Brazil’s state-run power company Eletrobras has agreed to pay a $2.5 million civil penalty concerning violations of the internal accounting controls provisions and recordkeeping provisions of the Foreign Corrupt Practices Act, the Securities and Exchange Commission announced.
As Compliance Week previously reported, Eletrobras said it first launched an internal investigation in 2015, following testimony given by the former CEO of Camargo Corrêa related to the Brazilian government’s ongoing investigation of corruption allegations against Brazil’s state-owned oil company Petrobras, known as “Operation Car Wash.” That testimony alleged that the CEO of Eletronuclear received illicit payments from a consortium of companies bidding on a power plant project.
According to the SEC administrative order, former officers of Eletronuclear, Eletrobras’s majority-owned nuclear power generation subsidiary, “used their influence at Eletronuclear” to engage in an illicit bid-rigging and bribery scheme involving the construction of a nuclear power plant (UTN Angra III). “The officers also misused their official positions in authorizing unnecessary contractors and inflating the cost of Eletronuclear’s infrastructure project.” In return, the construction companies involved in the scheme paid the former Eletronuclear officers approximately $9 million, the SEC said.
“Eletronuclear paid invoices related to the inflated contracts in the ordinary course of its business because Eletrobras had failed to devise and maintain a sufficient system of internal accounting controls from 2009 through 2015,” the SEC order states. “The corruption scheme at Eletronuclear caused misstatements in Eletrobras’s books and records because Eletronuclear recorded payments made to UTN Angra III contractors, a percentage of which was used for bribes, as money legitimately spent to acquire and improve assets.”
Specific compliance failures
Eletrobras’s anti-corruption policies or procedures and accounting controls relied, in part, on “general or boilerplate prohibitions that did not apply to all employees or were ignored,” the SEC said. For example, Eletrobras adopted a code of ethics in 2005 to ensure that competitiveness and profitability did not override ethical behavior, but it applied only to the holding company and made no mention of the subsidiaries and special purpose entities.
In 2009, Eletrobras began anti-corruption training for a small number of its workforce and approved a code of conduct for its subsidiaries in 2010 that required all employees, including employees at its subsidiaries, to observe Eletrobras’s ethical principles that prohibited, in part, support or contribution to political parties or campaigns for elective office.
Additionally, Eletrobras’s ethical principles required the selection and hiring of suppliers based on specific criteria, including legal, technical, quality, cost, and timeliness. “However, many accounting controls designed to promote these ethical principles—such as certain contractual measurement criteria requiring that payments to suppliers be proportional to the work performed—were ignored or circumvented,” the SEC said.
The SEC’s Dec. 26 order stated that many of Eletrobras’s material weaknesses “contributed to the bribery scheme flourishing undetected for years.” Eletrobras didn’t admit or deny the SEC’s findings.
In settling the case, the SEC said it took into consideration Eletrobras’s cooperation, which included “sharing facts developed during an internal investigation and voluntarily producing and translating documents.” Additionally, the SEC said, Eletrobras disciplined employees involved in the misconduct; enhanced its internal accounting controls and compliance functions; remediated material weaknesses identified in its annual reports with the Commission; and adopted new anti-corruption policies and procedures.
Hogan Lovells partners Peter Spivack and Isabel Carvalho represented Eletrobras in the SEC settlement.
In August 2018, Eletrobras said in a Form 6-K that the Department of Justice “declined to prosecute the company for issues related to the Foreign Corrupt Practices Act.”