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Richard L. Cassin Publisher and Editor

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FCPA Blog Daily News

« Stryker hit with second FCPA enforcement action | Main | Petrobras reaches $1.78 billion FCPA resolution »
Friday
Sep282018

Petrobras smashes the top ten list (and we explain why)

Brazil's state-owned energy giant entered into the biggest FCPA settlement in history Thursday after the DOJ and SEC assessed penalties and disgorgement totalling $1.78 billion.

Petrobras's non-prosecution agreement with the DOJ included a criminal penalty of $853.2 million. An SEC administrative order required disgorgement of $933.5 million.

All of the disgorgement was offset by payments Petrobras had already made to the settlement fund for a U.S. class action by shareholders. And 80 percent of the criminal penalty will be paid to the Ministerio Publico Federal in Brazil.

That means Petrobras will pay the DOJ and SEC a combined total of $170.6 million for the resolution.

But based on the $1.78 billion in total penalties and disgorgement assessed against Petrobras in the DOJ's non-prosecution agreement and the SEC's administrative order,  the resolution is the biggest-ever FCPA case.

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We get it -- the Petrobras resolution could be valued in other ways.

For example, why not count only the criminal penalties assessed by the DOJ -- $853.2 million? That would  fully discount the SEC disgorgement order because Petrobras isn't paying any new money under it. Most of the world's press is valuing the resolution that way.

Or the settlement could be valued at $170.6 million, the amount Petrobras is expected to actually pay the DOJ and SEC.

But we're valuing the Petrobras resolution based on the entire amount of criminal penalties and disgorgement assessed by the DOJ and SEC in the FCPA enforcement documents -- notwithstanding that the DOJ is allowing Petrobras to pay 80 percent of the criminal penalty in Brazil, and that the SEC discounted its entire disgorgement order against money Petrobras had already paid into the U.S. class action settlement fund.

Why are we valuing the resolution at $1.78 billion?

If the DOJ's non-prosecution agreement and SEC's administrative order assess a total of $1.78 billion in criminal penalties and disgorgement, which they do, we think those amounts should be included in the value of the FCPA resolution.

The DOJ and SEC, after all, are specifying the amounts of penalties and disgorgement and assessing them against Petrobras, and ordering how and when and to whom those penalties and disgorgement must be paid, as part of the FCPA resolution.

Without the DOJ's action Thursday in the FCPA enforcement action, would Petrobras ever pay $682.5 million to the Ministerio Publico Federal in Brazil? Who knows? What we do know is that because of the DOJ's action Thursday through the non-prosecution agreement in this FCPA enforcement action, Petrobras is now legally bound under U.S. law to make that payment in Brazil.

Turning to the disgorgement, the SEC administrative order says: "Respondent [Petrobras] shall, within one year of the date of this Order, pay to the Commission disgorgement of $711,000,000 plus prejudgment interest of $222,473,797, for a total payment of $933,473,797."

The order then says: "The amount of this obligation shall be reduced and deemed satisfied by the amount of any payment by Respondent 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."

And then this crucial sentence: "If the resulting payments made by Petrobras to the class action Settlement Fund total less than $933,473,797 as a result of an appeal or other modification to the class action, Petrobras shall, within one hundred eighty (180) days of the expiration of the required payment period referenced in IV.B. above, pay to the Commission the difference remaining from the outstanding amount ordered herein."

What's that mean? That the SEC has imposed a legal duty on Petrobras to disgorge nearly $933.5 million. And if for some reason Petrobras hasn't disgorged that amount within a year through payments to the U.S. class action fund or otherwise, then Petrobras must pay the money directly to the SEC.

That's why the full amount of disgorgement ordered by the SEC should be included in the overall value of Thursday's FCPA resolution. It's part of the FCPA enforcement action.

We don't expect everyone to agree with the way we're valuing the Petrobras resolution. In fact we know many people will disagree, including Petrobras's lawyers, who worked hard for their client and produced a fine result.

That's ok. Debate is healthy. Disagreement is normal. And looking closely at FCPA enforcement policy and practices should happen all the time.

We hope the FCPA Blog contributes in some small way to making that happen.

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Ok, back to business.

The U.S. resolution with Petrobras is structured similar to the FCPA settlement in June with Société Générale S.A. In that case, the DOJ assessed a $585 million penalty against SocGen but said half of it could be paid to the French enforcement agency, Parquet National Financier.

Other FCPA cases following this new U.S. enforcement model -- where the full penalties and disgorgement are included in U.S. enforcement documents, but some portion is allowed to be paid elsewhere -- include Keppel Offshore's resolution and the settlement with Telia Company, both in 2017.

Features of the new FCPA settlement structure appeared in VimpelCom's 2016 resolution.

Also in 2016, Odebrecht / Braskem's FCPA enforcement action allowed for offsets against payments to authorities in Brazil and Switzerland.

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Here are the current top ten FCPA enforcement actions of all time based on penalties and disgorgement assessed in the U.S. enforcement documents:

1. Petróleo Brasileiro S.A. – Petrobras (Brazil): $1.78 billion in 2018.

2. Telia Company AB (Sweden): $965 million in 2017.

3.  Siemens (Germany): $800 million in 2008.

4.  VimpelCom (Holland) $795 million in 2016.

5. Alstom (France): $772 million in 2014.

6. Société Générale S.A. (France): $585 million in 2018.

7.  KBR / Halliburton (United States): $579 million in 2009.

8.  Teva Pharmaceutical (Israel): $519 million in 2016.

9. Keppel Offshore & Marine Ltd.(Singapore): $422 million in 2017.

10. Och-Ziff (United States): $412 million in 2016.

Falling off the top ten list is BAE (UK) with its $400 million resolution in 2010.

Just two U.S.-based companies are on the top ten list -- KBR/Halliburton and Och-Ziff.

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Richard L. Cassin is the publisher and editor of the FCPA Blog.