FBI probes MNCs for alleged kickbacks in Brazil

Rio de Janeiro

THE US Federal Bureau of Investigation (FBI) is investigating corporate giants Johnson & Johnson, Siemens AG, General Electric Co and Philips for allegedly paying kickbacks as part of a scheme involving medical equipment sales in Brazil, two Brazilian investigators have told Reuters.

Brazilian prosecutors suspect that the companies channelled illegal pay-offs to government officials to secure contracts with public health programmes across the South American country over the past two decades.

Brazilian authorities said that more than 20 companies may have been part of a "cartel" that paid bribes and charged the government inflated prices for medical gear such as magnetic resonance imaging machines and prosthetics.

The four multinational companies, with a combined market capitalisation of nearly US$600 billion at last Thursday's market close, are the largest foreign enterprises to be investigated in an unprecedented anti-corruption push in Brazil in recent years.

Big US and European companies found to have engaged in wrongdoing in Brazil could also face heavy fines and other punishment under the US Foreign Corrupt Practices Act (FCPA). Since 1977, that law has made it illegal for American citizens, US companies or foreign companies whose securities are listed in the United States to pay foreign officials to win business.

Foreign companies are the latest targets of government corruption probes in Brazil. Over the past five years, prosecutors have uncovered pervasive graft in state institutions and private-sector companies seeking to do business with them.

Toppling leaders

The sprawling investigations by prosecutors and federal police, including the famed "Car Wash" dragnet centred on Brazil's state-run oil company Petrobras, have toppled business and political leaders across Latin America.

Authorities said that plea-bargain testimonies obtained from suspects alerted them to other possible schemes, including alleged bribes paid by multinationals to obtain public contracts in Brazil.

Brazilian federal prosecutor Marisa Ferrari confirmed in an interview with Reuters that US authorities from the Justice Department and the Securities and Exchange Commission (SEC) were assisting in the Brazilian medical equipment investigation that she helps lead.

In 2016, US and Brazilian prosecutors jointly negotiated the world's largest compliance penalty - a US$3.5 billion fine against Brazilian construction conglomerate Odebrecht SA for its part in the Car Wash scandal.

"We are constantly sharing information with the FBI on this (medical equipment) case. They ask for documents, and we send them, and they are assisting our investigation in return," Ms Ferrari said. In addition, she said: "We've received a lot of material from the Department of Justice and from the SEC." She declined to name which companies the US law enforcement agencies were investigating.

Two Brazilian investigators with direct knowledge of the matter confirmed to Reuters that Johnson & Johnson, Siemens, GE, and Koninklijke Philips NV were being targeted by the FBI for alleged bribery in Brazil. The people requested anonymity because they were not authorised to discuss the US side of the investigation.

The FBI would not confirm or deny the existence of any investigations. The SEC, which also investigates FCPA allegations, declined to comment.

Boston-based GE declined to comment on any investigation related to its business in Brazil. It said in a statement: "We are committed to integrity, compliance and the rule of law in Brazil and every other country in which we do business."

Siemens, which is based in Munich, Germany, said in a statement that the company "is not aware of any FBI investigation of the company related to cartel activity in Brazil". It said that its policy is always to cooperate with law enforcement investigations when they occur.

Amsterdam-based Philips confirmed that it is under investigation in Brazil. In its 2018 annual report, Philips acknowledged that it "has also received inquiries from certain US authorities in respect to this matter".

In its response to Reuters, Philips said: "It is not uncommon for US authorities to show an interest in these matters, and it is too early to draw any conclusions."

New Brunswick, New Jersey-based Johnson & Johnson said in a response on Friday that in an SEC filing last October, it disclosed that the Department of Justice and the SEC "have made preliminary inquiries to the company" in regard to a raid by Brazilian federal police on its Sao Paulo offices last year, and that the company is cooperating.

Early stages

Ms Ferrari, the Brazilian prosecutor, said that the medical equipment investigation was in its early stages. Still, she said, evidence points to widespread bribery and price gouging by firms looking to tap into Brazil's public healthcare system, one of the world's largest, serving 210 million people.

"Because the Brazilian government's health budget is so huge, this scheme is truly massive," Ms Ferrari said. "This first case is just a tiny sliver of what is to come."

In addition to paying kickbacks through intermediaries to secure contracts, some suppliers charged Brazil's government inflated prices - up to eight times the market price - to help cover the cost of their bribes, according to court filings and plea-bargain testimony secured by prosecutors.

GE's former chief executive for Latin America, Daurio Speranzini, and 22 others were charged last year in the first case stemming from the alleged scheme.

Prosecutors said that in that case, which focused on Rio de Janeiro state, Brazilian taxpayers were bilked out of at least 600 million reais (S$201.6 million) between 2007 and 2018 through padded contracts awarded to crooked medical equipment suppliers.

Lawyers for Mr Speranzini, who left GE last November, said that he is innocent. GE said in a statement last Friday that "allegations refer to a time period" when Mr Speranzini was not working for the firm. "Based on our review, we believe there is no evidence of misconduct or any indication of GE being part of this cartel."

However, prosecutors cited in court filings the plea-deal testimony of former Rio de Janeiro state health secretary Cesar Romero as stating that GE was a member of the cartel, which he said was known by its members as the "International Bidding Club". "In fact, from the analysis of evidence collected in wire tapping . . . it was possible to see that Daurio Speranzini Junior continued to close spurious contracts with the government," prosecutors wrote in requesting the former GE executive's arrest last year.

Prosecutors alleged that Mr Speranzini first took part in the cartel as the head of the Philips Healthcare operation in Latin America from 2004 until the end of 2010. A whistleblower told Philips' compliance office about the fraud, and Mr Speranzini was fired after an internal probe, according to the documents.

He was hired by GE a few months after leaving Philips. Investigators said that they have strong evidence that he continued with the scheme while at GE. GE declined to comment on his hiring or exit from the company. REUTERS