By Samuel Rubenfeld, Paul Kiernan and Luciana Magalhaes
Brazilian construction giant Odebrecht SA signed the largest
anticorruption settlement in history Wednesday with authorities on
three continents, following a two-year investigation that landed
its chief executive and dozens of other powerful figures in
prison.
Odebrecht, Latin America's top construction firm, agreed to pay
between $2.6 billion and $4.5 billion to authorities in Brazil, the
U.S. and Switzerland, according to the U.S. Department of Justice,
which had brought suit against the firm under the Foreign Corrupt
Practices Act.
The closely held firm admitted to violating foreign bribery laws
and agreed to a compliance-monitoring program under the supervision
of Brazilian prosecutors.
The deal represents a landmark in Brazil's so-called Operation
Car Wash, which has unearthed what is widely seen as the most
sprawling graft scheme ever exposed and triggered a political
crisis that led to the impeachment of President Dilma Rousseff.
Odebrecht has been cut off from public contracts for the better
part of two years, sending its credit ratings into a downward
spiral and exacerbating Brazil's worst economic downturn in modern
history.
Brazilian prosecutors say Odebrecht was the ringleader in a
cartel of construction firms that conspired to overbill state oil
company PetrĂ³leo Brasileiro SA for contracts, paying bribes to
high-level Brazilian politicians and Petrobras executives along the
way.
But the corruption went well beyond Petrobras and even Brazil.
Over the course of 15 years, Odebrecht paid nearly $800 million in
bribes related to more than 100 projects in 12 countries, including
Angola, Venezuela and Mexico, according to U.S. court documents. It
received $3.34 billion in ill-gotten "benefits" from the myriad
bribery schemes, the U.S. Department of Justice said Wednesday.
Odebrecht doesn't dispute any of the allegations and says it is
cooperating with authorities.
Police arrested the grandson of the firm's founder, former Chief
Executive Marcelo Odebrecht, in June 2015. Mr. Odebrecht was
sentenced in March to 19 years in prison.
The company began negotiating with prosecutors in February. The
company's revenue fell to $39.1 billion last year from $45.8
billion in 2014, and its number of employees from 170,000 to
128,000. Revenue likely fell further this year, although the
company hasn't disclosed those figures.
As part of the settlement, Odebrecht reached a leniency
agreement with Brazilian authorities that will allow the firm to
once again bid on government contracts, removing a major source of
uncertainty for the company and its creditors.
"While the main goal is to uncover illicit conduct ..., the
leniency deal also allows the signing companies ... to clean up
their liabilities and recover their ability to invest," said Deltan
Dallagnol, the head of the Car Wash task force at Brazil's federal
prosecutors' office.
Odebrecht's 2025 notes were trading Wednesday at 58.5 cents on
the dollar, up from a low of 25.5 cents in May.
In addition to Odebrecht's settlement, the company's
petrochemicals subsidiary, Braskem SA, agreed to pay $957 million
for bribing Petrobras officials to obtain cut-rate raw materials,
Brazilian prosecutors said.
Whether Odebrecht is subject to the maximum penalty of $4.5
billion depends on its ability to pay, which will be assessed in
coming months, the Justice Department said. The company will pay
the fine over 23 years, Brazilian prosecutors say.
But even the minimum payout would dwarf the $1.6 billion paid by
German industrial conglomerate Siemens AG as part of a deal with
German and U.S. prosecutors in 2008. That had previously been the
world's largest anticorruption settlement.
Mr. Odebrecht and his grandfather's company steadfastly
maintained their innocence for more than a year. Meanwhile, Mr.
Dallagnol's team of prosecutors engaged in plea bargaining -- until
recently a rarely used tactic in Brazil's legal system -- to
extract testimony and evidence against the company from dozens of
suspects.
Odebrecht sought and utilized smaller banks in countries with
strict secrecy laws to help carry out the scheme, paying extra
fees, higher rates and a percentage of each illicit transaction to
certain executives to ensure their cooperation, according to court
documents filed by the Justice Department and made public
Wednesday.
In one case in Antigua, Odebrecht bought the local branch of a
bank, allowing other members of the conspiracy, including
politicians from multiple countries, to open accounts and receive
transfers without arousing attention.
Odebrecht also created a stand-alone internal division that
"effectively functioned as a bribe department," the documents said.
Dubbed the "Division of Structured Operations," the department used
an off-the-book communications system that allowed Odebrecht
employees to communicate with each other and with outside financial
operators and co-conspirators through secure emails and instant
messages using code names and passwords, the documents said.
As the Brazilian prosecutors began unraveling the scheme,
Odebrecht sought to "conceal or destroy evidence" and sent out
directives to employees to "delete records that might reveal
illegal activities," U.S. attorneys alleged, according to court
documents.
The Justice Department said Odebrecht had terminated and
disciplined the employees involved the misconduct and adopted
heightened controls and anticorruption compliance protocols.
"When you have bribery at that level, that goes all the way up
to the CEO, and when you have a department that systematically pays
out hundreds of millions of dollars, that's when you get the
largest fines," said Tom Fox, a Houston-based lawyer and consultant
who follows the Foreign Corrupt Practices Act.
Earlier this month, Odebrecht issued a mea culpa, apologizing
for its "illicit actions."
"Odebrecht has learned from these mistakes and is evolving," the
statement said.
Mr. Fox said Wednesday's settlement is likely to raise pressure
on the dozens of other companies that did business with Petrobras
and Odebrecht to investigate their own dealings.
"Eventually the government is going to go down the chain," he
said.
Corrections & Amplifications: Braskem SA, a Brazilian
chemical company controlled by Petrobras and Odebrecht, will pay
approximately $957 million in fines, in addition to the fines paid
by Odebrecht. A previous version of this story said part of the
$2.5 billion fine will be paid by Braskem. (12/21)
Write to Luciana Magalhaes at Luciana.Magalhaes@wsj.com
(END) Dow Jones Newswires
December 22, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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