Today, I conclude this multi-part exploration of one world’s largest anti-corruption enforcement actions, the J&F Investimentos SA (J&F) matter. It involved huge fines and penalties in both Brazil and the United States. In the US, the company agreed to pay a criminal monetary penalty of $256,497,026 to resolve the department’s investigation into violations of the Foreign Corrupt Practices Act (FCPA). This enforcement must be considered in relation to the related action of JBS AS, a company controlled by J&F and its principal owners, which occurred back in 2017 and resulted in a penalty of $3.2 billion to be paid over 25 years after admitting to giving roughly $150 million – mostly in bribes – to Brazilian politicians. Today, I wanted to give some final thoughts and lessons learned for the compliance professional.
The resolution documents include, from the Department of Justice (DOJ), the Information and Plea Agreement and a Securities and Exchange Commission (SEC) settlement via a Cease and Desist Order (Order). This matter involved not simply corrupt conduct at the senior management level but at the highest level of the organization, the two brothers who owned the organization, Joesley Batista and Wesley Batista, were not only personally involved but led the corruption strategy of the company. It is hard to tell from the resolution documents if Jonathan Mark’s Fraud Pentagon applies or if they felt they were not simply above the law but the law in Brazil.
I was in the corporate world when the Siemens FCPA resolution came out and had not entered the blogging world at that time. In 2008 it was perhaps the biggest, boldest, most audacious bribery scheme unearthed at that time. When you look at J&F, one sees that same type of oeuvre, as one of the bribed players was Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”) a Brazilian state-owned and state-controlled bank that performed government functions, including providing financing to private companies for endeavors that contributed to the development of Brazil, through its employees.
To think that a company would bribe ministers of a national bank to the tune of nearly $150 million to garner some $2 billion in national bank financing is right up there with the audacity of Siemens in their worldwide bribery business unit. But as I said above, it is not clear if the Brothers Batista simply thought they were above the law or were the law. One should note they were the second generation to lead the family business JBS so given where we are in the US about now, perhaps it’s simply pathological for such a generation who grew up in privilege.
It may seem difficult for the compliance professional to get their arms around not simply the crime here or ever believe their organization might face something similar but perhaps that is the entire point. It may mean that for compliance professionals, it could simply be a failure of imagination. It may be difficult to imagine such a scheme is plausible but it obviously is. Now think about this in the mergers and acquisition (M&A) context. If your organization is approached by a foreign company about being acquired do you look at the provenance of the funding? If so, how does one do so? Do you ring up the national bank of (you name the country here) and ask, “Did they obtain their capital by bribery and corruption?”
Think this might be an academic question? Consider the horrid state of the US energy industry under the Trump Administration. Bankruptcies are running near record high numbers in 2020 and Trustees in Bankruptcy Courts are looking to sell assets to satisfy creditors and typically all they consider is the ability to pay when looking at offers. Compliance, anti-money laundering (AML) and other similar concerns are not high on their radars, if at all. Even under an energy industry renaissance, the sale of distressed assets will continue unabated.
Next consider the US entity acquired by looking at Pilgrim’s Pride. It appears that the Brothers Batista set up their own US entity JBS USA to simply milk as much money out of Pilgrim’s Pride as they could do, co-mingling the assets of Pilgrim’s Pride with that of JBS USA. Monies coming from one or both organizations were used to fund the bribes to corrupt BNDES employees. What does this mean for Pilgrim’s Pride? Is that company a victim of corruption? Are they entitled to compensation? Of course there is the Sculptor Capital Management, Inc. (formerly Och-Ziff Capital Management Group) who agreed to pay $136 million to a group of former investors in a Congolese mine who were found by a court to be victims of a decade-old bribery scheme involving the hedge fund. Usually in such cases, the difficulty is identifying the victims but, in the J&F case, the victim may well be right here in the US.
Conversely, what if Pilgrim’s Pride, through its senior management and Board of Directors selected by the Brothers Batista, were at least aware of fraud, even if they were not active participants. As dryly noted in the Order, “Joesley Batista and Wesley Batista served as directors for Pilgrims between December 2009 and May 2017 and June 2017 respectively. Six out of nine total Pilgrims board members also served on JBS’s board. Pilgrims is majority-owned by JBS through its subsidiary JBS USA.” After all, Pilgrim’s Pride’s ethical flexibility in the area of anti-trust led to it to agree to a recent fine of $110.5 million. The Wall Street Journal(WSJ) reported, “A guilty plea by Pilgrim’s, the second-largest U.S. chicken processor by sales, will make it the first company to admit in court to what prosecutors have alleged was a roughly seven-year effort across much of the U.S. chicken industry to inflate prices. That coordination pushed up poultry prices paid by fast-food chains and other chicken buyers, prosecutors alleged.”
The bottom line is that the bad guys are always coming up with new and creative ways to engage in bribery and corruption. It used to be that all a compliance professional had to do was invoke Watergate maxim to follow the money. However now the bad guys are going outside the company to put together a pot of money to make a corrupt payment. In the case of Petróleo Brasileiro SA (Petrobras), many of the bribes were funded by overcharging the company to create the pot of money to pay those same Petrobras executives who signed the contracts. With J&F, it corruptly obtained BNDES funding to purchase a company and then used that purchase company’s own monies to make the bribe payments.
Welcome to the 2020’s.