Price for prominence
Aug. 17, 2017
Joesley Batista resigned from his position as chairman of the board of JBS Sa after the company was embroiled in a bribery investigation earlier this year.
Roughly five months have passed since the Federal Police in Brazil raided three facilities operated by São Paulo, Brazil-based JBS SA, the world’s largest meat packer, as part of a two-year criminal investigation into alleged bribes paid to public officials. Currently, J&F Investimentos and the powerful family behind the holding company, the Batistas, are involved in at least five investigations.
In March, approximately 1,100 law enforcement officers fanned out across seven Brazilian states on raids at the facilities of several meatpackers, including JBS SA and BRF SA. Dubbed “Operation Weak Flesh,” the investigation revealed at least 40 cases of federal regulators accepting bribes in exchange for loosening food safety oversight, according to the Federal Police. Law enforcement officers served more than 300 court orders, including 194 for search and seizures at the homes and businesses of individuals allegedly linked to crimes including bribery. The court orders were served in São Paulo, Federal District, Paraná, Santa Catarina, Rio Grande do Sul, Minas Gerais and Goiás.
In a regulatory filing submitted after the raids, JBS said the operation did not include the company’s executives, and JBS headquarters were not a target.
“The operation conducted today involves companies located in several regions of Brazil, and also involves three of JBS’ facilities, two in Paraná and one in Goiás,” the company said at the time. “In the facility located in Lapa, in the state of Paraná, a judicial measure was issued against one of its veterinarians, a JBS employee, who performs auxiliary inspection services for the Ministry of Agriculture.”
In response to the investigation, trading partners of Brazil imposed import restrictions or heightened scrutiny of imports of Brazilian meat products. South Korea lifted its blanket ban on poultry exports from BRF SA, the world’s largest exporter of poultry, which was implicated in the scandal. But Hong Kong moved to ban imports of meat products from Brazil. China also imposed a ban on meat imports from Brazil.
The European Union implemented a ban on meat products from specific plants, while Chile imposed a blanket ban.
In the United States, inspectors with the US Dept. of Agriculture began testing all shipments of raw beef and ready-to-eat products from Brazil for pathogens. But Food & Water Watch, an environmental advocacy group, urged then-acting Agriculture Secretary Michael Young to revoke the meat inspection equivalency status of Brazil.
JBS emphatically denied the company exported tainted meat. The meat packer launched a media campaign to defend the company’s products and its reputation.
In the same month, the Brazilian environmental protection agency, IBAMA, released the results of Operation “Carne Fria”, a three-year probe of more than a dozen meat packers and at least 20 farms that sold cattle raised in Para, which occupies a large swath of the Amazon Rainforest. IBAMA accused JBS and several other meatpackers in the Brazilian states of Para, Tocantins and Bahia of violating an agreement in which the companies agreed not to purchase cattle grazed on protected lands. JBS denied any wrongdoing.
JBS spokesperson Cameron Bruett said in a statement, “JBS does not currently purchase and has not purchased any animals from the suppliers on the list of areas embargoed by IBAMA. JBS prioritizes the issues of deforestation and sustainability, as evidenced by the sophisticated satellite monitoring system of cattle suppliers we deploy to verify compliance with JBS environmental and sustainability standards. Our last three independent audits resulted in social and environmental compliance rates of more than 99.9 percent. Any supplier found out of compliance with our strict standards is immediately blocked from our internal system and ineligible to sell livestock to the company.”
Loans under scrutiny
In May, the Federal Police launched “Operation Bullish,” an investigation into loans made to JBS SA by the National Economic and Social Development Bank (BNDES) through its subsidiary, BNDESPAR. According to the agency, the loans were made to JBS in June 2007 in the amount of R$8.1 billion (US$2.6 billion) for acquiring meat companies. The loans were made “without guarantees” and generated a loss of approximately R$1.2 billion (US$38.2 billion).
Both JBS and the bank denied any wrongdoing.
“JBS has always conducted its relationships with public and private banks in a professional and transparent manner,” the company said in a statement. “All BNDES investment in JBS was made through BNDESPAR, the investment arm of BNDES, in accordance with all relevant market rules and legal requirements.
“These investments were carried out under the supervision of the Brazilian Securities and Exchange Commission (CVM) and in accordance with Brazilian capital market legislation. The investments are public and available on the CVM website and the JBS investor relations website.”
Following revelations about “Operation Bullish,” JBS SA issued a statement explaining that seven executives of the company and its majority stakeholder, J&F Investimentos, agreed to a plea bargain with federal prosecutors. Terms of the deal required the executives to pledge “their cooperation with the Public Prosecutor’s Office regarding all matters disclosed to the authorities, amongst other obligations.” The executives also agreed to pay a fine of R$225 million (US$67.93 million).
Court documents would later show that Joesley Batista, former chairman of JBS SA, admitted making illegal payments to Michel Temer, the current president of Brazil, and former Presidents Dilma Rousseff and Luiz Inacio Lula da Silva. J&F Investimentos issued a statement confirming that undercover recordings taken by Joesley Batista were handed over to prosecutors as part of the plea deal.
On May 30, J&F Participações (J&F), a holding company controlled by the Batista family, and the Brazilian Federal Prosecutor’s Office forged a leniency agreement that outlines payments made solely by J&F over 25 years to equal R$10.3 billion (US$3.18 billion) relating to the Bullish and Weak Flesh investigations, bribes paid by JBS to Brazil’s former and current presidents and meat inspectors along with questionable loans made to JBS by BNDES through its subsidiary BNDESPAR.
The agreement came after Joesley Batista and his brother, Wesley Batista, resigned from the JBS SA board of directors. Joesley Batista served as chairman, while Wesley Batista served as vice chairman. Wesley Batista has continued in his role as CEO of JBS SA, while his father, José Batista Sobrinho, took over as board vice chairman. Joesley Batista was replaced by Tarek Farahat, who has served on the company’s board since 2013 and has been the company’s Global President of Marketing and Innovation since 2015.
Debt reduction strategy
In June, JBS SA agreed to sell its beef operations in Argentina, Paraguay and Uruguay to Pul Argentina SA, Frigomerc SA and Pulsa SA, respectively, for a total of $300 million. The companies are controlled by Minerva SA. JBS said proceeds from the sale would be used to reduce the company’s debts.
Three days later, the Federal Police raided the office of JBS SA and holding company FB Participações SA as part of an investigation into insider trading. The raid was coordinated with the Securities and Exchange Commission (CVM) in Brazil. The investigation is focused on two transactions:
the sale of shares issued by JBS SA on the stock exchange, by its parent company, FB Participações, at the end of April; and
the purchase of futures contracts on the futures exchange and the dollar futures contract in the over-the-counter market between the end of April and mid-May 2017.
Adding to the company’s woes, a federal judge blocked the sale of the company’s South American beef businesses after federal prosecutors argued that allowing the sale could jeopardize an anticorruption investigation.
JBS vowed to challenge the ban in court, but the company would become involved in another controversy after news reports in Britain and Brazil reported obtaining documents showing JBS SA, had paid £2 million between 2013 and 2016 for cattle raised on a farm in the state of Para where federal investigators allege workers were used as “modern-day slaves.” The company again denied any wrongdoing.
Asset sell off
June continued to be an active period at JBS, where executives announced plans to divest non-core and less-strategic assets expected to generate R$6 billion ($1.8 billion) in cash. The divestment is in addition to the sale of the company’s South American beef operations with proceeds going toward payment of debts and federal fines.
Vigor Alimentos SA, Moy Park and sale of Five Rivers Cattle Feeding assets and farms are assets involved in the divestment program. Vigor Alimentos is a Brazilian dairy and food company, and is the sixth-largest dairy company in Brazil. Five Rivers Cattle Feeding has a combined feeding capacity of more than 980,000 head of cattle with locations in Colorado, Kansas, Oklahoma, Texas, Arizona and Idaho, according to the company’s website. Five Rivers also manages a 75,000-head capacity feedlot in Brooks, Alberta, Canada on behalf of JBS Food Canada.
Moy Park is a poultry processor based in Northern Ireland and is a leading supplier of fresh and ready-to-eat products in the United Kingdom.
By July, the Federal Court of the 1st Region in Brasilia, Brazil, overturned the ruling that blocked the sale of JBS SA’s South American beef operations. A few days later, JBS Food Canada, a unit of JBS SA, announced an agreement to sell its feed yard, Lakeside Feeders, and the adjacent farmland in Brooks, Alberta, Canada to MCF Holdings Ltd. for C$50 million. Under terms of the deal, MCF will continue to supply cattle to the JBS Food Canada beef processing facility in Brooks.