The DOJ and SEC assessed penalties and disgorgement of $1.78 billion Thursday against Brazil’s state energy company to resolve FCPA violations involving massive bribes to politicians and political parties in Brazil.
Petróleo Brasileiro S.A. – Petrobras also reached a settlement in Brazil and under the DOJ resolution will pay most of the criminal penalties there.
The SEC allowed Petrobras to credit against the disgorgement the money it had already paid into a settlement fund for U.S. shareholder litigation.
Petrobras entered into a non-prosecution agreement (pdf) with the DOJ that included a criminal penalty of $853.2 million.
Under the NPA, Petrobras will pay 10 percent or $85.3 million of the criminal penalty to the DOJ and another 10 percent to the SEC. Petrobras will pay the remaining 80 percent or $682.5 million to the Ministerio Publico Federal in Brazil.
The DOJ said its settlement recognized “that Petrobras is a Brazilian-owned company that entered into a resolution with Brazilian authorities and is subject to oversight by Brazilian authorities.”
The SEC settled the case through an internal administrative order (pdf) and didn’t go to court.
The agency ordered Petrobras to disgorge $933.5 million (disgorgement of $711 million and $222.5 million in prejudgment interest).
The administrative order said,
The amount of this [disgorgement] obligation shall be reduced and deemed satisfied by the amount of any payment by [Petrobras] to the class action Settlement Fund in the matter of In re Petrobras Securities Litigation, No. 14-cv-9662 (S.D.N.Y.), up to and including the entire amount of this obligation.
Petrobras said in a securities filing Thursday the disgorgement “will be credited to satisfy the payment of $933.4 million” that “Petrobras already made under its previously announced settlement of a securities class action lawsuit in the United States.”
“As a result, Petrobras will not make any additional payment to the SEC beyond the $85.3 million” in penalties assessed by the DOJ and payable to the SEC, the company said.
That means Petrobras will pay the DOJ and SEC a combined total of $170.6 million.
The SEC said Petrobras made “materially false and misleading statements to U.S. investors in a $10 billion stock offering completed in 2010.”
The company misrepresented “its assets, infrastructure projects, the integrity of its management, and the nature of its relationships with its majority shareholder, the Brazilian government,” according to the SEC.
The SEC’s order said the $85.3 million the agency is collecting will go into a “Fair Fund” for harmed Petrobras investors.
In the non-prosecution agreement with the DOJ, Petrobras agreed to continue cooperating in “ongoing investigations and prosecutions” of companies and individuals, and to enhance its compliance program.
The DOJ said it reduced the criminal penalty by 25 percent “for the company’s full cooperation and remediation.”
Based on $1.78 billion in total penalties and disgorgement assessed against Petrobras in the DOJ’s NPA and the SEC’s administrative order, this is the biggest FCPA enforcement action.
Although the SEC didn’t require Petrobras to make any new payment to satisfy the $933.5 million disgorgement order, the order itself is also the biggest in an FCPA case.
The DOJ’s Brian Benczkowski said in a release Thursday, “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.”
Petrobras has ADRs registered with the SEC and traded on the NYSE under the symbol PBR.
The oil giant admitted that it failed to account for the bribes in its books and records and that some executives signed false Sarbanes-Oxley 302 certifications.
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 bribery included payments “to stop a parliamentary inquiry into Petrobras contracts” and “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.”
The SEC’s Steven Peikin said, “Petrobras fraudulently raised billions of dollars from U.S. investors while its senior executives operated a massive, undisclosed bribery and corruption scheme.”
Although Petrobras didn’t voluntarily disclose the FCPA violations, it “fully cooperated in the investigation and fully remediated,” the DOJ said.
The company’s cooperation included “sharing in real time facts discovered during the internal investigation.”
Petrobras also replaced its board of directors and executive board, disciplined employees, and ended relationships with anyone “known to the company to be implicated in the conduct at issue in the case.”
The company Thursday described its resolution in Brazil as a “consent agreement to be signed with the MPF [Ministerio Publico Federal] without attribution of liability to the company under Brazilian law.”
Petrobras said the $682.6 million it is paying to the MPF “will be deposited by Petrobras into a special fund in Brazil to be used in strict accordance with the terms and conditions of the consent agreement, including for various social and educational programs to promote transparency, citizenship and compliance in the public sector.”
In the U.S. class action shareholder litigation, Petrobras has agreed to pay $2.95 billion for a settlement.
On Thursday, Petrobras said: “The resolution [with the DOJ and SEC] is in Petrobras’s best interest and that of its shareholders. It puts an end to the uncertainties, risks, burdens and costs of potential prosecution and protracted litigation in the United States.”
Richard L. Cassin is the publisher and editor of the FCPA Blog.