By Brad Brooks and Julia Payne
SAO PAULO/LONDON (Reuters) - Brazil's epic "Car Wash" corruption investigation has taken down presidents and elite businessmen, and led to the largest corporate leniency deal ever signed.
But graft allegations lodged by prosecutors last week against four of the world's largest oil trading companies - Vitol SA, Trafigura, Glencore (LON:GLEN) PLC and Mercuria Energy Group - have opened an explosive new phase in the long-running probe.
Federal prosecutors allege the European multinationals and some smaller players collectively paid at least $31 million in bribes over a six-year period to employees at Brazil's state-led oil company Petrobras to sell them oil at sweetheart prices. They said the firms' top brass had "total and unequivocal" knowledge that they were fleecing Petrobras and that the illicit activity may still be ongoing.
More than 600 pages of legal documents reviewed by Reuters portray what prosecutors describe as a bustling criminal enterprise fueled by creativity, competition and greed. Authorities say the trading companies often used freelance middlemen in an effort to cover their tracks, allowing these businessmen to negotiate deals and pay off Petrobras collaborators using bank accounts in several countries.
Emails obtained by investigators show intermediaries hustling to profit from their connections, authorities said. Some shared spreadsheets divvying up to the last cent their cut of the spoils from deals they allegedly sealed with crooked Petrobras employees.
Prosecutors said the messages also show that rings of middlemen knew about one another and battled fiercely for the favor of the big oil-trading firms. Some discussed their attempts to woo top executives with promises of delivering more shady trades and fatter profits than rivals.
One intermediary griped that Vitol was "not at all sentimental" and would choose whomever could secure them the biggest returns.
"Now you are the flavor of the month, next month there is a new flavor," the middleman lamented in the email.
Brazilian authorities last week searched the Rio de Janeiro-area offices of Vitol, Trafigura and Glencore as well as other entities they allege participated in the scheme. Police said they could not locate a physical office in Brazil for Mercuria. No charges have been filed.
Mercuria has denied wrongdoing. Mercuria, Vitol and Glencore said they would cooperate with the Brazilian investigation, while Trafigura said it was reviewing the allegations.
Trafigura, Mercuria and Vitol said they have zero-tolerance policies for bribery and corruption. Glencore said it takes ethics and compliance seriously.
Petrobras said it was cooperating with authorities and viewed itself as a victim of the alleged corruption.
Eight people have been arrested, including two employees of Petrobras whom the oil firm has since fired because of "strong evidence against them that they were involved in irregularities," the company said in a written statement.
Interpol alerts have been issued for three other suspects who are outside Brazil, including a Petrobras trader based in Houston. None have been arrested.
'THERE IS PROOF'
The European firms - Vitol is based in London, the three others in Switzerland - are powerhouses in commodities trading. They have investments in strategic energy and commodity infrastructure around the world, including in Brazil. Together they control about 10 percent of the world's daily oil consumption and have revenues larger than Argentina's gross domestic product.
Brazilian federal Judge Gabriela Hardt, as part of her legal order authorizing last week's arrests and search warrants, wrote "there is proof" the companies and their affiliates "paid commissions to intermediaries for the buying and selling of combustibles from Petrobras, to the benefit of the companies and to the detriment of the state-run company."
The stakes are high for the trading firms. The probe could jeopardize their current and future business in Brazil, an increasingly important global oil producer. A Vitol-led consortium has a $1.5 billion deal pending to purchase Petrobras' stake in prized Nigerian oilfields.
The new developments also signal that Brazil's landmark Car Wash probe may be far from over. Launched in 2014 to investigate contracting graft at Petrobras, the law-enforcement juggernaut has already toppled scores of powerful figures, including the former presidents of Brazil and Peru. Brazil's Odebrecht SA, Latin America's largest construction firm, in 2016 cut a deal with prosecutors to pay at least $3.5 billion for its role in a massive bribes-for-contracts ring.
Foreign firms are now in the crosshairs, said prosecutor Athayde Ribeiro Costa, who is heading the latest phase of the probe.
"All foreign companies that have done business with Petrobras in the past 15 years should carry out some rigorous internal investigations, to have confidence that they are not exposed to Car Wash," Costa told Reuters.
He said several foreign oil companies had already approached Brazilian prosecutors to "sound them out" about leniency deals. Costa would not disclose names of the firms.
Some of Brazil's political class have maneuvered to wind down a probe that has consumed the country and paralyzed key sectors of the economy. But President-elect Jair Bolsonaro, who takes office on Jan. 1, is under pressure from the public to keep going. He has chosen Sergio Moro, a crusading judge who led Car Wash, to be Brazil's next Justice Minister.
"Car Wash will continue its brutal transformation of Brazil's corporate culture," said Carlos Melo, a political scientist with Insper, a leading Brazilian business school. "It is not going to stop."
(GRAPHIC: Volumes and revenues of the four oil traders - https://tmsnrt.rs/2zWgcLA)
'FULLY AWARE'
Costa said the supply and refining units at Petrobras where the alleged corruption took place were ripe for chicanery.
Traders in the company's far-flung offices could make large purchases or sales without approval from Petrobras executives, he said. Because the alleged graft involved tweaking mere cents on liters, Costa said it was easy to hide from any oversight, with the potential for huge illicit gains given the large volumes of product involved.
Brazilian authorities allege that Petrobras employees participating in the scheme bought oil from the traders at prices above the going market rate, and also sold them Petrobras oil products and storage leases at below-market rates, hurting the state-run firm's bottom line, authorities said.
Prosecutors say Trafigura, Vitol, Glencore and Mercuria used middlemen as well as their own representatives to execute the corrupt deals with Petrobras insiders. Authorities allege the illicit funds moved through U.S. and European banks, among others.
A pivotal figure, Brazilian authorities allege, was Swedish-national Bo Hans Wilhelm Ljungberg, an independent oil broker who operated out of Rio de Janeiro. They say he was a key agent who secured business for Vitol and other firms by funneling bribes to Petrobras traders, in particular to one in Houston.
Vitol's first business relationship with Ljungberg dates back to the 1990s when it bought one of his companies; more recently, he acted as an agent, Vitol said.
An Interpol alert has been issued for Ljungberg, who prosecutors said returned to Sweden. He did not reply to messages sent to his email address included in court documents, nor to messages sent to social media accounts.
Prosecutors allege Vitol paid just over $5 million to offshore trading entities that Ljungberg co-owned called Encom Trading SA and Celixore AB to secure deals with Petrobras between 2011 and 2014. Prosecutors showed Reuters copies of bank transfers from those firms' accounts.
Judge Hardt's ruling said that one of Vitol's top executives, Mike Loya, head of the firm in the United States, was "fully aware" that Ljungberg was securing Vitol's business through bribes, based on email evidence indicating the executive had spoken with the Swede about the alleged scheme.
Loya did not respond to requests for comment sent to his email and via social media.
As for Trafigura, prosecutors say the company used its own executives to bribe Petrobras employees.
Judge Hardt's order alleges that Mariano Marcondes Ferraz, a former Trafigura top executive, and Marcio Pinto Magalhaes, a local country representative, funneled bribes to Petrobras employees between mid-2009 and September 2014.
Lawyers for Ferraz and Magalhaes did not respond to requests for comment.
Ferraz is already serving a 10-year sentence in Brazil for bribing a former Petrobras refinery manager on behalf of his own company, Decal do Brasil. He was arrested in late 2016 and resigned from Trafigura. Prosecutors allege that Magalhaes also engaged in bribery for other companies, including Glencore's fully-owned subsidiary Chemoil. Apart from payments via Magalhaes, Glencore subsidiaries paid $4 million to other middlemen who allegedly bribed Petrobras officials, the judge's ruling said.
Prosecutors say that they know the least about Mercuria's dealings with Petrobras. They said they have identified suspicious trades sealed between the company's representatives in Brazil and middlemen to broker allegedly illicit deals.