FCPA:  The Implications of Misleading Auditors

In addition to the expansive application of the Foreign Corrupt Practices Act’s (“FCPA”) anti-bribery provisions associated with the Justice Department’s resolution with J&F Investimentos, S.A. (“J&F”), the accounting and record-keeping were applied in an expansive manner by the SEC in addressing bribery by J&F, JBS, S.A., and Joesley and Wesley Batista (“the Batistas”) of government-owned and controlled entities in Brazil.  The Cease-And-Desist Order addressed conduct not directly subject to the anti-bribery provisions.1  Instead, it focused on conduct that was directly responsible for causing accounting and record-keeping violations of a U.S. issuer, Pilgrim’s Pride Corporation (“Pilgrims).

The bribery scheme was massive and complex.  From 2009 through 2015, the Batistas paid “approximately $150 million for the benefit of then Brazil Finance Minister (‘Minister’) and various political parties and candidates in Brazil at the request and direction of the Minister.”2  The payments were made to secure the Minister’s assistance in, among other things, “in obtaining and maintaining $2 billion in equity financing (‘BNDES Investment’) from the Brazilian National Development Bank and its affiliate (together ‘BMDES’) in order to facilitate JBS’ acquisition of [Pilgrims].”3

The Batistas owned and operated J&F, a Brazilian holding company, and JBS, a Brazilian company with ADRs listed in the United States.  JBS, through its wholly-owned subsidiary JBS USA, was the indirect parent company of Pilgrims.  The Batistas held most senior executive roles at JBS.  The BNDES Investment enabled the Batistas to acquire Pilgrims through JBS.  Once acquired, Pilgrim’s became one of the sources of funding for the payment of bribes to or on behalf of the Minister.

The Batistas, individually and through J&F and JBS, exerted significant control over Pilgrims.4  “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 JBS USA.”5  “Throughout 2009 to 2015, unbeknownst to Pilgrims management, the Batistas continued the bribery scheme using, in part, certain JBS operating accounts which contained funds that were commingled with funds obtained from Pilgrims, through intercompany transfers, dividend payments, and other means.”6

To further conceal their conduct, the Batistas did not disclose to Pilgrims’ accountants and independent public accountants during due diligence and audits that certain funds transferred to JBS were commingled with funds used to pay bribes in Brazil.7  As a result of this conduct, the Batistas, J&F, and JBS caused Pilgrims’ books and records to inaccurately record the transfers and payments and caused Pilgrims’ failure to maintain an adequate system of internal accounting controls in violation of the books and records and internal accounting controls provisions of the FCPA.8

Aside from more traditional record-keeping and internal controls violations,9  the resolution also focused on the violation of Exchange Act Rule 13b2-2 [17 C.F.R. § 240.13b2-2], “which prohibits persons from making or causing to be made materially false or misleading statements or omissions to an accountant or auditor in connection with an audit, review, or examination of financial statements.”10  Wesley Batista failed to disclose his knowledge of bribe payments when inquiries were made by independent auditors.

It can be expected that the SEC will increasingly rely on Exchange Act Rule 13b2-2 as a means of addressing issues of foreign bribery in settings where the anti-bribery provisions do not apply.  It dramatically enhances the responsibility of directors and senior management to ensure that compliance programs and internal controls are implemented and actively enforced.  Forthright answers to inquiries of auditors by officers and directors are mandatory.  Civil and criminal consequences can follow from a material misstatement and omission.


1Order Instituting Cease-and-Desist Proceedings, In the Matter of J&F Investimentos, S.A., Admin. Proceeding No. 3-20124 (Oct 14, 2020)

2Id., at ¶ 2.


4Id., at ¶ 3.





9Id., at ¶ 27-29.

10Id., at ¶ 30.