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Monday
Jul182016

SMB Offshore in $342 million settlement with Brazil prosecutors and Petrobras

Image courtesy of SBM OffshoreProsecutors in Brazil and state-owned oil company Petróleo Brasileiro SA signed a settlement agreement Friday with Netherlands-based oil and gas services firm SBM Offshore NV to resolve allegations of corruption.

Under the so-called leniency agreement, SBM will pay Petrobras $342 million through a combination of a cash penalty and discounts on future work.

In late 2014, SBM paid $240 million to Dutch authorities to settle allegations that it bribed government officials in Angola, Brazil, and Equatorial Guinea.

The U.S. Justice Department dropped an investigation into the company when the Dutch settlement was announced.

The company said an internal investigation in 2014 found "certain red flags" in Brazil but "did not find any credible evidence that the company or the company’s agent made improper payments to government officials (including state company employees)."

In January this year, SBM Offshore's chief executive, Bruno Chabas, and supervisory board member Sietze Hepkema reached an out of court settlement with Brazil authorities for the Petrobras corruption probe. The executives paid small fines and didn't admit guilt.

In Friday's settlement, SBM agreed to pay a cash penalty of about $163 million. Petrobras will receive about $149.2 million from that amount. About $13.6 million will be allocated to government enforcement agencies for anti-corruption programs.

SBM will also give Petrobras a 95 percent price reduction on bonus payments for work over the period 2016 to 2030. The reduction has a nominal value of $179 million and a present value of about $112 million, according to the parties.

They jointly announced the settlement Saturday. It allows SBM to bid for new Petrobras contracts.

When the two executives, Chabas and Hepkema, agreed to settle their cases with penalties of about $60,000 each, SBM said it supported them and would pay their fines.

The company said then the executives' settlement didn't involve an admission of guilt and the accusations of corruption were without merit.

SBM provides floating production systems for the oil and gas industry. Petrobras is one of its biggest customers.

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Here's the joint press release issued by the Brazil prosecutor's office, Petrobras, and SBM Offshore dated July 16, 2016:

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The Ministry of Transparency, Oversight and Control (Ministério da Transparência, Fiscalização e Controle – “MTFC”), the Public Prosecutor’s Office (Ministério Público Federal – “MPF”), the General Counsel for the Republic (Advocacia Geral da União – “AGU”), Petróleo Brasileiro S.A. – Petrobras (“Petrobras”) and SBM Offshore signed a settlement agreement (“Settlement Agreement”) today that closes out the inquiries of the MPF, the MTFC and Petrobras into the payment of undue advantages to employees of Petrobras. The MTFC investigation was suspended as a result of the execution of a Memorandum of Understanding between the MTFC and SBM Offshore in March 2015. Following the execution of the Memorandum of Understanding, SBM Offshore, the MTFC, the MPF, the AGU and Petrobras engaged in negotiations which resulted in the signature on Friday, July 15 of the Settlement Agreement.

Under the terms of the Settlement Agreement, SBM Offshore is granted, by the MTFC, the MPF, the AGU and Petrobras, full discharge and exemption from legal actions for all matters related to or arising from any acts relating to its then main Brazilian agent and his companies over the period 1996 – 2012 and all related investigations conducted by Petrobras, the MPF and the MTFC.

The Settlement Agreement provides for Petrobras and SBM Offshore to resume normal business relationships.

The terms for final settlement negotiated between the Parties are made up as follows:

  • cash payment by SBM Offshore totalling $162.8 million, of which $149.2 million will go to Petrobras, $6.8 million to the MPF and $6.8 million to the Council of Control of Financial Activities (Conselho de Controle de Atividades Financeiras – “COAF”) for the implementation of units for massive electronic process of information and other instruments to be used in the prevention and combat against corruption by the MPF and the COAF. This amount will be paid in three installments. The first installment of US$142.8 million will be payable as of the effective date of the Settlement Agreement. The two further installments of US$10 million each will be due respectively one and two years following the effective date of the Settlement Agreement; and
  • a reduction of 95% in future performance bonus payments related to FPSOs Cidade de Anchieta and Capixaba lease and operate contracts, representing a nominal value of approximately $179 million over the period 2016 to 2030, or a present value for SBM Offshore of approximately $112 million
  • SBM Offshore further remains under the obligation to cooperate with the procedures that may be conducted by the MTFC and the MPF against third parties, as developments of the case
  • the implementation by SBM Offshore of improvements of its internal compliance program in relation to Brazil, in consultation with the MTFC, to whom SBM for three years following the effective date of the Settlement Agreement, will periodically report on matters addressed in the agreement. These arrangements do not affect the regular activities of the compliance departments of Petrobras and of SBM Offshore.

The Public Prosecutor’s Office shall submit the Settlement Agreement for approval of the Fifth Chamber for Coordination and Review and Anti-Corruption of the Federal Prosecutor Service, to the extent it is concerned. The MTFC will additionally send the Settlement Agreement to the Federal Court of Accounts (Tribunal de Contas da União – “TCU”).

The Settlement Agreement constitutes the results of the institutional collaboration efforts between the MTFC, the AGU and the Federal Prosecutor Service of the State of Rio de Janeiro, which jointly conducted the negotiations, with a view to reaching the best solution for the case.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He'll be the keynote speaker at the FCPA Blog NYC Conference 2016