Odebrecht And Braskem Shatter FCPA Settlement Records By Agreeing To Resolve Enforcement Action For $3.5 Billion For Role In Petrobras Scandal
01/02/2017On December 21, 2016, Odebrecht S.A. (“Odebrecht”), a global construction conglomerate based in Brazil, and its affiliate Braskem S.A. (“Braskem”), a Brazilian petrochemical company, pleaded guilty to conspiring to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”). The resolution of the actions shattered records for corruption settlements, as the companies agreed to pay a combined total penalty of $3.5 billion to resolve bribery charges in the United States, Brazil, and Switzerland arising out of schemes to pay hundreds of millions of dollars in bribes to government officials around the world, including Petrobras, the Brazilian state-owned oil company. Plea Agreement, United States v. Odebrecht S.A., No. 1:16-cr-643 (E.D.N.Y. Dec. 21, 2016); Plea Agreement, United States v. Braskem S.A., No. 16-cr-644 (E.D.N.Y. Dec. 21, 2016).
In the case of Odebrecht, the United States Department of Justice (“DOJ”) accused the company of engaging in systematic acts of bribery that went as far as setting up an internal division, called the Division of Structured Operations, dedicated to the bribery of foreign officials. In furtherance of the bribery scheme and to facilitate the movement of the funds, Odebrecht and its co-conspirators allegedly used small banks in countries with strict bank secrecy laws that restricted sharing information with international law enforcement; to ensure the cooperation of these favored banks, the DOJ claimed that Odebrecht and its co-conspirators frequently paid compensation fees and higher rates to the banking institutions and a percentage of each illicit transaction to bank executives. Between 2001 and 2016, Odebrecht and its co-conspirators allegedly paid approximately $788 million in bribes in association with more than 100 projects in twelve countries, including Angola, Argentina, Brazil, Colombia, the Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru, and Venezuela. According to the DOJ, Odebrecht received more than $3.3 billion in profits as a result of these corrupt payments. Criminal Information, Odebrecht, No. 1:16-cr-643 (E.D.N.Y. Dec. 16, 2016).
Braskem was charged separately by the DOJ and the Securities and Exchange Commission (“SEC”) in connection with a narrower bribery scheme involving Brazilian officials. Between 2002 and 2014, Braskem allegedly paid and authorized Odebrecht’s Division of Structured Operations to pay approximately $250 million to Brazilian politicians and political parties, including an official of Petrobras, in exchange for (i) the continuation of a joint-venture contract with Petrobras, (ii) advantageous supply contracts, and (iii) tax advantages. The payments were allegedly funneled into a series of offshore entities that were not listed as related entities on Braskem’s balance sheet. Criminal Information, Braskem, No. 1:16-cr-644 (E.D.N.Y. Dec. 16, 2016).
According to the DOJ, the criminal penalty for Odebrecht reflected a 25 percent reduction off the bottom of the United States Sentencing Guidelines range because of Odebrecht’s cooperation with the investigation, while Braskem’s criminal penalty only included a 15 percent reduction. However, the DOJ stated that Odebrecht’s penalty was further reduced by $2 billion because the company represented that it was unable to pay anything greater than $2.6 billion. The settlement also involved remedial measures, including terminating and disciplining individuals who participated in the misconduct, adopting heightened controls and anti-corruption compliance protocols, and increasing resources devoted to anti-corruption compliance.
The aggregate $3.5 billion in payments will be split between U.S., Swiss, and Brazilian authorities. This highlights that the Odebrecht and Braskem settlement is not only ground-breaking because of its size, but also because of the significant cooperation between United States, Swiss and Brazilian regulators, which is becoming increasingly common in FCPA enforcement. Earlier this year, United States and Dutch authorities similarly cooperated in an FCPA investigation into VimpelCom Ltd., a Dutch telecommunications company, and its Uzbek subsidiary. Clearly, this is a trend that we can expect to continue.CATEGORY: Criminal Enforcement Matters