Braskem S.A., a Sao Paulo based producer of petrochemicals and thermoplastic product whose ADRs are traded on the NYSE, and its controlling shareholder, Odebrecht S.A., a privately held Brazilian international construction firm, resolved FCPA bribery charges with the SEC, the DOJ and Brazilian and Swiss authorities. Odebrecht and Braskem pleaded guilty to criminal charges and Braskem also entered into an FCPA consent decree with the SEC. Overall the settlement involves the payment of about $3.5 billion by the two firms.
The case centers on a scheme that traces to 2001 as to Odebrecht and 2006 as to Braskem. Over the period Odebrecht made over $788 million in illicit payments. Over the period Braskem executives directed the payment of payment of over $250 million in bribes to Brazilian officials through Odebrecht and a labyrinth of offshore entities. Firm officials sought to secrete the payments by falsifying the books and records. See, e.g., SEC v. Braskem, S.A., Civil Action No. 1:16-cv-02488 (D.C. Filed December 21, 2016).
Examples of the transactions involving Braskem drawn from the SEC’s complaint include the following. First, Braskem funneled payments of about $4.3 million to officials of Petrolco Brasileiro S.A., the Brazilian energy giant based in Rio de Janerio, in connection with a joint venture with the firm. The joint venture agreement was entered into in 2005 to build a plant. Braskem executives were concerned that the agreement would be canceled because of public pressure.
Braskem executives met with a Petrobras official and a Brazilian congressman. Payments were made so influence would be used to preclude the cancellation of the agreement. The illicit payments were channeled through Odebrecht’s off-book accounts. The effort was successful. Braskem saved about $8.4 million.
Second, Braskem paid about $20 million to Brazilian officials in connection with an agreement negotiated in 2008 with Petrobras for the sale and acquisition of naphtha, a derivate from crude oil Braskem used in it petrochemical production. In connection with the deal, firm executives met with Brazilian officials. In return for the payment of the bribes, influence was exerted on the contract approval process, resulting in Braskem obtaining a pricing formula which reduced its costs. All, or at least part of the bribes, were paid through Odebrecht’s off-book accounts.
Finally, Braskem made payments beginning in 2006 to Brazilian officials to secure favorable federal legislation. In return for the payments Brasken obtained tax and other benefits.
Throughout the period Braskem’s policies, procedures and controls failed to specifically address the FCPA. The firm’s code of conduct failed to prohibit improper payments to foreign officials or political parties or even reference the FCPA. Its procurement and accounts payable processes during the period did not have adequate payment approval standards.
The SEC’s complaint alleged violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B). To resolve the action Braskem consented to the entry of an injunction prohibiting future violations of the Sections cited. The firm also agreed to pay disgorgement in the amount of $65 million to the SEC and retain an independent consultant. See Lit. Rel. No. 23705 (December 21, 2016).
To resolve charges with the DOJ Odebrecht pleaded guilty to a one-count criminal information charging conspiracy to violate the anti-bribery provisions of the FCPA. The firm agreed that the appropriate criminal fine is $4.5 billion but that amount is subject to further analysis since the company may not be able to pay that amount. Braskem pleaded guilty to a one-count criminal information also charging conspiracy to violate the FCPA anti-bribery provisions. The firm has agreed to pay a total criminal penalty of $632 million. Sentencing is scheduled for January 2017 in related proceedings. The firm did not self-report but cooperated during the investigation yielding a reduction in the fine from the bottom of the range calculated under the sentencing guidelines.
Braskem also settled with the Ministerio Publico Federal in Brazil and the Office of the Attorney General in Switzerland. Under the terms of those agreement the company will pay disgorgement of $325 million (including the amount paid to the SEC). The firm also agreed to pay 70% of the total criminal penalty to Brazilian authorities and 15% to Swiss. The U.S. will receive about $94.6 million of the total criminal penalties paid or 15%.
Under the terms of the criminal plea agreements both firms will continue to cooperate with enforcement officials, adopt enhanced compliance procedures and retain independent compliance monitors for three years. The combined $3.5 billion settlement is the largest ever global foreign bribery resolution.