Did the U.S. Hulk Smash Brazil for FCPA Violations?
It’s 3:47 am Saturday morning and my work cell is going off repeatedly with annoying dings, missed calls, and oh yes – voicemails. Why didn’t I turn my phone off? I grab my cell and practically fall off the bed scrambling to get to my computer. We have another reportable item this year for FCPA violations. Our program manager (PM) was detained by the Afghan military at the Kabul International Airport in Afghanistan.
The PM had a large amount of cash with him that he intended on converting to Afghani in order to obtain local permits for our government contract. One of the armed Afghan government officials in customs demanded the PM turn over the cash or he would be put in jail. Fearing for his safety, he handed the official his money and was subsequently detained for allegedly bribing the customs agent. Unfortunately, FCPA violations are a familiar occurrence with certain countries; however, my team had experience in dealing with these situations and we were prepared to act.
Most companies have robust policies in place to combat the risk that an employee would intentionally bribe, coerce, or provide lavish gifts to foreign government officials. Every country is different in what is deemed acceptable when dealing with government officials. One thing is very clear: if you violate the U.S. Foreign Corrupt Practices Act (FCPA), you risk paying significant fines, penalties, and imprisonment. The largest fines and penalties in U.S. FCPA history came swinging down like my favorite Marvel character, the Incredible Hulk. Petróleo Brasileiro S.A. – Petrobras (Petrobras), a Brazilian state-owned and state-controlled oil-and-gas company, entered into settlement agreements with the U.S. and Brazilian authorities on September 27, 2018 for a whopping $1.78 billion.
The Petrobras Scandal
In a press release by the Securities and Exchange Commission (SEC), Petrobras was charged with misleading U.S. investors by filing false financial statements that concealed a massive bribery and bid-rigging scheme. More specifically, when Petrobras completed a $10 billion stock offering in 2010, the filings misrepresented Petrobras’ assets, infrastructure projects, the integrity of its management, and the nature of its relationships with its majority shareholder, the Brazilian government.
As if the SEC charges were not enough, the U.S. Department of Justice (DOJ) stepped in the ring and announced its non-prosecution agreement with Petrobras that very same day for FCPA violations. “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.
Petrobras had been under investigation by the U.S. and Brazilian authorities for many years – resulting in a slew of protests, demands for impeachment of President Dilma Rousseff, and the conviction of Petrobras’ former CEO, Aldemir Bendine, for using his position as CEO to take around $3 million (USD) in bribes from construction firm Odebrecht. Bendine was sentenced to 11 years in prison.
Operation Car Wash
One of the most interesting elements of the investigation started with 9-time money laundering convict, Alberto Yousseff. Around mid-2013, Brazilian police detained Yousseff for (you guessed it) another money laundering charge. The New York Times reported Yousseff stating to Brazilian prosecutors, “Guys, if I speak, the republic is going to fall.” After entering a plea agreement, Yousseff told the usual tales of Rolex watches, $3,000 bottles of wine, yachts, helicopters, and prostitutes. There were also staggering sums of money, most of it flowing through a network of phantom corporations, some of it hand-delivered by an elderly gentleman who flew around the world with bricks of cash, shrink-wrapped and strapped beneath thigh-high socks and a Spanx-like vest. However, at the heart of this investigation is an old-fashioned kickback resulting in the Petrobras scandal.
Between March 2014 and March 2015, dozens of engineers, construction executives, and Petrobras officials were arrested as part of Operation Car Wash. Over 86 people have been convicted of crimes relating to Petrobras. Most of those convicted were members of Brazil’s political or economic elite. The most powerful impact of the Petrobras scandal was the impeachment of Brazil’s first female president, President Dilma Rousseff. The craziest thing about her impeachment is that Rousseff wasn’t even charged for corruption. The Senate convicted Rousseff for manipulating the federal budget in an effort to conceal the mounting economic problems.
Zero-tolerance for corrupt business practices
The U.S. will not permit its citizens to be manipulated into foreign investments. There is no discrimination when it comes to FCPA violations. As a result, governments across the world have established their own anti-corruption offices. There are varying degrees of penalties levied against U.S. and foreign firms who violate U.S. law. Unfortunately for Brazil, they learned this lesson the hard way. It is a reminder to the world not to make us angry.
Lindsay J. Eccles, Global Business Projects