the ongoing Petrobras bribery and corruption scandal.

If the allegations are correct, it would also appear that there is clear US jurisdiction for the enforcement of a Foreign Corrupt Practices Act (FCPA) violation.

The allegations involve the sale of the petrochemical refinery previously owned by a Belgium company called Astra Oil, who purchased the refinery in 2005 for $42.5 million in 2005. Rather amazingly, Astra Oil then sold the refinery to Petrobras, in a series of transactions beginning in 2006 for $1.2 billion. That is certainly one hefty return on investment. Unfortunately, it appears that Petrobras far overpaid for the purchase and part of this overpayment price was used as fund to pay bribes to corrupt Petrobras officials.

The article stated, “One former executive admitted being offered a $1.5 million bribe to allow the Pasadena deal to go through, records show, and Brazilian prosecutors are investigating whether politicians also received kickbacks from the purchase.”

The case offers an interesting look into how many of the bribes to Petrobras officials may have been funded.

While there has been a clear pattern of overpayments for contracts and then some type of rebate to the corrupt officials based on the percentage over paid; the Pasadena refinery case offers another, perhaps more sophisticated scheme. In this case, one year after Astra Oil bought the Pasadena refinery for $42 million, Petrobras “did its own estimate of the refinery’s value and pegged it at $742 million.” It was on this inflated valuation that Petrobras officials made their offer and funded the transaction.

This revelation may well be significant as it shows how a culture of corruption can lead to systemic corruption and then the actual method of corruption. It also demonstrates yet another mechanism to create pots of money to pay bribes; the over-valuation of properties which can then be purchased at premiums with the selling company using the overvaluation to fund bribes back to the purchase.

Finally, while the U.S. Securities and Exchange Commission is known to be investigating Petrobras America Inc., a U.S. listed company, it is not known whether the SEC investigation includes issues related to the Pasadena refinery.


Thomas Fox is a contributing editor of the FCPA Blog and a Compliance Week columnist. He’s the founder of the Houston-based boutique law firm A popular speaker on compliance and risk-management topics, Fox is also the creator and writer of the widely followed FCPA Compliance Report. His book Lessons Learned on Compliance and Ethics topped Amazon’s bestseller list for international law. He can be contacted here.

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1 Comment

  1. Tom,

    US jurisdiction may also come from the fact that Petrobras floated its shares on the NYSE. A decision which it might come to regret as the Car Wash investigation unfolds.

    Significantly in this particular transaction is that it was discussed in the Petrobras Board and approved. The original transaction was for a share in the refinery with an option for the selling party to offload the remainder of the shares to Petrobras at the same price! It was only after the owner exercised the option later, that Petrobras became sole owner of the Pasadena refinery.

    Worth noting: the Board's Chairperson at the time of the discussion and approval was Dilma Rousseff, now President of Brazil. If indeed the Board did not question the valuation and other contract clauses closely enough, the Chairperson must at least carry part of that responsibility.


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