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Friday
Jan192018

Lucas Zanoni: Brazil corporate enforcement soared in 2017, but jurisdictional problems remain

 In 2017, Brazil played a big role in global anti-corruption enforcement. During the year, the largest leniency agreement in Brazil's history was signed, and the second largest was ratified by the Brazilian courts.

Despite enforcement progress, challenges to some of the leniency agreements have created uncertainty about what agencies have authority and jurisdiction to resolve big corruption cases. Some of those questions were resolved in 2017, but there are still many open issues related to leniency agreements, throwing some large-scale anti-corruption enforcement into limbo.

In this post, I'll summarize some of the largest resolutions.

JBS. At the end of May, J&F, the parent company of the world's largest meatpacker, agreed to pay BRL 10.3 billion (about $3.2 billion) spread over 25 years to settle four graft probes. The company was investigated for fraud in connection with state-controlled pension funds' investments, for payment of bribes to meat inspectors, and for other corrupt practices.

Odebrecht. Signed at the end of 2016, the company's leniency agreement was ratified by a judge in May. The construction company agreed to pay BRL 3.8 billion (almost $1.2 billion) spread over 23 years to settle charges related to the Petrobras scandal investigated by the Carwash Operation.

In August, the Federal Regional Court of the 4th Region annulled the agreement between the Federal Public Prosecutor Office (MPF) and Odebrecht on the grounds that the MPF does not have the competence or legitimacy to make leniency agreements involving acts of administrative misconduct. The decision was widely criticized by the Public Prosecution Service, Odebrecht and several Brazilian lawyers, arguing that it brings great legal uncertainty to companies seeking to sign agreements with Brazilian authorities. The company is now negotiating an agreement with the Attorney General's Office (AGU).

During 2017, Odebrecht also entered into leniency agreements in at least six other states, both with MPF and states public prosecutor’s offices (MPE). As the Carwash prosecutor's team has no jurisdiction over all the criminal facts revealed by the company, there are cases that need to be investigated by other authorities.

Rolls-Royce. In January, Rolls-Royce agreed to pay BRL 81 million ($25 million) to settle charges related to the Petrobras scandal investigated by the Carwash operation. The amount includes the net profits from six contracts with the oil company (about BRL 39 million or $12 million), added to the total paid as commission to intermediaries, which was more than BRL 20 million (about $6 million), and a fine equivalent the value of the commission.

In early 2015, Rolls-Royce delivered to the Federal Public Prosecutor Office the results of an internal investigation.

Keppel Fels
. Keppel Fels Brasil agreed to pay BRL 1.4 billion ($433 million) to settle charges related to irregular business in the supply of drilling vessels to Petrobras. Under the agreement signed with the Federal Public Prosecutor's Office, the company has committed to return double the amount of all bribes paid, due to the application of a fine provided for in the Administrative Misconduct Act.

SBM. Last year, SBM Offshore signed an agreement with the Ministry for Transparency – CGU to settle charges related to the Petrobras corruption probe. Netherlands-based SBM agreed to pay US$342 million through a combination of a cash penalty and discounts on future work.

But the Federal Public Prosecutor's Office blocked the settlement in September, pointing out flaws in the clauses negotiated by the government and prosecutors. The authorities and SBM then returned to the negotiating table.

According to auditors from the Federal Court of Accounts or TCU, the leniency agreement’s value only took into account SBM's bribes and the profits, without considering any losses due to the overpricing of SBM's contracts, which could reach $861 million.

In December, the judges from the TCU approved the terms of the leniency agreement with SBM, but said that if the overpricing is proven in the future, the company may be charged by the court in other proceedings.

The Federal Public Prosecutor Office’s prosecutors, however, were not part of the agreement and filed an action of administrative misconduct against SBM and some of its employees and Petrobras’s executives, further hampering the progress of the leniency agreement.

____

Lucas Zanoni is an undergraduate student of history and law at the University of São Paulo, researcher in the fields of Fiscal History and Anti-corruption, and intern at ID Global, an institute of research and experimental development in social and human sciences.

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