Operation Car Wash Leads to FCPA Conviction

Posted On Thursday, April 29, 2021
By: Douglas K. Rosenblum, Daniel P. Wotherspoon

Takeaway:

U.S. companies doing business in Latin America must ensure that they institute and maintain strong anti-corruption safeguards. These companies must be prepared to coordinate with regulators from multiple jurisdictions in the event that they are subject to an investigation.


The E.D.N.Y. has secured a guilty plea from the former CEO of Brazilian petrochemical company Braskem S.A. (Braskem).  Jose Carlos Grubisich pleaded guilty to two counts of conspiring to violate the U.S. FCPA:

  1. Conspiring to violate the anti-bribery provisions of the FCPA.
  2. Conspiring to violate the books and records provisions of the FCPA in failing to accurately certify Braskem’s financial reports.

Grubisich’s prosecution is a small piece of the massive and wide-ranging bribery investigations into Braskem and parent company Odebrecht S.A. (Odebrecht), which resulted in guilty pleas by the companies and a combined total penalty of at least $3.5 billion.

Odebrecht and Braskem pleaded guilty in 2016 to charges that they utilized a business unit within Odebrecht to systematically pay hundreds of millions of dollars to corrupt government officials in countries all over the world.  As part of their respective plea agreements, Odebrecht and Braskem were required to continue their cooperation with law enforcement in the U.S., including assisting with the investigations and prosecutions of individuals, like Grubisich, who were responsible for the criminal conduct. 

Grubisich and his co-conspirators orchestrated a bribery scheme diverting approximately $250 million from Braskem into a secret slush fund, which they used to pay bribes to Brazilian government officials securing lucrative contracts for Braskem with Petrobras, Brazil’s state-owned and controlled oil company.  

Grubisich admitted to falsifying Braskem’s books to conceal the bribery payments by recording them as payments for legitimate services. He also signed false Sarbanes-Oxley certifications with the SEC attesting that Braskem’s annual reports accurately represented its finances and that Grubisich had disclosed all fraudulent conduct by Braskem’s management and other employees.

The investigation into Odebrecht and Braskem began in 2014 as part of the massive and unprecedented criminal investigation by the Federal Police of Brazil, nicknamed “Operation Car Wash,” which sought to uncover widespread corruption and money laundering activities at Petrobras. Over the next few years, the investigations implicated:

  • Administrative members of Petrobras.
  • Politicians from Brazil’s largest parties, including former presidents and state governors.
  • Businessmen from large Brazilian companies, like Grubisich. 

The U.S. Justice Department became involved in the investigation into Odebrecht’s role in the bribery and money laundering scheme because it suspected, and eventually confirmed, that Odebrecht had made its illicit payments from bank accounts in New York City. In Brazil, Operation Car Wash has signaled that corruption will not go unchecked in Latin America. In the U.S., the wide-ranging effects of the investigations and resulting prosecutions, and the effective cooperation between Latin American and U.S. regulators, makes it clearer than ever that U.S. companies doing business in Latin America must ensure that they institute and maintain strong anti-corruption safeguards.  These companies must also be prepared to coordinate with regulators from multiple jurisdictions in the event that they are subject to an investigation.

Former Shoe Company Executive to Plead Guilty to Embezzling $30 million

Posted On Friday, April 16, 2021
By: Daniel P. Wotherspoon

The former CFO of Alden Shoe Co., a Massachusetts-based shoe company, will plead guilty to wire fraud, unlawful monetary transactions, and filing a false tax return. According to the Massachusetts U.S. Attorney’s Office, Richard Hajjar, 64, embezzled more than $30 million from Alden by writing checks to himself and transferring money from the company to his personal accounts beginning in at least 2011 and lasting until 2019, when the scheme was discovered and he was fired. To cover his crimes, Hajjar altered Alden’s year-end bank statements and provided false information to Alden’s accounting firm in each of the years he embezzled funds.

In addition to enriching himself, Hajjar used the proceeds of his embezzlement to purchase gifts and luxury travel, including private flights to the Caribbean and diamond jewelry, for others close to him, including a former Boston-area tv anchor, Bianca de la Garza. The government says that Hajjar compounded his theft from the company by also failing to report the proceeds of his embezzlement as income on his tax returns, depriving the Internal Revenue Service of approximately $5,112,822 in taxes. 

The circumstances of the embezzlement were laid out by Alden in a related civil lawsuit last summer and tell the tale of an opportunistic fraudulent scheme intended, at least in part, to win the affections of de la Garza. According to the suit, Alden president Arthur Tarlow Jr. made the decision in 2009 to begin leaving retained earnings in the company to cover operations costs. By 2019, this fund had grown to exceed $10 million and Tarlow asked Hajjar to prepare to distribute the money in the fund to family trusts. At this point, Hajjar stopped showing up to work or replying to texts or calls. When Tarlow eventually visited his bank, he found nearly half of the retained earnings fund was missing and an $8 million line of credit in Alden’s name had been opened without his knowledge and completely drawn down.

While Hajjar has been cooperating with both the government and Alden, resulting in the substantial return of assets to the company, the civil suit against Hajjar and de la Garza is still pending. De la Garza’s attorney claims that his client had no knowledge of any of Hajjar’s wrongdoing, or where Hajjar was getting his money, despite receiving at least $15 million from Hajjar since 2015, transfers that Alden claims “consisted entirely of money Mr. Hajjar had stolen from Alden.”

Per his April 13, 2021 plea agreement with the government, Hajjar admitted to each of the charges against him and accepted a sentence including

  1. incarceration for a term between 48 and 74 months
  2. 36 months of supervised release
  3. a mandatory special assessment of $300
  4. restitution in an amount to be determined at sentencing
  5. forfeiture of assets totaling at least $30,000,000, including real property located in Duxbury, MA.

The full text of the government’s information against Hajjar can be found here.

The plea agreement between Hajjar and the government can be found here.      

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