Compliance Evangelist

Last week, I began 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. Of course this enforcement must be considered in connection with the related action of JBS, 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 want to consider the bribery schemes and the persons and entities bribed.

One must also consider the plea deal given to former JBS AS Chairman, Joesley Batista, and his older brother, Chief Executive Wesley Batista, in exchange for cooperating with prosecutors they both avoided jail time. According to the Wall Street Journal (WSJ), “Prosecutors said they accepted that condition because the brothers cooperated, handing over evidence that is being used to investigate (then) Brazilian President Michel Temer, his predecessor (then) Dilma Rousseff, and her predecessor (then) Luiz Inácio Lula da Silva.” All three were convicted of accepting bribes.

The Entities

The bribery schemes were by far from the ordinary, run of the mill bribes. They were bold, audacious and completely over the top for payments and benefits received. The schemes involved bribing government and state-owned enterprise officials so they would direct Brazilian government banks and financial institutions to fund the Batista’s operations at J&F.

According to the Information, these institutions included 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. Another institution was Caixa Econômica Federal (“Caixa”), a Brazilian state-owned and state-controlled bank that performed government functions. The Brazilian government directly owned 100 percent of Caixa. Another instrumentality was Fundação Petrobras de Seguridade Social (“Petros”), a Brazilian state-controlled pension fund that performed government functions and was established to administer pension, retirement and death benefits for Petrobras employees.

The Bribery Schemes

According to the Information, between 2005 and 2017, J&F, together with others, “knowingly and willfully agreed to violate the FCPA by corruptly promising and paying bribes that it understood were to, and for the benefit of, foreign officials in Brazil”.  These payments were $148 million, in other words these were massive bribes paid. Of course, when you pay massive bribes it is not simply the greed to the bribe receiver but that the bribe payor expects a massive return on the bribes paid, which J&F received from BNDES.

A total of $148 million was paid and J&F received a huge benefit in return, that being a $2 billion funding which allowed J&F to go on an international spending spree, including the purchase of the US company, Pilgrim’s Pride, who has been in the news lately for its own series of problems. We will take up Pilgrim’s Pride and how it impacted this Foreign Corrupt Practices Act (FCPA) enforcement action in a separate blog post. Suffice to say, buying a US company with funding obtained from a national bank through bribery and corruption is not the smartest thing to do, from a FCPA perspective. Indeed, J&F and the Brothers Batista compounded their error by running all these bribes through the US banking system. Further, “To facilitate the bribery scheme and conceal the true nature of the bribe payments, J&F and its co-conspirators created shell companies, opened bank accounts for the shell companies in the United States and made payments to those accounts for the intended benefit of foreign officials in Brazil”.

Another scheme was used involving Petros where corrupt officials were paid bribes to ensure that Petros would enter transactions with J&F and its related entities. According to the Information, “To facilitate the bribery scheme and conceal the true nature of the bribe payments, J&F and its co-conspirators, among other things, created shell companies, purchased real estate in New York City and transferred the real estate to entities controlled by” the corrupt Brazilian official.

The benefits that J&F received from this bribery and corruption included merging an investment vehicle with another entity, all of which required Petros approval. As a further incentive, J&F “agreed that a portion of the bribe payment would be made by J&F by purchasing an apartment in New York, New York and transferring ownership of the apartment to Brazilian Official 4. As a result, in or about July 2011, J&F Executive 1 travelled to New York to view apartments and select one to purchase as a bribe payment.”

Finally, with regard to Caixa, bribes were paid in the amount of $25 million to corrupt officials in order to obtain financing from the government institution. In return for these corrupt payments J&F received over six separate tranches of funding from Caixa of over $300 million. The bribery schemes were once again paid of out the United States. As I said the Brothers Batista went big.

Join me tomorrow where I look into the Securities and Exchange Commission (SEC) settlement involving Pilgrim’s Pride.

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