Settlement Rumors Swirl Around Petrobras Scandal

by Jennifer Kwon

Brazil’s Petrobras corruption scandal has garnered a lot of attention in the U.S., and with good reason. A Brazil-based integrated oil and gas company, Petrobras has been accused of inflating the cost of contracts for construction and engineering companies and other suppliers, and then using the excess for kickbacks to company executives and bribes to politicians and political parties.

Further complicating matters, both here and especially in Brazil, is the fact that the Brazilian government itself owns over 50% of the company. The corruption is allegedly intertwined with the state itself.

The U .S. Department of Justice has taken note of the scandal because Petrobras shares were widely traded in the United States. In fact, it was the largest foreign company on the New York Stock Exchange until recently. Petrobras’ market value has steadily declined to less than $40 billion from almost $300 billion seven years ago.

Last week Reuters reported that there might soon be a settlement with U.S. authorities. If there is, it could be the largest settlement of corporation corruption charges since 2008, when Siemens AG settled with the DOJ and the Securities and Exchange Commission for $800 million. According to Reuters, settlements with the US could be over $1.6 billion.

Petrobras officials have denied that a settlement is in the works, but rumors persist. The DOJ and the SEC declined to comment.

Whatever is happening here in the US, Brazilian authorities are clearly trying to move beyond the scandal. According to Reuters America Latina, the Brazilian government today offered over 20 companies that have been implicated in the scandal a chance to pay $4.2 billion in fines for the right to resume business with Petrobras. This move was strong enough to nudge Petrobras shares up 2.2% in today’s trading.

CCC will be carefully tracking this scandal, as well as domestic litigations related to it, and will be reporting on its progress. Should a settlement ever emerge with a shareholder class, CCC will be ready to file claims for any investor.

This article was written during my internship at Chicago Clearing Corporation (CCC) in 2015.