Today, I continue a 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, we consider the Department of Justice (DOJ) Plea Agreement.
The resolution documents include, from the 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, who 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. As noted in the Order, “the Batistas were very well-known in the meat industry and associated with the highest levels of Brazilian politicians, including several sitting Presidents of Brazil, Ministers, and other Brazilian officials.”
As we noted yesterday, a large number of the bribes paid were made to officials the 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. Though BNDES was created to assist in the development of Brazilthrough bribery and corruption to the tune of $148 million in payments, J&F received the huge benefit of $2 billion in funding which enabled it to purchase Pilgrim’s Pride, a US listed company, out of bankruptcy in 2009 and thereby gain a foothold in the US.
The Brothers Batista and company apparently still felt they had the upper hand when the investigation started as they did not self-report their illegal conduct so they received no credit under that requirement. It was only a little better when it came to the investigation and remediation credit. The Plea Agreement, the company only received a partial credit under this prong, stated, “the Defendant did not receive full credit for cooperation and remediation, pursuant to the FCPA Corporate Enforcement Policy, JM Section 9-47.120, because, among other things, the Defendant initially declined to produce all relevant materials and failed to produce all relevant documents and information in a timely manner”. Eventually the company did find religion as it received credit for “(i) conducting an internal investigation; (ii) making factual presentations to the Fraud Section and the Office; and (iii) voluntarily making foreign-based employees available for interviews in Brazil”.
Not surprisingly, when it came to compliance there was no program in place when the incidents took place. Not much point in having a compliance program when your business model is built around bribery and corruption. Yet the company did make something of a comeback during the pendency of the investigation. The Plea Agreement stated, “the Defendant has since engaged in remedial measures, including: (i) creating and establishing an anti-corruption compliance program that is audited annually by an independent party; (ii) significantly increasing the importance of anti-corruption compliance messaging within the company; and (iii) conducting regular and robust anti-corruption compliance training with all executives and senior managers”.
When it came to having a monitor, the Plea Agreement noted, “the fact that the Brazilian Leniency Agreement requires the implementation of an independent commission responsible for monitoring and reporting on internal investigations and compliance audits conducted at the Defendant with ongoing reporting requirements to the Brazilian authorities, and the Defendant’s agreement to report to the Fraud Section and the Office as set forth in Attachment D to this Agreement (Reporting Requirements), the Fraud Section and the Office determined that an independent compliance monitor is unnecessary.” Although it should be noted that in other anti-corruption resolutions involving two sets of monitors were required.
All of these factors led to J&F receiving a 10% reduction. The DOJ is communicating that it will consider and reward even low levels of cooperation. Equally important, the company received a reduction of 2 points in the Culpability Score under the Sentencing Guidelines. All of this led to total criminal penalty of $256,497,026; which reflected a 10% discount off of the bottom of the applicable Sentencing Guidelines fine range for the defendant’s partial cooperation and remediation.
However, this total amount of $256 million was further reduced to $128,248,513, which was 50% of the Total Criminal Fine. This additional reduction was based on a credit up to 50 percent of the criminal penalty owed to the US to payments J&F makes pursuant to the resolution with the Brazilian authorities. But it did not stop there as there was a payout plan, which the DOJ deemed necessary to mitigate any potential impact the payment may otherwise have on the Defendant’s ability to continue to make the full payments owed to Brazilian authorities according to the schedule that was agreed to in the Brazilian Leniency Agreement. This means that J&F is required to pay $47 million “to the United States Treasury no later than ten business days after the entry of the judgment by the Court, and the Defendant agrees to pay the remaining $81,248,513 within six months after the entry of the judgment by the Court.”
Join me tomorrow where I conclude with some lessons learned from the J&F Investments FCPA resolution.