Ex-Braskem CEO Pleads Guilty to FCPA Charges

Thomas Fox
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Compliance Evangelist

It is rare that a Chief Executive Officer (CEO) of a company pleads guilty to a criminal Foreign Corrupt Practices Act (FCPA) action. It is even rarer yet when that CEO runs a multi-billion dollar company. Yet that is what happened last week when, according to a Department of Justice (DOJ) Press Release (EDNY), “Jose Carlos Grubisich, the former chief executive officer of Braskem S.A. (Braskem), a publicly traded Brazilian petrochemical company, pleaded guilty before United States District Judge Raymond J. Dearie to (1) conspiring to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and (2) conspiring to violate the books and records provisions of the FCPA in failing to accurately certify Braskem’s financial reports.”

According to the Indictment, filed in February 2019, Grubisich, “and other co-conspirators, engaged in a massive bribery scheme that resulted in the  diversion of approximately $250 million of Braskem’s funds into a secret slush fund, and the subsequent use of that slush fund to pay bribes to government officials, political parties and others in Brazil to obtain and retain business.” Beginning in 2006, Grubisich was at the head of a corrupt bribery scheme where Braskem paid out bribers through an “off the book books slush fund known as Caixa 2 and transferred money into Caixa 2 by making payments pursuant to fraudulent “commissions” contracts with offshore shell companies controlled by Braskem. Funds for Caixa2 were funneled from Braskem’s bank accounts in Brazil, New York and Florida to those offshore shell  companies, and then to accounts held by the” company. Those funds were subsequently disbursed to make corrupt payments on Braskem’s behalf. In total, between 2006 and 2014, Braskem diverted approximately $250 million into offshore shell companies.

Grubisich was directly tied to the creation of the slush fund, Caixa 2, as well as the distribution to Brazilian government officials. Moreover, he was involved in the structure to evade company internal controls. Also, he signed written certifications to Braskem’s Annual Reports, which were filed with the Securities and Exchange Commission (SEC), on behalf of Braskem. The signed certifications created US jurisdiction but were also independent violations of the FCPA and hence his separate guilty plea to violate the books and records provisions of the FCPA in failing to accurately certify Braskem’s financial reports.

As noted in the Indictment, “By signing these documents, GRUBISICH personally certified that Braskem fully complied with the requirements of Sections13(a) and15(d)of the Exchange Act(Title15, United States Code, Sections78m(a) and78o(d)),and that the information contained in Braskem’s annual reports fairly presented, in all material respects, the financial condition and results of operations and cash flows of Braskem.” Quite obviously they did not.

EDNY stated that Grubisich, while CEO of Braskem, “agreed to pay bribes to Brazilian government officials to ensure Braskem’s retention of a contract for a significant petrochemical project from Petroleo Brasileiro S.A.–Petrobras, Brazil’s state-owned and state-controlled oil company.  Grubisich further admitted that while CEO of Braskem, he agreed to falsify Braskem’s books and records by causing Braskem to falsely record the payments to offshore shell companies controlled by Braskem as payments for legitimate services.  Grubisich signed false Sarbanes-Oxley certifications submitted to the United States Securities and Exchange Commission (SEC) that, among other things, attested that Braskem’s annual reports fairly and accurately represented Braskem’s financial condition, and that Grubisich, as Braskem’s principal officer, had disclosed all fraudulent conduct by Braskem’s management and other employees with control over Braskem’s financial reporting.”

It is not unusual for a length of time to elapse between indictment and a guilty plea. However, based upon the settlement of Braskem for its separate FCPA violations, Grubisich may well have been cooperating with both US, Brazilian and Swiss authorities. In December 2016, Braskem pled guilty in the Eastern District of New York to one-count criminal information charging with conspiracy to violate the anti-bribery provisions of the FCPA. Braskem settled with the SEC in related proceedings on the same day. As reported in the Gibson Dunn 2019 FCPA Year End Report, in May 2019, Braskem announced that it agreed to pay approximately $745.25 million by 2025 in a leniency deal to settle corruption charges related to Brazil’s “Operation Car Wash.” The agreement was the first of four leniency deals reached in 2019 related to “Operation Car Wash.”

It is clear now that both Braskem and its parent Odebrecht SA were corrupt all the way to the very top of the organization. No compliance program was ever going to prevent the type of system and institutional corruption both entities engaged in as standard business practices for multiple years. The CEO of Odebrecht had previously pled guilty in Brazil and served a prison sentence. Now the CEO of Braskem, the Odebrecht subsidiary, has finally pled guilty. He will be sentenced at a later date. While the story of Operation Car Wash and the institutional corruption Brazilian authorities unearthed is still being written, the human cost is also ongoing. There are multiple investigations into both companies in other countries in Latin America and Mexico. Although the current Brazilian administration has shown itself to be opposed to continued corruption investigations, the work of Judge Moro and others in Brazil can still serve as a shining beacon of both light and hope in the fight against the international scourge of bribery and corruption.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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