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 State-run Petroleo Brasileiro SA, as the company is formally known,
expects to face the largest penalties ever levied by U.S.
authorities in a corporate corruption investigation, according to
the person, who has direct knowledge of the company's thinking. The
settlement process could take two-to-three years, this person said.
To date, the largest settlement of corporate corruption charges with
the U.S. Department of Justice and the U.S. Securities and Exchange
Commission was a 2008 agreement with Siemens AG, the German
industrial giant. It agreed to pay the U.S. $800 million to settle
charges related to its role in a bribery scheme, and paid about the
same amount to German authorities.
The person told Reuters the legal advisors said they believed
Petrobras faced fines that could be as large as, or more than, the
$1.6 billion in combined U.S. and German penalties that Siemens
faced.
Two other sources with direct knowledge of Petrobras' plans also
said that any settlement, while several years away, would likely be
"large," but declined to give a specific estimate.
All three sources requested anonymity, and cautioned that any
estimates for the size of possible fines are very preliminary.
Petrobras has not yet begun settlement talks with U.S. authorities,
whose investigations are believed to be in an early phase, they
said.
In November, the SEC sent a subpoena to Petrobras requesting
information about the widening corruption investigations that have
ensnared top company executives, major private contractors and
senior politicians in Brazil. According to people familiar with the
matter, the DOJ, which can bring criminal charges, is also
investigating the company.
BID-RIGGING
Petrobras' lawyers maintain that the firm was a victim of corruption
and bid-rigging by engineering firms and other suppliers to the
firm, a group of former employees who allegedly took or arranged
bribes, and Brazilian politicians who benefited from kickbacks from
Petrobras suppliers, according to Petrobras officials.
However, the attorneys also said they believe that investigations by
U.S. authorities are likely to result in charges that Petrobras
itself violated the U.S. Foreign Corrupt Practices Act (FCPA) and
securities laws, according to the person who was briefed.
Last December, Brazil's Prosecutor-General Rodrigo Janot said
Brazilian prosecutors were cooperating with investigations by the
SEC and the DOJ into whether the corruption scheme hurt the
interests of U.S. investors in Petrobras shares listed in New York.
In an e-mailed response to questions, Petrobras declined to comment
on the U.S. investigations or any estimates of how much an eventual
settlement may cost.
The DOJ and the SEC also declined to comment for this article.
Petrobras falls under U.S. jurisdiction because its shares are
traded in the United States – until recently it was the largest
foreign company on the New York Stock Exchange.
The person who was briefed said legal advisors warned Petrobras that
if money related to the case moved through U.S. banks it could open
the company up to prosecution. Brazilian prosecutors have produced
evidence that some of the illegal payments were arranged on U.S.
soil, according to court documents filed in Brazil.
This source also said the advisors’ view was that a negotiated
settlement and penalties makes more sense than fighting the U.S.
Justice Department.
Such fines would be another financial hit for Petrobras, whose
market value has sunk to less than $40 billion from nearly $300
billion seven years ago.
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Brazilian prosecutors have made no moves to punish the company, even
though their investigation has led to more than 100 indictments.
Two senior Petrobras executives are among a dozen people who have
already been convicted in Brazil for offences such as money
laundering and racketeering.
Petrobras executives allegedly conspired with construction and
engineering companies and other suppliers to rig bids and inflate
the cost of contracts. The excess was then kicked-back to
executives, politicians and political parties as bribes and campaign
contributions, according to Brazilian court documents, including
court rulings and prosecutors' presentations.
Brazilian prosecutors say they have found no evidence of illegal
payments that went directly from Petrobras to government officials.
But even if the company is not found to have bribed officials it
could be penalized under the "books and records" provision of the
FCPA. The provision requires companies to keep accurate financial
accounts and maintain an adequate system of internal accounting
controls.
Petrobras took a $17 billion charge against earnings in 2014 to
account for over-valued assets in the wake of the scandal. At the
time, Petrobras said 12 percent of that total, or more than $2
billion, was directly related to corrupt acts not accounted for in
earlier periods.
Since November, Petrobras has been working to limit the damage. The
oil company hired U.S. law firm Gibson, Dunn & Crutcher and the
Brazilian law firm Trench, Rossi e Watanabe to conduct an internal
investigation into the allegations and has promised to turn over
information to the authorities.
The law firms report to Ellen Gracie Northfleet, former chief
justice of Brazil's Supreme Court and Andreas Pohlmann, who was
chief compliance officer of Siemens from 2007 to 2010 - the period
in which it agreed to pay the record-setting fines. Gracie and
Pohlmann were hired in December by the Petrobras board to ensure
that the investigation remained independent.
Gibson Dunn did not respond to a request for comment. Trench, Rossi
e Watanabe declined to comment.
Petrobras also created a compliance unit with an independent senior
executive with broad powers and a mandate to investigate anyone at
the company, including the chief executive.
Cooperation with ongoing investigations by the U.S. authorities may
reduce the amount of penalties negotiated in a settlement deal,
legal experts said.
Some of Petrobras' contractors could face their own large U.S.
penalties for bribing Petrobras executives, who are considered
government officials under the FCPA, the experts said.
(Additional reporting by Marta Nogueira in Rio de Janeiro, Caroline
Stauffer in Sao Paulo and Joshua Schneyer in New York; Editing by
Martin Howell)
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