Risk & Compliance

SEC Settles Two Huge FCPA Cases

Petrochemical company Braskem, its parent Obebrecht, and Teva Pharmaceutical Industries will pay a combined $4 billion.
Sean AlloccaDecember 22, 2016
SEC Settles Two Huge FCPA Cases

Continuing its ramped-up targeting of Foreign Corrupt Practices Act violations, the Securities and Exchange Commission announced on Wednesday and Thursday that it has reached large large settlement agreements with multiple companies.

A Brazilian-based petrochemical company agreed to pay almost a billion dollars in penalties and disgorgement, while its parent company agreed to pay more than $2.5 billion, for their roles in one of the country’s largest and most far-reaching corruption scandals to date.

Braskem S.A. will pay $957 million to federal and international agencies to settle FCPA violations. The company allegedly hid millions of dollars in bribes — paid to government officials at Brazil’s state-owned petroleum company, Petrobras, as well as to Brazilian legislators and political party officials — by falsifying its financial statements.

The complaint alleges Braskem profited by approximately $325 million through bribes paid through off-book accounts managed by a private company that happened to be Braskem’s largest shareholder.

The global settlement involves payments to the SEC, U.S. Department of Justice, and authorities in Brazil and Switzerland.

“As alleged in our complaint, Braskem lacked the internal controls to prevent its use of third parties, off-book accounts, and other intermediaries to bribe government officials in Brazil during an eight-year period,” said Stephanie Avakian, deputy director of the SEC’s enforcement division.

Braskem admitted wrongdoing in a statement on Wednesday.

The company will pay $325 million in disgorgement, including $65 million to the SEC and $260 million to Brazilian authorities. It will pay more than $632 million in criminal penalties and fines and must retain an independent corporate monitor for at least three years.

“We are implementing more robust practices, policies and processes across the organization to enhance our governance and compliance system,” said Braskem CEO Fernando Musa.

The misconduct was exposed through an international investigation, including a massive probe into Braskem’s parent company, Odebrecht, a Brazil-based global construction conglomerate. In related proceedings, Odebrecht agreed to pay $2.6 billion for violations stemming from schemes to pay hundreds of millions of dollars in bribes, over almost a decade, to government officials around the world.

In the other case, Teva Pharmaceutical Industries, an Israel-based company with a U.S. subsidiary, has agreed to pay more than $519 million to settle parallel civil and criminal charges that it bribed government officials in Russia, Ukraine, and Mexico.

The SEC’s complaint alleged that Teva made more than $214 million in illicit profits as a result of the bribes, which helped the company increase its market share and obtain regulatory and formulary approvals as well as favorable rulings related to drug purchases and prescriptions.

“Teva failed to devise and maintain proper internal accounting controls to prevent the company’s payments of bribes to win business in certain regions around the globe,” said Stephanie Avakian, deputy director of the SEC’s enforcement division.

Added Eric Bustillo, director of the SEC’s Miami regional office, said: “Many of these bribes were concealed as legitimate payments to distributors. While distributors can help companies navigate complex regulatory environments and provide valuable industry relationships, they also can create significant corruption risks for companies.”

Under the settlement, Teva must pay more than $236 million in disgorgement and interest to the SEC plus a $283 million penalty in a deferred prosecution agreement with the U.S. Department of Justice. Teva must retain an independent corporate monitor for at least three years.

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