Into the spotlight
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11 de abril de 2017

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The record US$3.5 billion settlement between Odebrecht, its affiliate Braskem and enforcement authorities across three continents is being hailed as a benchmark for future cross-border resolutions. Lawyers who worked on the case talk to Vincent Manancourt on and off the record about how it was done.

In 2010, a prestigious Swiss business school named Brazil’s Odebrecht the world’s best family-run company. At the time, this was an uncontroversial decision: the construction conglomerate – Latin America’s largest – seemed the paragon of a modern, ethical and well-run business. As well as leading the charge in Brazil’s companies going global – giving it a portfolio that includes the US$200 million Miami Heat Stadium and Africa’s largest hydroelectric dams – Odebrecht had long been vital to Brazil’s economy, active in areas as diverse as infrastructure, agribusiness and military contracting. Furthermore, among its large workforce the company provoked a quasi-religious following – the product of a strong workplace culture where training and meritocracy were emphasised, and employees were expected to study books written by the company’s founder, Norberto Odebrecht.

This status as a regional and global business pin-up explains why, when Norberto’s grandson and company CEO at the time Marcelo Odebrecht was sentenced to more than 19 years in jail in early 2016, the shockwaves could be felt around the world. The reason for Odebrecht’s imprisonment was the role he played in the petrolão, a sprawling corruption scandal centred around bribery at Petrobras that has ensnared politicians and businessmen, contributed to the downfall of a president and led to the bankruptcy of a handful of fellow construction companies. But it is perhaps Marcelo Odebrecht who paid the highest personal price when he was convicted for paying more than US$30 million in bribes to executives at the state-owned oil company. As well as imprisoning a man widely seen as a symbol of modern Brazil, the sentencing seemed to sound the death knell of a company so important to the country.

Not so fast. Though Marcelo Odebrecht remains behind bars, his company’s fate looks to have taken a turn for the better following a December 2016 settlement with prosecutors in Brazil, Switzerland and the US. The Department of Justice (DOJ) judgment was damning: it drew attention to the US$788 million in bribes paid by Odebrecht and its subsidiary Braskem to officials and political parties in Brazil and in 11 other countries, and reserved particular ire for the company’s “department of structured operations”, re-branding it as a “department of bribery”. The department managed the budget for the Odebrecht bribery operation via a separate computer system that was used to request and process bribe payments. In turn, the US$3.5 billion fine imposed on Odebrecht and Braskem is heavy – it is the largest anti- corruption settlement in history.

And yet, the settlement is good for the company. “Braskem had to address its past. The settlement allowed it to…move on with a clean slate,” says Paul Hastings’ Robert Luskin, who represented Braskem in Washington, DC proceedings. Indeed, in response to the settlement, Braskem’s stock price has steadily climbed. And as Braskem counsel Sampaio Ferraz Advogados’ Luís Wielewicki puts it: “If you want to get an honest appraisal of the settlement then look at the market’s response – it has been very good.”

Several features make this case remarkable. Firstly, the speed with which the settlement was reached. Cases like this can take up to six years to close; this one took less than a year, allowing Odebrecht to emerge from the dark chapter of its history quickly. Secondly, and perhaps most remarkably, this was the first coordinated settlement in a bribery case with a trilateral fine, and only the second time the DOJ and Brazilian enforcers have joined forces (the first being a bribery settlement in October for the Brazilian aerospace company Embraer). This gives the company a clean break from its past, rather than forcing it to endure multiple settlements in as many jurisdictions.

The need for speed

With the CEO imprisoned, contracts drying up and banks pulling funding, Odebrecht and Braskem needed to reach a settlement quickly if they were to survive. This was partially achieved by lawyers simply putting in the hours: Luskin recalls that conference calls in the early hours of the morning or late at night were the norm, as was working during the weekend. As well as constant conference calls, lawyers were put through a punishing schedule of regular flights between Switzerland, Brazil and the US.

Good relations and trust between the lawyers on one side, and the public prosecutors on the other, was also key to the settlement closing quickly. For the prosecutors, that involved accepting lawyer summaries rather than conducting investigations themselves, while lawyers recognised the need to yield more to the prosecutors than they might usually. “There was a mutual recognition that some stuff is just too small to fight over: We wanted to achieve justice, but it was going to have to be rough justice because of the time constraints,” says Luskin. “That’s a good thing though. Sometimes both sides overemphasise process and procedure over results.”

However, for the Odebrecht case at least, burning the candle at both ends and mutual trust could speed up the process only so much. Lawyers also had to structure the settlement in a such a way that would allow a deal to be reached quickly. To achieve this, both sides in the Odebrecht negotiations agreed to reach and announce a nominal fine, and then fine-tune the settlement afterwards depending on the company’s ability to pay. This structure, called ability-to-pay, is common to antitrust settlements, but new to bribery cases. Under this type of agreement, Odebrecht has agreed that the appropriate criminal fine is US$4.5 billion, but claims it is only able to pay US$2.6 billion. The final amount will be announced following an analysis of Odebrecht’s ability to pay by the DOJ and Brazilian authorities. Braskem agreed to pay a separate penalty of US$632 million. For US counsel, getting parties in the other jurisdictions on board with the ability-to-pay structure was a challenge since the concept was unfamiliar to them.

Robert Luskin and Luis Wielewicki

 

Cross-border: the new normal

Though proceedings were swift, even more groundbreaking was the multi-jurisdictional nature of the settlement. While Embraer’s US$205 million settlement was the first-ever Foreign Corrupt Practices Act settlement with parallel enforcement proceedings in Brazil, the Odebrecht/Braskem case stands out for the sheer size of the fine as well as the tripartite nature of the case. Indeed, the agreement between the companies and enforcement authorities in Switzerland, Brazil and the US is the first-ever coordinated settlement with a fine levied by enforcers in three jurisdictions. Of Odebrecht’s fine, Brazil will receive 80% and the US and Switzerland will split equally the remaining 20%, while Braskem will pay 15% of its fine to Switzerland, 70% to Brazil and 15% to the US.

For Luskin, this is indicative of a wider change in anti- corruption enforcement. “In the past five or six years we have rapidly moved from a unilaterally enforced anti- corruption scheme by the DOJ, to a much more multi- jurisdictional approach. This will become the new normal,” he says.

To illustrate how this multilateral approach is better, Luskin refers to another case he worked on representing French energy company Total in an anti-corruption investigation: Total first settled with the US authorities, only to have to go through the same ordeal with the French authorities afterwards. “Being punished twice for the same conduct is terrible for the company,” he says, adding that such staggered settlements do not encourage companies to cooperate with enforcers.

This coordinated settlement model could prove a benchmark for future cases, agree lawyers. “These investigations show there is a worldwide trend in anti- corruption enforcement – and this is not the first case and for sure will not be the last. Cooperation with authorities is becoming stronger and stronger; authorities know each other, share information and have good relationships and recognise anti-corruption is a global preoccupation,” says Wielewicki. In a sign that this is just the start, late February saw prosecutors from 11 jurisdictions agree to cooperate on the Odebrecht case.

Aside from being the first properly coordinated settlement, the Odebrecht case was novel in being led by non-US authorities. In this case, Brazil led the charge which, in turn, spurred the DOJ on. “When the DOJ saw that Brazil was aggressively enforcing its own anti- corruption laws, it had to put its money where its mouth is,” says Luskin. Lawyers say this case shows Brazil is a world leader in tackling corruption.

Here, again, good relations between all the parties was key. “Coordinating all the different strands was like playing four-dimensional chess. Fortunately, relations between counsel on our side were very cordial, and the DOJ say its relationship with the Brazilian authorities is one of the best it has ever encountered,” says Luskin. Indeed, the coordination effort required to reach this cross-border settlement is referenced by all counsel involved as one of the main challenges: lawyers talk of the pivotal role the companies’ counsel played in getting the authorities in all three jurisdictions to work together.

A fresh start

In addition to organising legal teams and prosecutors in three jurisdictions, there was also the issue of coordinating the Braskem and Odebrecht negotiations – two linked, but very much separate, cases. Each case had a separate team of investigators and separate counsel, and while there was much overlap, each had their own quirks. For a start, while Braskem is publicly listed in Brazil, Spain and New York, Odebrecht is privately owned. The Braskem team had to take corporate governance issues into account, as well as providing the market with regular updates. “Braskem is a publicly traded company and has very strong governance rules so the board was involved in every detail and was aware of everything that was going on,” says Wielewicki. Not only were Braskem’s executive officers involved, but the company also formed a special committee made up of independent board members that analysed the case and gave an independent opinion. Then, when a settlement had been reached, it had to be approved by the board. In addition, lawyers had to tread a fine line when providing information to the market, since it had to be done promptly, but without breaking strict confidentiality agreements.

No one can describe the fines imposed on Odebrecht and Braskem as lenient. Even in the best-case scenario, Odebrecht will have to fork out over US$2 billion, a considerable sum for any company, never mind one struggling to regain its footing: the company is currently selling assets and restructuring debt in a bid to stave off bankruptcy. Yet the settlement does give both companies the chance to start over, and that is no mean feat. Any failure in negotiations could have spelled disaster for both, and, as a consequence, for their thousands of employees, the majority of which probably had no knowledge of the corruption being practised by the powers that be. So, while the days of Odebrecht winning awards may be over for now, the lawyers that have engineered its survival may just deserve one.

Counsel to Odebrecht

In the Brazilian and Washington, DC investigation

Quinn Emanuel Urquhart & Sullivan

Partners Bill Burck and Richard Smith in Washington, DC

In the Brazilian investigation

Dias & Carvalho Filho Advogados

Partner Theo Dias in São Paulo

Barros Pimentel Advogados

Partner Caio Rodriguez in São Paulo

In the Swiss investigation

Schellenberg Wittmer

Partner Peter Burckhardt in Zurich

Counsel to Braskem

In the US investigation

Baker McKenzie LLP

Partners Joan Meyer, John Rowley III and Karyn Koiffman in Washington, DC

Paul Hastings LLP

Partners Robert Luskin and Jay Darden in Washington, DC

In the Swiss investigation

Schellenberg Wittmer

Partner Peter Burckhardt in Zurich

In the Brazilian investigation

Sampaio Ferraz Advogados

Luís Wielewicki, Bruno Furiati, Rodrigo Maia, Beatriz Trovo and Arthur Teixeira

Counsel for CNO

In the Swiss investigation

Schellenberg Wittmer

Partner Peter Burckhardt in Zurich

Counsel to the Justice Department

FCPA unit chief Dan Kahn and trial attorneys Christopher Cestaro, Sarah Edwards, David Fuhr, Kevin Gingras, Lorinda Laryea and David Last of the criminal division’s fraud section

Assistant US attorneys Julia Nestor and Alixandra Smith of the Eastern District of New York

Counsel to the SEC

FCPA unit chief Kara Brockmeyer and Ernesto Palacios and Thierry Olivier Desmet, with assistance from David Johnson and Fernando Torres

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