The Department of Justice (DOJ) said in a release, “Executives at the highest levels of Petrobras — including members of its executive board and board of directors — facilitated the payment of hundreds of millions of dollars in bribes to Brazilian politicians and political parties and then cooked the books to conceal the bribe payments from investors and regulators.”
On September 26, 2018, Petróleo Brasileiro S.A. (“Petrobras” or the “Company”), the Brazilian majority state-owned oil and gas company, settled Foreign Corrupt Practices Act (“FCPA”) charges with the U.S. Department of Justice (the “DOJ”) and the Securities and Exchange Commission (the “SEC”) for a total of $1.78 billion. Petrobras has American Depositary Shares (“ADSs”) registered with the SEC and traded on the New York Stock Exchange and is therefore subject to the FCPA as an “issuer.”
Petrobras entered into a non-prosecution agreement (“NPA”) with the DOJ that included a criminal penalty of $853.2 million for knowingly and willfully failing to keep accurate books and records and implement appropriate internal financial and accounting controls by “facilitating payments to politicians and political parties in Brazil.” Under the NPA, Petrobras will pay 10 percent, or $85.32 million, of the criminal penalty to the DOJ and another 10 percent to the SEC. Petrobras will pay the remaining 80 percent of the criminal penalty, or $682.56 million, to authorities in Brazil.
The Company did not receive voluntary disclosure credit because it did not voluntarily and timely disclose to the Fraud Section and the Office the conduct described in the Statement of Facts.
Petrobras no longer employs or is affiliated with any of the individuals known to the Company to be implicated in the conduct at issue.
Summary of Remedial Measures
Petrobras engaged in extensive remedial measures, including: replacing the Board of Directors and the Executive Board (the Company’s high-level managers) and implementing governance reforms, such as expanding the scope of decisions requiring Board of Director approval; elevating and revamping the Company’s compliance function, including creating and staffing the Division of Governance and Compliance (“DGC”), and mandating that the Officer of DGC cannot be terminated without the affirmative vote of a Board member representing minority shareholders; limiting individual decision-making authority by implementing a “four eyes” approval policy (now I know the DOJ reads my thought leadership) that requires a second review by supervisors from different reporting lines for substantive decisions; creating new corporate investment policies and procedures, including a new Approval Authority Matrix, mandatory collective decision-making, and participation of the Division of DGC in investment committees; enhancing the Company’s policies and procedures related to confidential reporting and investigations, including restructuring the Office of the Ombudsman, implementing a confidential reporting hotline, and enhancing the procedures related to the Company’s Internal Commissions of Inquiry; updating policies and procedures related to compliance; implementing measures to ensure the Company’s operations are insulated from improper political interference, including new hiring and promotion procedures, a comprehensive government relations policy, and uniquely protecting the Officer of DGC within the organization; enhancing anti-corruption training by requiring all employees to complete compliance training, providing specialized training to employees engaged in the procurement of goods and services, and providing anti-corruption training to the Board of Directors and Executive Board; creating an Ethics Committee responsible for guiding, disseminating, and promoting compliance with ethical principles and conduct obligations; creating a committee within the Company’s compliance function to discipline employees and ensure that discipline is meted out consistently; disciplining employees known to have violated Company policies and procedures, including suspending employees, removing their managerial functions, and terminating their employment; and enhancing controls related to procurement and contracting, including centralizing the procurement function, segregating procurement duties, and implementing a risk-based integrity due diligence program for prospective contractors.
From the “Realm of the Obvious”, why was there no monitor installed?
Thoughts and comments are appreciated.
Jonathan T. Marks