Petrobras loses appeal at U.S. court

Photo: Sergio Rangel/Shutterstock

The D.C. Circuit Court of Appeals on Tuesday rejected oil giant Petrobras’s efforts to dodge a lawsuit in the U.S., paving the way for investor EIG Global Energy Partners to recover over USD 221 million in compensatory damages.

According to the court filings, U.S. investment fund EIG lost USD 221 million after it invested in a project to exploit newly discovered oil reserves off the coast of Brazil.

In late 2010, Petrobras created the company Sete Brasil to raise money and contract with shipyards. Petrobras held 10 percent of Sete Brasil’s shares, and equity investors held the remaining 90 percent. EIG chose to invest in Sete Brasil in 2011 and made its first capital injection in 2012.

“Unbeknownst to [EIG], Petrobras and Sete executives were engaged in rampant corruption that ultimately led to Sete’s collapse,” the ruling says.

“A criminal investigation eventually discovered that Petrobras executives were taking bribes from contractors and splitting the proceeds amongst themselves and Brazilian politicians. When the corruption came to light, the project’s lenders pulled out. The project collapsed, and EIG’s investment became worthless,” the filing adds.

Petrobras argued it should be immune from liability under the 1976 Foreign Sovereign Immunities Act, which holds that foreign states and their agencies are mostly immune from the jurisdiction of U.S. courts. Petrobras is a mixed economy company, with Brazil’s federal government directly owning 28 percent of its stock, and federal bank BNDES owning an additional 8 percent.

However, the circuit court understood that “Petrobras caused a direct effect in the United States because (…) [it] engaged with EIG in a sustained course of dealing over many months that conveyed its desire to obtain an investment from EIG—one that ultimately resulted in an equity investment worth hundreds of millions of dollars”.

Back in 2018, Petrobras entered into separate agreements with U.S. and Brazilian authorities and agreed to pay a combined total of USD 853 million in penalties to resolve the U.S. government’s investigation into violations of the Foreign Corrupt Practices Act in connection with Petrobras’s role in facilitating payments to politicians and political parties in Brazil.