US graft probes may cost Brazil state oil giant Petrobras record US$1.6b or more

RIO DE JANEIRO (REUTERS) - Brazil's Petrobras may need to pay record penalties of US$1.6 billion (S$2.25 billion) or more to settle US criminal and civil probes into its role in a corruption scandal, a person recently briefed by the company's legal advisors told Reuters.

State-run Petroleo Brasileiro SA, as the company is formally known, expects to face the largest penalties ever levied by US authorities in a corporate corruption investigation, according to the person, who has direct knowledge of the company's thinking. The settlement process could take two to three years, this person said.

To date, the largest settlement of corporate corruption charges with the US Department of Justice and the U.S. Securities and Exchange Commission was a 2008 agreement with Siemens, the German industrial giant. It agreed to pay the United States US$800 million to settle charges related to its role in a bribery scheme, and paid about the same amount to German authorities.

The person told Reuters the legal advisors said they believed Petrobras faced fines that could be as large as, or more than, the US$1.6 billion in combined U.S. and German penalties that Siemens faced.

Two other sources with direct knowledge of Petrobras' plans also said that any settlement, while several years away, would likely be "large," but declined to give a specific estimate.

All three sources requested anonymity, and cautioned that any estimates for the size of possible fines were very preliminary. Petrobras has not yet begun settlement talks with US authorities, whose investigations are believed to be in an early phase, they said.

In November, the SEC sent a subpoena to Petrobras requesting information about the widening corruption investigations that have ensnared top company executives, major private contractors and senior politicians in Brazil. According to people familiar with the matter, the DOJ, which can bring criminal charges, is also investigating the company.

Petrobras' lawyers maintain that the firm was a victim of corruption and bid-rigging by engineering firms and other suppliers to the firm, a group of former employees who allegedly took or arranged bribes, and Brazilian politicians who benefited from kickbacks from Petrobras suppliers, according to Petrobras officials.

However, the attorneys also said they believed that investigations by US authorities were likely to result in charges that Petrobras itself violated the US Foreign Corrupt Practices Act (FCPA) and securities laws, according to the person who was briefed.

Petrobras falls under US jurisdiction because its shares are traded in the US - until recently it was the largest foreign company on the New York Stock Exchange.

Such fines would be another financial hit for Petrobras, whose market value has sunk to less than US$40 billion from nearly US$300 billion seven years ago.