Yesterday, the Department of Justice (DOJ) announced three charges against Jose Carlos Grubisich, the former Chief Executive Officer (CEO) of Braskem S.A. (Braskem), a publicly traded Brazilian petrochemical company, for his role in a massive bribery and money laundering scheme involving Braskem and its parent company, Odebrecht S.A. (Odebrecht), that according to the DOJ Press Release, “resulted in the diversion of hundreds of millions of dollars from Braskem into a secret slush fund that was used, in part, to pay bribes to government officials, political parties and others in Brazil to obtain and retain business.”

The charges included “one count of conspiracy to violate the anti-bribery provision of the Foreign Corrupt Practices Act (FCPA), one count of conspiracy to violate the books and records provision of the FCPA and to fail as a corporate officer to certify financial reports and one count of conspiracy to commit international money laundering.” The use of criminal charges for books and records violations against individuals is rare but the consequences can be quite severe: 20 years in prison.

According to the Indictment, the bribery scheme began in 2002 when Odebrecht started a slush fund of $250 million with which it would pay bribes on its behalf and on behalf of its subsidiaries, including Braskem. The slush fund was administered through a group called the Division of Structured Operations (DSO). However by 2006, Odebrecht demanded that its wholly owned subsidiary Braskem, create its own separate slush fund, which it did, calling it Caxia 2. Caxia 2 was funded through payment made from fraudulent invoices where services were never delivered. Accounts were maintained in the US and other venues.

Grubisish was personally involved in setting up Caxia 2. He worked with the Braskem Finance Department to set up fraudulent entities in the UK to bill Braskem for import/export services. Grubisish and others then created fake contracts and fraudulent invoices as these shell companies never provided any services to Braskem and the monies they fraudulently billed were then paid directly into Caxia 2 and formed the basis of the slush fund. Monies were also paid into the DSO for payment of bribes on behalf of Odebrecht. Once again monies were moved through the US banking system.

Grubisish and others personally directed the payment of bribes out of this slush fund Caxia 2 and those actions are the basis of the FCPA bribery charges. He was involved in negotiating and approving bribes to Brazilian government officials using money from the slush fund.  These included alleged payments made to ensure that Braskem could retain a contract for a significant petrochemical project in Brazil, and to ensure that Braskem could obtain favorable pricing in contract negotiations with Petrobras, Brazil’s state-owned and state-controlled oil company for naptha.

Moreover, “Grubisich regularly discussed the bribe payments with other co-conspirators and was kept informed about bribe payments made on behalf of Braskem”.  Further, “Certain of the bribe payments that were allegedly negotiated and authorized by Grubisich were ultimately paid after Grubisich left his position as CEO of Braskem in 2008, but while he continued to serve in other capacities at Odebrecht and Braskem, and while he was a stockholder of Braskem.”

Grubisish was also personally involved in the creation of false books and records. He approved the false recordings of the Caxia 2 payments to be made as “commissions”. He allowed the creation of false contracts and other fraudulent paper trails to conceal the true purpose of these payments and the use of the slush fund. The Indictment also alleges that he “also signed false certifications submitted to the SEC that, among other things, attested that Braskem’s annual reports fairly and accurately represented Braskem’s financial condition, and that Grubisich, as Braskem’s principal officer, had disclosed all fraudulent conduct by Braskem’s management and other employees with control over Braskem’s financial reporting.”

Grubisish’s corrupt behavior and illegal actions continued after he left the CEO position of Braskem to run the Ethanol business of Odebrecht. In this new role had helped to administer the DSO slush fund for payment of bribes by Braskem’s parent. These additional allegations were added to his direct actions to foster the money laundering count.

The Press Release noted that Braskem and Odebrecht have each pleaded guilty in the Eastern District of New York to one-count Criminal Informations separately charging each with conspiracy to violate the anti-bribery provisions of the FCPA for their involvement in the widespread bribery and money laundering scheme.  There were several law enforcement groups involved in this matter. They included the FBI’s International Corruption squad in New York which investigated this case. Also involved were the  DOJ’s Criminal Division’s Fraud Section and U.S. Attorneys from the Eastern District of New York, which are prosecuting the case. Finally the Criminal Division of International Affairs “provided substantial assistance” and the  Securities and Exchange Commission (SEC), the Brazilian Ministerio Publico Federal, the Brazilian Departamento de Polícia Federal and the Office of the Attorney General of Switzerland “provided significant cooperation.”

All-in-all, this case was a stunning development. It is certainly rare to garner an indictment against a CEO and most particularly under the books and records provisions. The potential consequences are severe in terms of both jail time and asset forfeiture for Grubisish.

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© Thomas R. Fox, 2019