SBM Offshore faces damage claim over improper sales practices in Brazil

Brazilian court has allowed the signing of a leniency agreement with the Dutch FPSO provider SBM Offshore related to corruption probe over improper payments to Petrobras’ executives. However, a new damage claim has been filed against the company’s Brazilian unit.

SBM Offshore said on Friday it had learned that following a review of the leniency agreement pending the injunction order suspending signing of the leniency agreement, the Federal Court of Accounts (Tribunal de Contas da União – TCU) decided to allow the Ministry of Transparency, Oversight and Control (Ministério da Transparência, Fiscalização e Controle – MTFC), the General Counsel for the Republic (Advocacia Geral da União – AGU) and Petrobras to move forward with the signing of the leniency agreement.

As a reminder, SBM Offshore signed the leniency agreement with the Federal Prosecutor’s Office (Ministério Público Federal – MPF), the MTFC, the AGU, and Petrobras in July 2016. The agreement was subject to review and approval by the Fifth Chamber for Coordination and Review and Anti-corruption and by TCU.

The 2016 leniency agreement was to become effective and binding following approval by the Fifth Chamber. The review by the TCU was to follow after the signing and was not a condition precedent for the effectiveness of the leniency agreement.

In December 2016, the Higher Council of the Fifth Chamber confirmed the decision of the Fifth Chamber of October 2016 not to approve the 2016 leniency agreement. Since the decision of the Higher Council, SBM Offshore, the Brazilian authorities and Petrobras have continued discussions in order to address the concerns raised by the Fifth Chamber.

In light of the various competences and approvals of the respective authorities, the Brazilian authorities presented the company with two separate leniency agreements: one leniency agreement with the MPF only and another leniency agreement with the other authorities (the MTFC and the AGU) and Petrobras (the MTFC Agreement).

The company has been exploring the potential terms and conditions of these leniency agreements with the Brazilian authorities and Petrobras. The most important elements for the company in the 2016 leniency agreement were that it provided for finality regarding the company’s legacy issues in Brazil and allowed the company to contract new projects with Petrobras.

The leniency agreements under discussion with the Brazilian authorities and Petrobras would allow the company to secure future business with Petrobras. However, the proposed agreements do not provide the same level of finality, both regarding the amount of compensation payable for damages and regarding the responsibility for the acts of the company’s agents in Brazil. The proposed leniency agreements reference and require payment of a civil fine and compensation for damages. The aggregate amount does not differ materially from the amounts agreed in the 2016 leniency agreement.

During a preliminary review of the MTFC Agreement by the TCU, the TCU indicated that it has concerns with some of the provisions of the MTFC Agreement. These concerns related to inter alia the scope and the sufficiency of the amounts payable by the company as compensation for damages to Petrobras. The TCU issued an injunction order suspending the signing of the MTFC Agreement until the end of November 2017 and stated that it would need to approve the terms and conditions of the MTFC Agreement prior to signing.

Pursuant to its general oversight over state-owned companies, the TCU conducts reviews regarding the market conformity of Petrobras’ contracts, including contracts with the company. SBM Offshore believes that its contracts were fairly and legally agreed.

To enter into the leniency agreements, the company needs to be in a position to reach satisfactorily closure with all Brazilian authorities and Petrobras on all outstanding leniency issues at the same time.

Damage claim

Meanwhile, the Federal Prosecutor’s Office (Ministério Público Federal – MPF) has filed a damage claim based on the Brazilian Improbity Act with the Federal Court in Rio de Janeiro against a Brazilian subsidiary of the company, an intermediate holding company in Switzerland and a number of individuals, including former employees of the SBM Offshore Group.

The claim relates to the alleged improper sales practices before 2012 that are also the subject of the leniency agreements under discussion with the Brazilian authorities and Petrobras. The judge handling the case will now have to decide on the acceptance of the lawsuit before the Brazilian court, after which the defendants could be served with the court documents.

In the context of this lawsuit, the MPF asked the court to impose a provisional measure as a means to secure damages potentially awarded.

The company said on Friday it was analyzing the legality of the MPF damage claim and the potential impact of these developments on the ongoing discussions at large and was actively seeking the views from the authorities involved. If and when necessary, the relevant group companies will defend their position before the authorities and in court.

The company again reaffirmed its commitment to close out its legacy issues in Brazil by means of a leniency agreement. However, to enter into the leniency agreements, the company would need to be in a position to reach satisfactorily closure with all Brazilian authorities and Petrobras on all outstanding leniency issues at the same time. Under the current circumstances, the company cannot guarantee that a satisfactory resolution will be reached.