Bill and Melinda Gates Foundation sues Petrobras

The Bill and Melinda Gates Foundation Trust is suing Petroleo Brasileiro and a unit of PricewaterhouseCoopers over a multibillion-dollar bribery scandal that knocked tens of billions of dollars off the Brazilian oil giant's market value.

The Gates Foundation seeks to recover losses on its investments, the amount of which is to be determined at trial, according to the lawsuit filed on Friday in Manhattan federal court.

Petrobras already faces other investor lawsuits in New York over the scandal, with US district judge Jed Rakoff having ordered in July that a trial would start no later than February 1st on those claims.

Investors, including the Gates Foundation, say Petrobras executives published misleading financial statements and overstated the quality of internal controls during a multi-year money-laundering and bribery scheme.

Petrobras had argued the earlier lawsuits should be thrown out because it was a victim of a plot run by contractors and “rogue” politicians with help from a few corrupt employees.

Cash traded for political favours was stolen from the oil company, Petrobras said. “This is a case of institutional corruption, criminal conspiracy, and a massive fraud on the investing public,” the Gates Foundation said in its complaint.

Petrobras didn’t immediately reply to a request for comment on the Gates Foundation lawsuit.

Petrobras's corporate environment was widely corrupt and bribing was a standard procedure, according to police and prosecutors in Brazil.

"It is reasonable to deduce that most of the management knew what was going on," Marcio Anselmo, a federal police chief, said in an interview from Curitiba.

Investigators say the company was a victim of rogue executives who were overpricing contracts to fund political campaigns and bribe politicians.

Even if Petrobras didn’t benefit from the scheme, the company is responsible for its managers’ conduct, the investigators said.

“It is hard to dissociate the company from its managers,” prosecutor Carlos Lima said from Curitiba. “But Petrobras didn’t benefit. It lost, and, indirectly, its shareholders too.”

PricewaterhouseCooper showed willful blindness to the scheme in approving the company’s financial statements, the Gates Foundation said. “Petrobras and PwC have now admitted that Petrobras’s financial statements overstated the value of Petrobras’s assets and profitability by at least $17 billion, a figure which is likely understated and will only continue to grow,” the foundation said.

Four former division heads have been accused of corruption and money laundering. One of them became a state witness. Lima said the scheme had a “criminal beauty” as internal controls appeared on paper to be adequate and that proper procedures were followed.

The bribes were technically paid by contractors, and not Petrobras, investigators said. Builders would form a cartel, overprice contracts and fake bids with the help of executives. The money was used to pay bribes. “What the company could have verified better was the bidding procedures,” Mr Lima said.

- Bloomberg