J&F Investimentos: The Bribes Kept From the Accountants

JBS agreed to surrender approximately $27 million in the J&F Investimentos FCPA case, an accounting settlement arising from a bribery scheme. The Securities and Exchange Commission found that the two owners of both J&F and JBS paid approximately $150 million in bribes after JBS acquired Pilgrim’s Pride, while they sat on Pilgrim’s board. Each owner agreed to a separate civil penalty of $550,000. We see a company payment smaller than the bribes and individual penalties smaller still.

The SEC announced its settlement on October 14, 2020. J&F also pleaded guilty that day in the Justice Department’s criminal case to conspiracy to violate the Foreign Corrupt Practices Act.

Bribery to Finance the Pilgrim’s Pride Acquisition

The Securities and Exchange Commission found that the bribery helped finance JBS’s expansion into the U.S. market, including its acquisition of Pilgrim’s Pride in 2009. JBS was a global meat and protein producer, and Pilgrim’s was a U.S. company reporting to the SEC.

That puts the financing behind the purchase inside the fraud story. An acquisition employee knows the investment being pursued, a treasury employee the accounts funding it, and an accountant the transfers recorded afterward. We look at those records together because the business benefit, the authorization and the ultimate payment can sit in different parts of a company group.

Company Transfers Fed Payments to Officials

According to the SEC’s account of its order, the two business owners serving on Pilgrim’s board made the bribe payments at the direction of a former Brazilian finance minister. They used, in part, funds obtained through intercompany transfers, dividend payments and other means from JBS operating accounts containing money from Pilgrim’s.

For a finance insider, the relationship between the originating company, the transfer and the later payment explains how the bribes drew on the businesses’ money. A dividend approval and a later payment can explain different stages of the same flow of money.

The transfer approval, bank account and recipient explain where the money went and whose decision sent it there. Our payment-flow analysis connects those pieces, including the business purpose offered for a transfer and the person who ultimately benefited.

Here, the SEC’s account takes that analysis beyond a payment made directly from the acquired company to an official. It describes funds passing through company accounts before being used for bribes. Someone familiar with a dividend or an internal transfer understands a part of the transaction that is hard to see from the final payment alone.

Shared Systems Reached Into Pilgrim’s Books

The Securities and Exchange Commission found that the two directors exerted significant control over Pilgrim’s Pride. Pilgrim’s shared office space, overlapping board members and executives, accounting and SAP systems, and certain internal accounting controls and policy documents with JBS and its U.S. affiliate, JBS USA.

Those details matter to an accountant who works across company names. A shared system can hold transactions for several businesses, while the underlying approvals and financial statements still concern particular companies. The SEC attributed Pilgrim’s failure to maintain adequate controls and accurate books to the directors’ control over it.

The books-and-records and internal-controls issues were therefore part of the payment story. We examine who could authorize the movement of money, what the entry said and how that account compared with the transaction itself.

A 2017 classroom case in the Journal of Forensic & Investigative Accounting, A Teaching Case Using the Elements of the Foreign Corrupt Practices Act, makes the gap between a label and a payment concrete. In its teaching scenario, payments to officials were categorized as “firearms testing costs,” and a sales executive approved inflated payments.

J&F’s case adds a different difficulty: the transfers connected businesses sharing people, systems and controls. Following the entry requires knowing which company’s money was involved and who controlled the decisions around it. That is where knowledge from inside finance and accounting can give a payment its missing context.

They Signed the Statements and Withheld the Conduct

The Securities and Exchange Commission found that the same directors signed Pilgrim’s Pride’s financial statements and did not disclose their conduct to its accountants or independent public accountants. The people signing the statements were also the people who knew about the bribery.

Sharing the accounting system did not mean sharing the truth with the accountants. The SEC’s account makes what those directors withheld as consequential as what the books recorded.

For an insider, a transfer instruction and the explanation supplied to an accountant show different parts of the same decision. We connect the approval, the payment and the information available to the people reviewing it. A person who knows why the entry was made can explain the difference between the business shown on paper and the business management was actually conducting.

Petrobras Put the Kickback Into the Asset

In the Petrobras case, the SEC found another way for corruption to disappear into company accounting. Contractors overcharged the company and used part of the overpayments for bribes. The SEC’s order described what happened when those payments reached the books:

The comparison is about what an accounting entry conceals. Petrobras’s order described bribes buried in asset costs, while the J&F order described company transfers, shared controls and conduct withheld from accountants. In both accounts, the commercial meaning of the payment mattered as much as the category in which the business recorded it.

A project accountant who knows what a contractor delivered and a treasury employee who knows why money moved hold different kinds of knowledge. Each can connect an ordinary business record to the benefit it actually bought. That is the useful parallel for someone who recognizes the transaction but has never seen a document calling it a bribe.

Where Whistleblower Rewards Fit

SEC whistleblower rewards can pay eligible whistleblowers 10% to 30% of qualifying sanctions the government collects. We work with you to assess the information you bring and the program that fits it. Knowledge of a payment’s purpose, the people authorizing it or the explanation withheld from accountants can be the starting point for that conversation.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That is a separate program from the agency reporting routes used in Foreign Corrupt Practices Act matters. Matching your information to the right route is part of the work we do with you.

You Know Why the Money Moved

If you know the purpose behind a company transfer or what management kept from the accountants, speak to one of our Whistleblower Experts about why the money moved. We bring in FCPA whistleblower lawyers who understand cross-border payments and accounting controls, and stay beside you to build your strongest case around that knowledge.