GLOBAL meat processing giant JBS has been rocked by a corruption scandal in Brazil, linking a group of seven senior company executives with bribes to Brazil’s President Michel Temer and other senior politicians.
While the events in no way reflect on the company’s operations in Australia, the United States, Europe, or indeed other countries in South America, the dramatic disclosures nevertheless will have a significant impact in terms of reputational damage.
JBS shares collapsed on the Brazilian stock market on Monday as investors reacted to the legal and financial consequences. The stocks lost a breathtaking 31 percent, closing at a four-year low on Tuesday, wiping out more than A$3.6 billion in market value, before surging higher again, driven by bargain hunters.
Brazil’s president Michael Temer and other politicians including former presidents Dilma Rousseff and Luiz Inacio Lula da Silva have been accused of receiving regular monthly bribes from JBS controlling shareholders Joesley and Wesley Batista, or condoning their payment to others.
The Batista brothers have admitted to paying the bribes. Public calls have surfaced for Brazilian president Temer’s resignation, but he has denied any wrongdoing, and says he will not step down.
JBS chairman Joesley Batista is widely credited with masterminding JBS’s aggressive growth over the past ten years, including a series of large foreign acquisitions in the US, Australia and elsewhere – takeovers apparently made with the help of 8.1 billion Real in funding from Brazil’s state development bank BNDES.
The JBS parent company is yet to release a formal statement on this week’s rapidly unfolding events, but sources told Beef Central that Joesley and Wesley Batista had taken personal responsibility for the actions.
The JBS share selloff came as J&F Investimentos, the holding company controlled by the Batista brothers, negotiated with Brazilian prosecutors over a US$3.36 billion fine, designed to settle charges that they bribed the country’s senior politicians. Initial reports about the plea deal did not mention any restrictions on the Batista brothers keeping ownership or executive roles with JBS.
A Brazilian public outcry has since emerged over the leniency agreement being discussed by prosecutors and JBS’s controlling entity. By Tuesday, almost 20,000 Brazilian citizens had signed an online petition to scrap the plea deal, calling the terms of the agreement ‘too friendly.’
As if circumstances could not have got any worse, a probe has also been launched into insider trading allegations, Reuters reported on Tuesday. That investigation will examine whether the Batistas benefited from moves to buy dollar futures and sell JBS shares, before the plea deal implicating the Brazilian president was made public.
The episode is the latest in a long line of corruption scandals in business/government circles in Brazil, and perhaps reflects the difference in business culture between parts of South America, and that in Australia or the US.
Just three months ago, another Brazilian meat industry scandal broke, this time involving bribery and wrongdoing allegations within the country’s meat inspection system.
Doubts have now been raised about whether JBS will go ahead with the listing of its US subsidiary on the New York Stock Exchange later this year. One source close to the company said the initial public offering in the US market had become virtually impossible for the medium term.
JBS shares in Brazil have dropped 48 percent in value this year, impacted also by alleged corruption in Brazil’s meat inspection system and allegations of fraud in extending loans and share purchases by BNDES.
Latest reports by Reuters this morning suggest JBS is now seeking advice about finding buyers for some of its Brazilian assets in dairy, leather and footwear.