As Houston is still the epicenter of the Foreign Corrupt Practices Act enforcement world, it is probably not too surprising that the Petrobras scandal has reached the Lone Star state. This week there were two reports of Houston-based companies with ties to the corruption scandal currently engulfing Brazil at this time. The first involves the Houston-based real estate company Hines and its Brazilian operations and, the second, an oil refinery in the Houston suburb Pasadena.
To begin, we need to go back to November 2015, when the Houston Chronicle reported on a refinery just outside Houston, in Pasadena, which had become a focal point in the ongoing Petrobras bribery and corruption scandal. If the allegations are correct, it would also appear that there is clear U.S. jurisdiction for the enforcement of an FCPA violation.
The allegations involve the sale of the petrochemical refinery previously owned by a Belgium company called Astra Oil, which purchased the refinery in 2005 for $42.5 million. Rather amazingly, Astra Oil then sold the refinery to Petrobras, in a series of transactions beginning in 2006 for $1.2 billion. Unfortunately, it appears that Petrobras far overpaid for the purchase, and part of this overpayment price was used as funds to pay bribes to corrupt Petrobras officials. The article stated “One former executive admitted being offered a $1.5 million bribe to allow the Pasadena deal to go through, records show, and Brazilian prosecutors are investigating whether politicians also received kickbacks from the purchase.”
All of these issues came to light again over the weekend of March 5-6, when there was a large explosion and fire at the refinery. As the Houston Chronicle reported, “The company has a long history of safety and pollution violations, including a previous December 2011 explosion and $1.1 million in fines since 2010 from the Texas Commission on Environmental Quality.” Further and rather amazingly, even operating the plant may well have been illegal as the facility, as what was described as a U.S. government mandated “Title 5” operating permit ended in 2014 and has not been renewed.
How do unsafe chemical plants relate to bribery and corruption? Obviously, if a company is willing to engage in bribery to purchase a facility, it may well be willing to cut corners around safety as well. The tone of following the law and business ethics starts at the top and, if that top is not committed to compliance in one area, it is probably not committed to compliance in another area.