SBM Offshore reaches settlement with Petrobras and Brazilian authorities

Dutch FPSO provider SBM Offshore has signed a leniency agreement with the Brazilian authorities and Petrobras following a long-running corruption investigation. The agreement clears the way for the company to participate in Petrobras’ tenders.

The leniency agreement was signed on Thursday, July 26, 2018, between SBM Offshore and SBM Holding, the Brazilian Ministry of Transparency and Comptroller’s General Office (Ministério da Transparência e Controladoria-Geral da União- CGU), the General Counsel for the Republic (Advocacia Geral da União – AGU) and Petrobras.

The current agreement follows previous resolutions reached by the company with the Dutch Public Prosecutor (Openbaar Ministerie – OM) as reported in November 2014, and with the United States Department of Justice (DOJ) as reported in November 2017.

The agreement is to a large extent comparable to the agreement which was reached in July 2016 with CGU, AGU and Petrobras and which also included the Brazilian Federal Prosecutor’s Office (Ministério Público Federal – MPF) as reported on July 16, 2016. This agreement was however ultimately not approved by the Fifth Chamber of the MPF, as reported on September 2, 2016. The payment amounts agreed upon in the leniency agreement are in line with the provision maintained by the company corresponding to this initial agreement.

Bruno Chabas, CEO of SBM Offshore, commented: “The leniency agreement with CGU, AGU and Petrobras marks a key milestone towards a closure of the company’s legacy issues in Brazil. This agreement supports the continuation of our long-lasting relationship with Petrobras and will allow SBM Offshore to successfully pursue new business opportunities in Brazil.”

Under the agreement, SBM Offshore will make a cash payment to Petrobras totaling BRL549 million (approximately $148 million), of which BRL264 million (approximately $71 million) is a civil fine and BRL285 million (approximately $77 million) is compensation for alleged damages.

The total amount is to be paid within 90 days; and a reduction of 95% in future performance bonus payments related to FPSOs Cidade de Anchieta and Capixaba lease and operate contracts, representing an agreed nominal value of approximately $180 million over the period 2016 to 2030, of which an amount of $41 million relating to historical bonus payments (2016 to signature date) is to be paid within 90 days of the signing of the leniency agreement. The future bonus payments (from signature date to 2030) represent a net present value of approximately $110 million, as further compensation for alleged damages.

The aggregate of the cash payments to be made (approximately $189 million) and the net present value of future bonus payments (approximately $110 million) is in line with the provision maintained by the company of $299 million as at December 31, 2017.

Terminating all investigations

Under the terms of the leniency agreement, CGU, AGU and Petrobras commit to terminate all of their investigations against the company and refrain from initiating new legal proceedings under the Improbity Law, Anti-Corruption Law and Public-Procurement Law in relation to the legacy issues in Brazil.

The company is invited back to participate in Petrobras’ tenders under equal conditions as other bidders. In the leniency agreement, Petrobras represents that in relation to the conduct covered by the leniency agreement, it will not adopt any measures that may jeopardize the ability of SBM Offshore to conduct business in Brazil.

In the leniency agreement, CGU, AGU and Petrobras confirm that the amount SBM Offshore commits to pay under is considered to be an adequate compensation given the facts covered in the leniency agreement.

SBM Offshore will periodically report to CGU on its compliance program for a period of three years, following the signing of the leniency agreement.

The leniency agreement is immediately effective and legally binding as of the signature date. As reported on December 22, 2017, the Federal Court of Accounts (Tribunal de Contas da União – TCU) has allowed CGU, AGU and Petrobras to proceed with the signing of the leniency agreement. CGU and AGU have informed SBM Offshore that no further TCU approval of the leniency agreement is required.

Pursuant to its general oversight over state-related entities, the TCU can conduct reviews regarding the market conformity of such entities’ contracts. The company believes that the leniency agreement and other SBM Offshore contracts have been fairly and legally agreed.

The leniency agreement is not subject to approval by the Fifth Chamber of the MPF.

Improbity lawsuit

As announced by the company on December 22, 2017 and July 5, 2018, the MPF has filed a claim based on the Improbity Law with the Federal Court in Rio de Janeiro against the company.

The claim relates to the alleged improper sales practices before 2012 that are also the subject of the leniency agreement. In the context of this lawsuit, MPF asked the court to impose a provisional measure as a means to secure payment of damages potentially awarded.

On July 4, 2018 the company became aware of an interim decision by the judge handling the case. The judge has partially granted the request for a provisional measure. The provisional measure aims to order Petrobras to start withholding a percentage of monthly payments due to SBM Offshore companies under certain charter contracts in escrow as collateral in respect of the Improbity Lawsuit.

The decision references the fact that SBM Offshore is headquartered overseas and that recovery from the company of any damages may depend on international legal cooperation and (un)availability of assets in the future. Before taking a decision on the amounts to be withheld, the judge requested more information from Petrobras and the company.

SBM Offshore’s Brazilian subsidiary subsequently filed a Motion for Clarification, since certain elements of the interim decision are unclear. The company said it strongly disagrees with the interim decision, and is taking all appropriate measures to defend its interests.

In the leniency agreement now signed, CGU, AGU and Petrobras confirm that the amount SBM Offshore commits to pay under the leniency agreement is considered to be an adequate compensation given the facts covered in the leniency agreement.

The parties to the leniency agreement will defend the existence, terms and validity of this Leniency Agreement towards any third parties, including authorities, and in court.

Following signing of the leniency agreement, Petrobras will file its views on the impact of any withholding, as requested by the judge. Petrobras stated that it will not become a plaintiff in the Improbity lawsuit.