A Brazilian oil and gas company Petróleo Brasileiro S.A. ("Petrobras") agreed to settlements with the DOJ and SEC for misrepresentations of Petrobras's assets, "infrastructure projects, the integrity of its management, and the nature of its relationships with its majority shareholder, the Brazilian government."
According to admissions in the Non-Prosecution Agreement with the DOJ, senior leadership at Petrobras were involved in facilitating and directing millions of dollars in corrupt payments to Brazilian politicians and political parties. This wide-ranging bribery scheme was the subject of a years-long Brazilian investigation, called Operation "Lava Jato" ("Car Wash"), which landed a number of high-profile figures in prison and roiled the country's politics and government. In its settlements, Petrobras admitted that it failed to maintain accurate books and records, and that executives "knowingly and willfully failed to implement a system of internal accounting controls designed to detect and prevent the facilitation of bribes."
Petrobras agreed to pay a total of $853.2 million in criminal penalties, $711 million in disgorgement and approximately $222 million in prejudgment interest. A significant portion of these amounts are likely to be offset by payments to Brazilian authorities, and to a class action Settlement Fund in a federal securities litigation case.
In settling with Petrobras, both the DOJ and SEC recognized the company's cooperation with investigators and its remediation. According to the DOJ, these factors earned Petrobras a 25 percent reduction off the low end of the applicable U.S. Sentencing Guidelines fine range. Under the DOJ FCPA Enforcement Policy, Petrobras was not eligible for a full 50 percent reduction in its fine because it did not voluntarily and timely disclose the misconduct.
Commentary / James Treanor
The Petrobras settlement is a prominent example of the increased coordination and cooperation among U.S. and foreign regulators. Indeed, the Operation Car Wash investigation originated in Brazil, and the ongoing fallout from its revelations are concentrated overwhelmingly in that country. Perhaps in recognition of this fact, 80% of the agreed $853.2 million penalty is effectively earmarked for Brazilian authorities. (This apportionment among different agencies also makes the Petrobras case an example of the DOJ policy against "piling on" multiple penalties related to the same misconduct, announced by Deputy Attorney General Rod Rosenstein earlier this year.)
Within the United States, the DOJ and SEC focused on the harm caused to investors who purchased Petrobras American Depository Shares listed on the New York Stock Exchange. In fact, while Petrobras is patently a "bribery" case - one of the biggest in history - the SEC did not charge the company with any FCPA violations. And in announcing the DOJ settlement, which charged violations of the FCPA's books and records and internal controls provisions, U.S. Attorney Zachary Terwilliger underscored that: "Protecting the integrity of U.S. financial markets is one of the highest priorities of this Administration. . . . Those who choose to access our capital markets while failing to disclose the corrupt activities of company executives will be held accountable." In light of this focus on investors - and perhaps to leave Petrobras with the financial means of making them whole - the SEC agreed to reduce the approximately $933 million in disgorgement and prejudgment interest owed to it by the amount of any Petrobras payments made to the class action Settlement Fund in a federal securities litigation case in the Southern District of New York.
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