Global construction company Odebrecht, based in Brazil, and Brazilian petrochemical company Braskem pleaded guilty yesterday and agreed to pay a combined total penalty of at least $3.5 billion—the largest foreign bribery case in history, according to the U.S. Department of Justice.
The combined total amount of United States, Brazilian, and Swiss criminal and regulatory penalties paid by Braskem will be approximately $957 million, just as the company disclosed last week. The combined total amount of penalties imposed against Odebrecht will be at least $2.6 billion and up to $4.5 billion.
The settlements resolve charges with authorities in the United States, Brazil, and Switzerland arising out of Odebrecht’s and Braskem’s schemes to pay hundreds of millions of dollars in bribes to government officials around the world.
“Odebrecht and Braskem used a hidden but fully functioning Odebrecht business unit—a ‘Department of Bribery,’ so to speak—that systematically paid hundreds of millions of dollars to corrupt government officials in countries on three continents,” Deputy Assistant Attorney General Sung-Hee Suh said in a statement.
As Compliance Week previously reported, the enforcement actions point to a growing trend in multijurisdictional enforcement. “These resolutions are the result of an extraordinary multinational effort to identify, investigate, and prosecute a highly complex and long-lasting corruption scheme that resulted in the payment by the defendant companies of close to a billion dollars in bribes to officials at all levels of government in many countries,” U.S. Attorney Robert Capers said in a statement.
“In an attempt to conceal their crimes, the defendants used the global financial system—including the banking system in the United States—to disguise the source and disbursement of the bribe payments by passing funds through a series of shell companies,” Capers added. “The message sent by this prosecution is that the United States, working with its law enforcement partners abroad, will not hesitate to hold responsible those corporations and individuals who seek to enrich themselves through the corruption of the legitimate functions of government, no matter how sophisticated the scheme.”
Odebrecht settlement. Odebrecht pleaded guilty to a one-count criminal information filed Dec. 21 by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office in the U.S. District Court for the Eastern District of New York, charging the company with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). It will pay a criminal fine of $4.5 billion. In related proceedings, Odebrecht also settled with the Ministerio Publico Federal in Brazil and the Office of the Attorney General in Switzerland.
Under the plea agreement, the United States will credit the amount that Odebrecht pays to Brazil and Switzerland over the full term of their respective agreements, with the United States and Switzerland receiving 10 percent each of the principal of the total criminal fine and Brazil receiving the remaining 80 percent.
The fine is subject to an inability to pay analysis to be completed by the Department of Justice and Brazilian authorities on or before March 31, 2017, because Odebrecht has represented it is only able to pay approximately $2.6 billion over the course of the respective agreements. Sentencing has been scheduled for April 17, 2017.
Braskem settlement. With its American Depositary Receipts (ADRs) publicly traded on the New York Stock Exchange, Braskem separately pleaded guilty to a one-count criminal information filed in the Eastern District of New York charging it with conspiracy to violate the anti-bribery provisions of the FCPA. Braskem agreed to pay a total criminal penalty of $632 million. Sentencing has not yet been scheduled.
In related proceedings, Braskem also settled with the U.S. Securities and Exchange Commission (SEC), the Ministerio Publico Federal in Brazil, and the Office of the Attorney General in Switzerland.
Under the terms of its resolution with the SEC, Braskem agreed to a total of $325 million in disgorgement of profits through bribes paid through intermediaries and off-book accounts managed by a private company that was Braskem’s largest shareholder. Bribes were paid to a government official at Brazil’s state-controlled petroleum company as well as Brazilian legislators and political party officials.
“As alleged in our complaint, Braskem lacked the internal controls to prevent its use of third parties, off-book accounts, and other intermediaries to bribe government officials in Brazil during an eight-year period,” said Stephanie Avakian, Deputy Director of the SEC Enforcement Division. “Braskem’s misconduct was exposed through the investigative work of authorities in three countries.”
Braskem agreed to pay Brazilian authorities 70 percent of the total criminal penalty and agreed to pay the Swiss authorities 15 percent.
The Department said it has agreed to credit the criminal penalties paid to Brazilian and Swiss authorities as part of its agreement with the company. The United States will receive $94.8 million, an amount equal to 15 percent of the total criminal fines paid by Braskem.
Under their respective plea agreements, Odebrecht and Braskem must continue to cooperate with law enforcement, including in connection with the investigations and prosecutions of individuals responsible for the criminal conduct. Odebrecht and Braskem also agreed to adopt enhanced compliance procedures and to retain independent compliance monitors for three years.
Corporate resolutions. The Department said it reached these resolutions with Odebrecht and Braskem based on a number of factors, including:
The failure to voluntarily disclose the conduct that triggered the investigation;
The nature and seriousness of the offense, which spanned many years, involved the highest levels of the companies, occurred in multiple countries and involved sophisticated schemes to bribe high-level government officials;
The lack of an effective compliance and ethics program at the time of the conduct; and
Credit for each company’s respective cooperation.
The companies also engaged in remedial measures, including terminating and disciplining individuals who participated in the misconduct, adopting heightened controls and anti-corruption compliance protocols, and significantly increasing the resources devoted to compliance, the Department of Justice said.
The criminal penalty for Odebrecht reflects a 25 percent reduction off the bottom of the U.S. Sentencing Guidelines fine range, because of Odebrecht’s full cooperation with the government’s investigation, while the criminal penalty for Braskem reflects a 15 percent reduction off the bottom of the U.S. Sentencing Guidelines as a result of its partial cooperation.