January 4, 2017

By: Odebrecht and Braskem to Pay Record-Setting FCPA Penalty

Brazilian conglomerate Odebrecht S.A., and its affiliated petrochemical company, Braskem S.A., agreed to pay at least $3.2 billion combined to resolve criminal charges that the companies conspired to violate the anti-bribery provisions of the Foreign Corrupt Practices Act.  The scheme, as described by the government in documents filed in the U.S. District Court for the Eastern District of New York, ran from 2001 to 2015, during which time the companies employed “an elaborate, secret financial structure” to pay almost $800 million in bribes on three continents. Odebrecht kept Brazilian politicians on retainer, and the politicians favored the company with the passage of friendly tax legislation and contracts with the state-owned oil firm, Petrobras. Set forth below are the most interesting aspects of the largest anti-corruption settlement history:

• The U.S. Sentencing Guidelines call for an even larger payout. The parties agreed that, under the Guidelines, Odebrecht’s base penalty is $3.336 billion and the appropriate multiplier is between 1.8 and 3.6, for a total range of between $6.0048 and $12.0096 billion. For Braskem, the Guidelines establish a base penalty of more than $465 million, a multiplier of between 1.6 and 3.2, and a total penalty of between $744 million and almost $1.5 billion.

• The government agreed to a below-Guidelines fine based on cooperation and ability to pay.  Because of Odebrecht and Braskem’s cooperation in ongoing investigations, the government agreed to recommend reductions for both companies. Odebrecht got a 25% reduction beyond the bottom end of the Guidelines range to $4.5 billion, while Braskem received a 15% discount to $632 million.  The government agreed to further reduce Odebrecht’s penalty based on the company’s attestation that it cannot pay all $4.5 billion and stay afloat.

• The exact amount of the fine will not be determined until sentencing. To secure the ability-to-pay settlement, Odebrecht has opened its books to the government, which could advocate for a larger amount at sentencing if it feels the company can pay more while remaining in business.  During the plea hearing, U.S. District Judge Raymond Dearie expressed skepticism about letting the company plead guilty without knowing what the penalty would be, but defense counsel assured the Court that Odebrecht understood the parameters of the deal.

• Braskem also resolved a civil case filed by the SEC based on the same allegations. The company agreed to disgorgement of $325 million in profits, bringing the total recovery from Odebrecht and Braskem to approximately $3.6 billion.

• Most of the recovery will go to Brazil. As Brazilian authorities led the investigation and the Brazil suffered most of the loss, the Brazilian government will recoup more than 70% of the total penalty.  The rest will be split between the United States and Switzerland.

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