Petrobras hid a bribery scheme in its assets — and paid $1.8B to the SEC and DOJ

Petróleo Brasileiro S.A. — Petrobras — is Brazil's state-controlled oil company and one of the largest in the Americas. For years, the SEC later found, its senior executives worked with the company's biggest contractors to inflate the cost of infrastructure projects by billions of dollars. The contractors paid billions in kickbacks back to the executives, who shared the money with the politicians who had put them in their posts.

The accounting hid the scheme in plain sight. Petrobras recorded the corrupt payments as money spent to acquire and improve assets, which the SEC calculated produced an estimated $2.5 billion overstatement of the company's assets. Those inflated figures flowed into the company's public filings, including a $10 billion stock offering it completed in 2010 that misrepresented its assets, its projects and the integrity of its management to US investors.

The scheme surfaced through Brazil's Lava Jato investigation and reached US regulators. On 27 September 2018 the SEC charged Petrobras with misleading US investors by filing false financial statements that concealed the bribery and bid-rigging. As part of a settlement with the SEC and a non-prosecution agreement with the Department of Justice, Petrobras agreed to pay $933 million in disgorgement and interest plus an $853 million penalty — about $1.8 billion in all. Separately, it paid $2.95 billion to settle a US investor class action.

Petrobras is the largest corporate corruption case in Latin American history. The lesson is the accounting itself: a bribe booked as an asset is still a bribe, and a balance sheet built on it is a false statement that regulators in every jurisdiction the shares touch will eventually price.