Petrobras / Lava Jato (Operation Car Wash)

Petrobras's big contracts were inflated by design; the markup bankrolled the men who awarded them.

The fifth quadrant, where the thing was never real. The tell is that the story is too clean.

Room: Q-F Fraud
Year: 2014
Impact: $2.95B
Sector: State oil / energy
Region: LatAm
Category: Economic

Why this room

The classification rests on the finding that the reported economics were fabricated at source rather than degraded by external events. The SEC's order establishes that senior Petrobras executives worked with the company's largest contractors to inflate the cost of infrastructure projects by billions of dollars, and that the resulting kickbacks were then booked as money spent to acquire and improve assets, producing an estimated $2.5 billion overstatement of assets that was carried into the filings supporting a $10 billion US securities offering. The capital-expenditure line, the number an outside analyst would have used to value the business, was itself the bribe channel. That places the event in qf: the audited object was never what it purported to be.

The record

The SEC found that recording bribes and kickbacks as money spent to acquire and improve assets resulted in an estimated $2.5 billion overstatement of Petrobras's assets.certain
In its September 2018 resolution with the SEC and DOJ, Petrobras agreed to pay $933 million in disgorgement and prejudgment interest plus an $853 million penalty, both subject to offsets against the class-action settlement and payments to Brazilian authorities.certain
Petrobras settled the US securities class action (In re Petrobras Securities Litigation, 14-cv-9662) for $2.95 billion, granted final approval by Judge Jed S. Rakoff of the Southern District of New York on 25 June 2018.certain
The false and misleading filings included materially false statements made to US investors in a $10 billion Petrobras stock offering completed in 2010.certain
Case documents indicate that potentially more than $2 billion was generated for corrupt payments under the scheme, of which about $1 billion was directed to politicians and political parties; the charged conduct spans roughly 2004 to 2012.medium

Sources

The book

This entry is one of 111 in the register. The full story, and what it cost the people who lived it, is in Risky Business by Claudia Zeisberger, David Munro and Joanna Reijgersberg-Siew.

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