Petrobras probe showcases global enforcement efforts

Anti-corruption developments resulting from Operation Car Wash in Brazil continue to unfold at a dizzying clip, making it all the more important that multinational companies stay abreast of the many new compliance and legal risks arising in the region.

From systemic political scandals to nationwide anti-corruption protests and corporate investigations and settlements on a global scale, Brazil is a nation in a state of unprecedented change. Evidence of this has come in the form of large-scale arrests, prosecutions, convictions, and jail terms for business executives and public officials on a scale never before seen in the country.

At the center of Brazil’s anti-corruption crusade is the massive corruption probe surrounding state-owned oil company Petrobras, dubbed “Operation Car Wash,” which has since morphed into one of the largest political corruption investigations the world has ever seen. The saga began when it was discovered that some of Brazil’s largest construction and engineering companies received inflated contracts from Petrobras—excess markups that were then used to funnel kickbacks to Petrobras executives and high-ranking politicians.

In the wake of Operation Car Wash, enforcement actions against companies involved in the scandal continue to emerge nearly every day. Through these actions, Brazilian enforcement authorities have demonstrated that Brazil’s Clean Companies Act does, in fact, have teeth—and they’re not hesitant to use it.

Enacted in 2014, the Clean Company Act is the country's first anti-corruption law to hold companies responsible for their employees’ corrupt actions. The Act imposes strict liability on companies operating in Brazil for domestic and foreign bribery and provides no exception for facilitation payments.

Unlike the U.K. Bribery Act, there is no statutory defense for having implemented

“adequate procedures” to prevent persons from committing corrupt acts on behalf of the company, making it among the toughest anti-corruption laws in the world. 

As part of that Act, however, companies that voluntarily self-disclose violations of the law can enter into “leniency agreements” with authorities. The company must also acknowledge the conduct and fully cooperate with the government.

As Operation Car Wash continues to unfold, multinational companies that want leniency in a Brazilian anti-corruption case are starting to utilize the Act’s leniency provision. Most recently, Brazil-based petrochemical giant Braskem disclosed on Dec. 14 that it will pay approximately U.S.$957 million in penalties and damages to resolve a “global settlement” related to the Petrobras corruption probe.

As part of that settlement, Braskem said it entered into a leniency agreement with the Brazilian Federal Prosecutors Office. “The remaining terms of the leniency agreement are confidential, but comply, in general terms, with the standards adopted in other cases by the Federal Prosecutors Office,” Braskem said.

In another recently resolved high-profile enforcement action, Brazilian engineering company Odebrecht on Dec. 1 reportedly reached a $1.9 billion leniency agreement, to be divided between Brazil—which will get at least 70 percent of the total amount—the United States, and Switzerland, reported Brazil’s Folha de S.Paulo newspaper. Brazilian prosecutors signed plea deals with 77 former Odebrecht executives—including former CEO Marcelo Odebrecht—in exchange for their help with the investigation into Petrobras.

“This may be the beginning of the end of Car Wash.”


Deltan Dallagnon, lead prosecutor, Operation Car Wash

The Braskem and Odebrecht enforcement actions are just the latest corporate resolutions. In July 2016, Dutch engineering company SBM Offshore also reached a leniency agreement with Brazilian authorities in connection with Operation Car Wash, in which it agreed to pay U.S.$162.8 million.

Political turmoil

For every step forward Brazil makes in its anti-corruption efforts, however, it seems to take two steps back, as the depth of the country’s political corruption becomes clearer. Resignations are already coming to light, for example, as a result of the plea deals reached in the Odebrecht settlement.

On Dec. 14, José Yunes—special adviser to President Michel Temer—announced his resignation after accusations arose that he received money from Odebrecht in 2014, Brazilian newspaper Folha reported. Yunes’s name was cited in a plea deal made by Cláudio Melo Filho, Odebrecht’s former vice president of institutional relations, according to the newspaper.

Temer, himself, has become embroiled in the corruption probe over allegations that he took illegal campaign donations from Odebrecht. Like his predecessor, former Brazil President Dilma Rousseff, Temer now faces the threat of impeachment. To date, more than 20 high-profile politicians have been implicated in the Petrobras corruption probe.

Brazilian prosecutors on Dec. 15 also filed new charges against former President Luiz Inácio Lula da Silva over fresh corruption and money laundering accusations linked to Petrobras. da Silva, who was president of Brazil from 2003 to 2011, already faces trial in three other criminal cases concerning allegations of embezzlement and influence peddling.

Political unrest in Brazil has grown even more intense since Brazil’s lower house of Congress in late November passed by a vote of 450-1 a watered down version of the “10 Measures Against Corruption” legislation—a set of reforms pushed by the Car Wash Task Force to strengthen the ability of public administrators to prevent and detect corruption, and law enforcers to investigate, prosecute, and sanction it.

BRAZIL'S ANTI-CORRUPTION LAW


Below is an excerpt from Brazil's anti-corruption law, detailing general provisions.
Article 1. This law provides for the strict civil and administrative liability of legal entities for acts committed against the domestic or foreign Public Administration.
This law applies to the business organizations and sole proprietorships, incorporated or not, regardless of the type of organization or the corporate model adopted, as well as to any foundations, associations of entities or persons, or foreign companies having office, branch or representation in the Brazilian territory, organized in fact or by law, even if temporarily.
Article 2. The legal entities will be held strictly liable, in the administrative and civil spheres, for the wrongful acts set forth in this law performed in their interest or for their benefit, either exclusive or not.
Article 3. The legal entity's liability does not exclude the individual responsibility of its directors or officers or of any natural person who is the offender, co-offender or participant of the illegal act.
The legal entity will be held liable irrespective of the individual liability of the natural persons referred to in the caput.
The directors or officers shall only be held liable for illegal acts to the extent of their culpability.
Article 4. The responsibility of the legal entity remains in the event of corporate changes, transformation, merger, acquisition or spin-off.
In the case of mergers and acquisitions, the successor's liability will be restricted to the obligation to pay fines and full restitution for the damage caused, up to the limit of the assets transferred, not being applicable to it the other sanctions set forth in this law for acts and events that occurred before the date of the merger or acquisition, with the exception of cases of simulation or evident intention of fraud, duly proved.
Parent, controlled or affiliated companies, or, within the scope of the respective contract, consortium members will be jointly responsible for the acts provided for in this law. This responsibility shall be restricted to the obligation to pay fines and full restitution for the damage caused.
Source: Brazil's Clean Companies Act.

The amended version of the legislation, however, “removed essential features on whistleblower protection and illegal campaign financing and introduced an amendment that opens up the door to prosecute judges and prosecutors for liability offences,” José Ugaz, chair of corruption watchdog Transparency International, said in a statement.

Critics of legislation say the revisions could impair law enforcement’s ability to investigate political corruption, and specifically the Operation Car Wash investigation. In extreme cases, prosecutors’ normal activities could be interpreted as unlawful, Ugaz said.

Brazilian federal prosecutors from the Car Wash Task Force threatened to resign if the Brazilian Senate and President Temer approved the bill. “It’s not a matter of giving up, but of recognizing that once the line is crossed, Car Wash authorities are helpless against legislators that use their power to protect themselves,” said Deltan Dallagnon, lead prosecutor of the Operation Car Wash investigation. “This may be the beginning of the end of Car Wash.”

Key takeaways

No matter the fate of Operation Car Wash, recent high-profile enforcement actions against Brazilian companies—including those not related to Petrobras—point to an important enforcement trend not to be ignored by compliance and legal executives engaged in anti-corruption investigations: “Multijurisdictional enforcement and settlements are here to stay,” Kelly Kramer, a partner at law firm Mayer Brown, said during a recent webinar on anti-corruption developments in Brazil.

Not only have the U.S. Department of Justice and U.S. Securities and Exchange Commission played an active role in these investigations, but Swiss prosecutors also are providing valuable assistance by tracing significant amounts of money through the international financial system, Kramer added. “It’s one thing to suggest there is corruption; it’s another thing to show that the money went into an account controlled by, for example, a Brazilian politician,” he said.

Not all multijurisdictional enforcement actions against Brazilian companies are the result of Operation Car Wash. Nor are anti-corruption enforcement activities limited to just construction and engineering companies. The Petrobras investigation is just a foretaste of increased anti-corruption activity to come in Brazil, and companies across all industries need to be on high alert.

Brazilian aircraft company Embraer, for example, reached a $180 million combined settlement with the Department of Justice, SEC, and Brazilian authorities to resolve allegations of criminal and civil violations of the U.S. Foreign Corrupt Practices Act.

According to the company’s admissions, Embraer executives and employees paid bribes to government officials and falsified books and records in connection with aircraft sales to foreign governments and state-owned entities in multiple countries.

Additionally, Embraer also entered into a three-year deferred prosecution agreement with the Department of Justice, in which Embraer agreed to continue to cooperate with the Department’s investigation; enhance its compliance program; implement a more adequate system of internal accounting controls; and retain an independent corporate compliance monitor for a term of three years.

From a practical standpoint, multinational companies that want leniency in a Brazilian anti-corruption case need to carefully consider what that could mean for the outcome of other enforcement actions pending in other jurisdictions. “One of the things that practitioners need to think about is that a problem in Brazil is almost necessarily a problem in the United States,” Kramer said.

The Department of Justice will not look favorably upon a company that negotiates a settlement with a foreign country and doesn’t also try to simultaneously resolve its issue with the Department; cooperation with one country does not a settlement make.

Thus, corporate legal counsel will have to give some serious thought as to whether the United States has jurisdiction to assert a claim. If so, Kramer said, they will need to seriously consider whether and how to make a disclosure to the United States, and when to do that.

Even if a company is conducting its own internal investigation, “you have to assume other individuals are willing and interested in settling a matter with the authorities before you do,” said Bernardo Weaver, a partner at law firm Mayer Brown in the firm’s São Paulo, Brazil office.

As difficult of a decision as it is to make to self-report a corruption investigation to enforcement authorities, the company in the end likely will find itself in a much more favorable position, Weaver said, than if somebody else were to initiate the investigation.

The experience and success Brazilian authorities continue to gain from the Petrobras investigation will continue to embolden them to enforce the Clean Companies Act to its fullest extent, with the added benefit of having a team of authorities in other countries that have the experience and wherewithal to conduct large-scale, global investigations. So, while Operation Car Wash may come to an end, compliance and legal executives can be sure that a new era of anti-corruption enforcement in Brazil has only just begun.