4 January 2018

Brazil’s state-controlled oil company Petroleo Brasileiro SA (Petrobras) on Wednesday agreed to pay $2.95 billion to settle a U.S. class action corruption lawsuit. The company is the subject of a corruption probe code-named ‘operation car wash’ which involves two past presidents, some politicians and a dozen corporate senior executives.

Some corporate executives and politicians elicited kickbacks from contractors in return for lucrative contracts for public projects. JPMorgan said in a client note that it expected the fine to be about $5m. But the court’s award was much lower than this amount. Analysts at Brazilian bank BTG Pactual said the market had expected a settlement of $5 billion to $10 billion.

The settlement puts an end to the uncertainty surrounding the company so that it can continue with its normal operations. The company is expected to generate $30 billion in cash and make $15 million in capital investments. The company will be able to make the settlement payment with its internal resources.

Investors started a class action against Petrobras after prosecutors in Brazil accused executives of accepting more than $2 billion in bribes from contractors and engineering companies. Brazil’s securities regulator CVM formally accused eight former Petrobras executives of corruption. Those accused include Petrobras Chief Executives Maria das Gracas Foster and Jose Sergio Gabrielli.

Petrobras said it hoped the settlement would resolve all investor claims in the United States. Some claims involving non-U.S.-based Petrobras securities traded outside the United States are still pending.