Petrobras to pay massive corruption fine

Brazil's state oil company has agreed to pay more than $853m (£650m) to the US and Brazil, ending a long-running corruption investigation.

Background

Petrobras is a semi-public Brazilian multinational corporation in the petroleum industry headquartered in Rio de Janeiro, Brazil. Petrobras was created in 1953 under the government of Brazilian president Getúlio Vargas with the slogan "The Oil is Ours" (Portuguese: "O petróleo é nosso"). It was given a legal monopoly in Brazil.

In 2014, the largest corruption scandal in the history of Brazil was uncovered centred around Petrobras. Initially the investigation was not focused on Petrobras executives but rather small time doleiros black market money dealers. These money launderers tended to use small business to carry out their business but the investigation discovered links to an executive at Petrobras, Paulo Roberto Costa, the director of refining and supply.

Both President Dilma Rousseff, who promised to cut corruption in her election campaign, and former Brazilian president Luiz Inácio Lula da Silva served on the board of directors of Petrobras during the scandals and both were blamed, as well as the president of the lower house, Eduardo Cunha. President Dilma Rousseff made one critical change in policy, the introduction of plea bargains, making it possible to offer deals in exchange for information leading to further arrests.

The company was ranked #58 in the most recent Fortune Global 500 list.

Analysis

Petrobras, has agreed to pay more than $853m to the US and Brazil, ending a long-running corruption investigation. The probe stemmed from a bribery scheme at the firm, which involved millions in payments that were concealed from investors and regulators.

The payments were facilitated by executives at the "highest levels", including the firm's board, the US Department of Justice said. Brazil is to receive 80% of the money. Authorities in the US - where Petrobras is listed on the stock exchange - agreed not to prosecute in exchange for the remainder of the funds.

"Those who choose to access our capital markets while failing to disclose the corrupt activities of company executives will be held accountable," said US Attorney Zachary Terwilliger.

The payments were uncovered as part of Brazilian money laundering investigation at a petrol station, before widening to uncover corruption involving some of the country's top politicians and biggest companies, including Petrobras and Odebrecht.

According to the Petrobras settlement's official account of the scandal, former executives funnelled payments from companies seeking business with the state to politicians, in some cases accepting part of the bribe themselves. The payments were often concealed through fictitious costs or consultancy agreements, it says.

The full scale of the scheme, which took place between at least 2004 and 2012, is estimated at $2bn, of which more than $1bn went to politicians and political parties, the account says.

In a statement, Petrobras stressed that the agreement found that the company was also a victim of the scheme, which involved former executives, some of whom are now serving prison sentences in Brazil.

It said: "The agreements serve the best interests of Petrobras and its shareholders and put an end to the uncertainties, burdens and costs associated with potential litigation in the United States."

Under an order from the Securities and Exchange Commission, Petrobras has agreed to return $933m in gains stemming from the false financial statements. That will be credited toward a $2.95bn settlement reached in a class-action suit brought by investors in New York.

Assessment

Our assessment is that Petrobras will have to pay the fine without any concessions on its executives. It has been found guilty of Brazil’s largest-ever scandal which has resulted in the massive political crisis in the country. We believe that Petrobras will pay the fine without incurring any significant damage to its operating capital or management.