We continue our exploration of the resolution of the FCPA enforcement action involving the Swiss trading firm G Trafigura Beheer B.V. (Trafigura), an international commodity trading company with its primary operations in Switzerland. The company pleaded guilty and will pay over $126 million to resolve an investigation stemming from the company’s corrupt scheme to pay bribes to Brazilian government officials to secure business with Brazil’s state-owned and state-controlled oil company, Petróleo Brasileiro S.A. Petrobras (Petrobras). The matter was resolved via a Plea Agreement. Information detailing the company’s conduct was also issued.
According to the Information, between approximately 2003 and 2014, Trafigura and its co-conspirators paid bribes to Petrobras officials in order to obtain and retain business with Petrobras. Beginning in 2009, Trafigura and its co-conspirators, who met in Miami to discuss the bribery scheme, agreed to make bribe payments of up to 20 cents per barrel of oil products bought from or sold to Petrobras by Trafigura and to conceal the bribe payments through the use of shell companies, and by funneling payments through intermediaries who used offshore bank accounts to deliver cash to officials in Brazil. The meeting in Miami created US jurisdiction for the FCPA violations.
While at first blush, the bribery schemes appear to be similar to FCPA violations from time immemorial, there are some interesting aspects that will inform how a compliance professional can learn new lessons from this enforcement action. These factors include corrupt actors, internal funding of the bribes from locations literally across the globe, and the potential conflicts of interest in hiring employees of customers prone to bribery and corruption.
Funding the Bribery Schemes
Unlike fraud, which is the theft of money, property, or goods from a company, bribery is the theft of money from a company to pay someone else. Hence, there must be a way for those involved in corruption to create a pot of money to pay bribes. It can be simply cheating on your expense accounts, hiding costs in marketing, or making fraudulent charitable donations. But in Latin America and specifically in Brazil, one of the most favored ways to do so is to bake the bribe directly into the contract sales price. Unfortunately, this makes bribe funding one of the most difficult to detect. That is what was done in the Trafigura case.
According to the Information, “Beginning in 2009, TRAFIGURA BEHEER B.V. and its co-conspirators agreed to make bribe payments of up to 20 cents per barrel of oil products bought from or sold to Petrobras by TRAFIGURA BEHEER B.V. and its subsidiaries and affiliated entities, and to conceal the bribe payments through the use of shell companies.” [emphasis supplied] What is the price of a barrel of oil on any trading market, spot or long term? It can vary quite widely, and during the time of the bribes paid in this matter, it vacillated between $55 to $90 per barrel. It would be more than difficult for any compliance officer to look at a trading contract and pick up this amount as an anomaly.
Additionally, executives at Trafigura and corruption traders at Petrobras pre-arranged the oil trading prices rather than letting the market determine them. The Information noted, “The Trafigura Executive 2 and Brazilian Official 1 agreed to prices for trades of oil products and bribe amounts for each trade. After the price had been determined, Trafigura Executive 2 instructed Trafigura traders to engage in negotiations with Petrobras, which Trafigura Executive 2 knew to be a sham, in order to arrive at the pre-agreed price.” [emphasis supplied]
The next step was to internally fund the bribe payments through other Trafigura business units, where no one could connect the dots. It came about when one of the two corrupt Trafigura executives involved in the bribery scheme was transferred to run the company’s Singapore business unit. From there, this executive had a corrupt third party in Hong Kong bill the Singapore business unit for non-existent consulting services related to the Chinese market to the tune of $500,000. This money funded additional bribes to corrupt Petrobras employees. This same mechanism was used multiple times to add to the 20 cents per barrel surcharge being paid directly by Petrobras.
Corrupt Employees
There are a couple of other points of note about these bribery schemes. As noted above, there were two corrupt Trafigura executives called out in the Information. (Monikered as Trafigura Executives 1 & 2) Yet, according to the Information, there were other Trafigura executives who either knew about or approved the bribe payments, but they were not further identified in the Information. Trafigura Executive 2 initially worked under Trafigura Executive 1 but later became the head of the Singapore business unit. Clearly, he took corruption with him when he moved from Brazil to Switzerland (the home office) and then to Singapore. This is yet another data point that compliance officers need to assess.
One other point from this matter. Trafigura hired the first corrupt Petrobras employee after he left that company. Once again, compliance needs to figure out a way to become aware of such hires. It was clearly done to pay off this employee and to further the ongoing bribery scheme.
Join us tomorrow for a discussion of Trafigura’s response.
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