J&F Investimentos, a Brazilian holding company, has agreed to pay a criminal penalty of $256.5 million for its role in a widespread corruption scheme that took place over several years. JBS, a J&F majority-owned subsidiary and the largest meat producer in the world, reached a related settlement with the Securities and Exchange Commission, providing lessons in how not to operate an anti-corruption compliance program.

Under the Department of Justice plea agreement, filed Wednesday in the Eastern District of New York, J&F agreed to enter a guilty plea and pay the fine to resolve an investigation by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York concerning violations of the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). The penalty reflects a 10 percent reduction off the bottom of the U.S. Sentencing Guidelines fine range for partial credit received for J&F’s remediation and cooperation with the investigation.

J&F will pay half of its penalty (about $128 million) to U.S. authorities. The DOJ’s Fraud Section and the Eastern District of New York said it will credit the other 50 percent of the criminal penalty owed to payments J&F makes to its previously reached resolution with Brazilian authorities.

According to J&F’s admissions, between 2005 and 2017, through certain of its employees and agents, the company paid millions in corrupt payments to high-level government officials in Brazil in exchange for obtaining financing and other benefits for J&F and J&F-owned entities. In furtherance of the scheme, J&F used New York-based bank accounts through shell companies to make the corrupt payments.

Specific examples include:

  • More than $148 million in bribes made to a then-high-ranking executive at Brazilian state-owned and state-controlled bank Banco Nacional de Desenvolvimento Econômico e Social (BNDES) in exchange for hundreds of millions in financing from BNDES;
  • $4.6 million in bribes made to a high-ranking executive of Brazilian state-controlled pension fund, Fundação Petrobras de Seguridade Social (Petros), in exchange for obtaining Petros’s approval for a significant merger that benefited J&F; and
  • $25 million in bribes made to a high-ranking official in the legislative branch of the Brazilian government to secure hundreds of millions of dollars of financing from Brazilian state-owned and state-controlled bank Caixa Econômica Federal.

As part of the plea deal, J&F agreed for a three-year period to continue cooperating with the U.S. government in any ongoing or future criminal investigations; enhance its compliance program; and report to the government on its progress.

Among the considerations the DOJ said it weighed include J&F’s failure to voluntarily disclose the conduct, as well as the nature, seriousness, and pervasiveness of the offense, which included executives at the highest levels of the company and the payment of tens of millions of dollars in bribes to high-level government officials in Brazil.

In June 2017, J&F reached a leniency deal with the Brazilian Federal Prosecutor’s Office, agreeing to pay a fine of 8 billion reais (U.S. $1.4 billion) and to contribute 2.3 billion reais (U.S. $414 million) to social projects in Brazil. The Department said it determined partial crediting was appropriate “based on the specific facts and circumstances of this case in light of, among other things, the company’s prior efforts to coordinate with the Department and Brazilian authorities.”

SEC action

In a related matter with the SEC, JBS agreed to pay disgorgement of approximately $27 million. The Commission said it didn’t impose a civil penalty based upon the imposition of the criminal fine as part of J&F’s resolution with the DOJ. In addition, Brazilian nationals Joesley Batista and Wesley Batista—brothers and the owners and operators of J&F Investimentos and JBS—each agreed to pay a civil penalty of $550,000.

The SEC order found the Batistas engaged in a bribery scheme, in part, to facilitate JBS’s 2009 acquisition of U.S. chicken producer Pilgrim’s Pride. According to the order, following that acquisition and while serving as board members of Pilgrim’s, the Batistas made approximately $150 million in bribery payments at the direction of a former Brazil finance minister using, in part, funds from intercompany transfers, dividend payments, and other means obtained from JBS operating accounts containing funds from Pilgrim’s.

As described in the SEC order, the Batistas “exerted significant control over Pilgrim’s, which shared office space, overlapping board members and executives, accounting and SAP systems,” and “relied on many of JBS’ own policies and procedures and training materials, including the JBS Code of Ethics.” As a result of that control, the SEC said, the Batistas caused the failure of Pilgrim’s to maintain an adequate system of internal accounting controls and accurate books and records.

The order also found the Batistas, who signed Pilgrim’s financial statements, did not disclose their conduct to Pilgrim’s accountants and independent public accountants. “Engaging in bribery to finance their expansion into the U.S. markets and then continuing to engage in bribery while occupying senior board positions at Pilgrim’s reflects a profound failure to exercise good corporate governance,” said Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit.

Particularly notable, Pilgrim’s lacked an anti-bribery compliance program. “Pilgrim’s did not enact its own Code of Conduct until 2015, more than five years after being acquired,” the order stated. As of 2018, nearly nine years later, “Pilgrim’s was still in the process of implementing a formal anti-bribery compliance program and developing policies that covered its employees and consultants,” the SEC order stated.

Pilgrim’s also had no compliance officers. “Although Joesley and Wesley Batista signed the Code of Conduct prohibiting bribery, neither received any anti-corruption or ethics training,” the SEC order stated.

Remediation measures

The Batista brothers, J&F, and JBS consented to the SEC’s order finding that they caused Pilgrim’s violations of the books and records and internal accounting controls provisions of the FCPA and agreed to cease-and-desist orders. The parties must also comply with a three-year undertaking to self-report on the status of certain remedial measures.

Such remediation includes creating a compliance program that employs approximately 35 individuals at J&F and its affiliates to cover its operating entities, including Pilgrim’s; updating its Code of Conduct; and creating anti-bribery policies and training programs.

The Batista brothers each resigned from board and management positions at J&F and JBS and from JBS USA, though a Brazilian appeals court in May authorized their return to the company. JBS also removed other executives involved in corrupt activities in Brazil from their executive positions.

In addition, the company hired an independent firm in April 2018 to oversee its compliance with the obligations in the Brazilian leniency agreement and a public accounting firm to help implement an integrity program throughout the companies in the J&F group. J&F will also create a compliance committee; hire auditing for due diligence of suppliers and customers; and provide training to more than 120 directors at J&F and its affiliates in the areas of conflicts of interest, money laundering prevention, and anti-corruption.

Editor’s note: This story has been updated to note a Brazilian court in May authorizing the return of the Batista brothers to J&F.