Wednesday, December 2, 2020

J&F Investimentos: Brazilian Officials are Bribed for Business Gain (2005-2017)


1. Abstract

J&F Investimentos spent $148 million in payments to Brazilian Officials between 2005 and 2017. These payments were made in exchange for access to business funds to increase the market share of J&F. These actions are unethical according to the ethical theories. According to individualism the bribes that took place are unethical. Profits were not maximized, since large amounts of money were paid out to the Brazilian government officials. Under Utilitarianism these actions are unethical since the unhappiness of the Brazilian people, government and the United States government outweighs the happiness of the individual government officials that benefited and the happiness of J&F. These actions are also unethical under Kantianism. The Brazilian officials were treated as a means and not as an ends. Lastly, J&F’s actions showed that they lacked the four main virtues of virtue theory, which are courage, temperance, honesty and justice. In order to prevent these actions from occurring again J&F should establish an ethics program that every employee should have to complete. J&F should also establish an internal review board that reports to the investors to make sure employees are compliant with the ethical program. 

2. Ethics Case Controversy


Timeline of events outlining J&F Investimentos actions.

      J&F Investimentos is an investment company that invests in many industries. These investments are mainly the agriculture and meat industry (J&F Investimentos S.A. Pleads Guilty). They are currently the leading beef and pork processor in the United States. J&F has more than 300 production units and serve, through exports, over 150 countries. The company’s mission is ‘to be the best in all that we do, providing superior products and service to our customers and the opportunity of a better future to all of our team members” (JBS Making Your World Stronger). J&F is part of the Pilgrim’s Pride Corporation which owns many chicken production brands. 

      Between the years of 2005 and 2017, J&F’s employees “paid millions of dollars in bribes to, and for the benefit of, Brazilian government and officials in order to obtain financing from two Brazilian state-owned and state-controlled banks…” (J&F Investimentos SA Pleads Guilty). These actions directly violate the Foreign Corrupt Practices Act or FCPA, which makes it illegal to bribe government officials in order to further business practices. This law was amended to apply to any foreign body who conducts a corrupt payment within any United States territory (FOREIGN CORRUPT PRACTICES ACT). J&F used banks in the American banking system in order to carry out these payments. One specific example occurred between 2005 and 2014. J&F made $148 million in payments to Brazilian government officials. These officials included the highest-ranking member of the Banco Nacional de Desenvolvimento Econômico e Social, which is a bank controlled by the Brazilian government. In return for the money, J&F receives millions of dollars in financing. J&F also paid $25 million to a high-ranking official in the legislative body which allowed them to receive financing from Cixa Econômica Federal, which is a Brazilian government controlled bank (J&F Investimentos S.A. Pleads Guilty). These acts do not directly violate the Federal Corrupt Practices Act but the way J&F went about the bribery does. In order to facilitate some of these bribes, bank accounts opened at New York banks were used to make these payments to officials. Meetings also took place in New York and other locations in the United States. Lastly, an apartment in Manhattan, located in New York City, was purchased as a bribe (J&F Investimentos S.A. Pleads Guilty). 

Joesley Batista at a press conference prior to the J&F Investimentos bribery scandal going public.


3. Stakeholders

There are many stakeholders in this case. J&F itself is a stakeholder. Through their actions their revenues and eventually profits are being used to bribe officials. At the same time, their business is losing money through these actions. The J&F employees are also stakeholders. The company, depending on profits and losses, may decide to layoff individuals or not reward bonuses, which hurts the employee and their dependents. 

J&F is managed by the Batista family. The CEO is an appointed member of the family who inherits the responsibility for the company. The Batistas are stakeholders in this situation. They are ultimately held responsible for the actions the company takes. They are also one of the main profiteers from the company who pull large salaries. The Batista brothers, Joesley and Wesley, have been charged $550,000 each from the Securities and Exchange Commission in the United States for charges of bribery. They have also been arrested in Brazil and a trial or settlement is pending. In the meantime, Wesley Batista Jr. is the acting CEO. 

The United States government and the Brazilian government are both stakeholders in this situation. First, the United States is where most of the bribery was taking place. The bribery was facilitated by using United States banks with American dollars to pay the officials. The United States government’s law was violated. The Foreign Corrupt Practice Act outlaws these kinds of bribes. In this situation, the United States government’s relationship with other countries could be hindered. If a bribe did not succeed and the United States government looks like it has not done anything to stop it, political tensions could arise. This could lead to a conflict between the two governments and ultimately the countries. This is not ideal for anyone involved. With that said, the Brazilian government is also a stakeholder. Here, many officials have accepted bribes from J&F which decreases the integrity of the government. Brazilians cannot trust their government if they know that the officials are accepting bribes from companies. They cannot trust that the government officials are working for the people and not their own wallets. The government officials who were not accepting bribes are also affected. These people now have to spend time on training and developing new systems to combat bribery. These individuals have also not received the same benefits of the job as the people who accepted bribes. The people who have accepted bribes have received more funds and other benefits than that of the others in the same position.

      Within the Brazilian government specific organizations have been affected by this situation. The first is the Brazilian Development Bank or BNDES. BNDES is a public company that works with the Ministry of Development, Industry and Foreign Trade to finance development projects in Brazil (UNEP Finance Initiative). On their website, they state that “BNDES is an important partner for investors to be able to understand and access opportunities offered by the Brazilian economy” (BNDES: The Brazilian development bank). BNDES is the main organization, whose money and approval is needed in Brazil in order to gain access to funds and other necessary means in order for businesses to expand. This is why J&F bribed one of the high-ranking officials. BNDES has now been seen as less trustworthy to the public with the funds they have used. 

4. Individualism

Individualism is an ethical theory that was developed by Milton Friedman. Friedman essentially argues that actions are ethical as long as they maximize the profits for the business. A businessperson has no other responsibility but to maximize the profit for the stockholders as long as all laws are obeyed. According to Desjardins individualism focuses on only pursuing the highest profits as possible. “Pursuing any social objective other than the maximization of profit is spending someone else’s money for your own purposes… this is ethically equivalent to theft” (Desjardins 55). Tibor Machan added on to this ideology and stated that a business’ goal is to maximize profits while following all laws but other goals can be prioritized over maximizing profits. He goes on to state that the goal of profiting can be met through meeting other goals that do not maximize profits.

J&F’s actions are unethical according to the theory of individualism. The main argument here is that J&F Investimentos broke the law. Their actions violated the Foreign Corrupt Practices Act which made their bribery that occurred in the United States illegal. Their goal was to increase profits by expanding their business, which is why they used their funds to bribe high ranking officials at BNDES. Their bribes did not end up giving them this desired result. The bribes caused J&F to have to pay $256,497,026 to the United State government. This decreased their profits for the period. Ultimately J&F’s actions do not satisfy the condition of maximizing profits for the company and doing so within the law. 

5. Utilitarianism

The utilitarian theory of business ethics looks to maximize happiness. This theory was developed by John Stuart Mill who argued that the only thing with value in and of itself is happiness. He argued that happiness should be maximized for anything that can feel it. This is different from egoism or altruism because it requires happiness to be maximized in not just yourself but in others as well. 

      In the J&F ethical issue, J&F’s actions were not ethical because the happiness these bribes created did not outweigh the unhappiness. The only people whose happiness increased because of the bribes are the Brazilian government officials and J&F Investimentos. These officials received money and other incentives in order to act in accordance to how J&F pleased. This made the officials happy. J&F also increased their happiness through their actions. Through the bribes they received access to many different business resources, like money, to be able to expand their business and ultimately their profit. The stockholders were happy that their profits were increasing. On the other hand, more individuals suffered because of J&F’s actions. People who work for J&F were seeing funds be used to pay government officials instead of bonuses or raises. This made these people unhappy. The people of Brazil are also unhappy. They can no longer trust their government to act in a way that puts the people first. The Brazilian people know that their officials can be bought and sold for money or apartments in the United States. They are unhappy because their government does not act for them and instead acts for the officials themselves. The United States government is also unhappier due to J&F’s decision. The United States’ law was broken, and J&F got away with it for many years. The government also cannot trust businesses to follow the laws that they have put into place to protect their international relations. The actions taken by J&F can cause anti-American viewpoints to spring up in parts of Brazil, which increases tensions between the two countries. These tensions could potentially lead to conflict. As the unhappiness of the Brazilian people and the United States government outweighs the happiness of the J&F stockholders and the people that received the bribes. 

6. Kantianism

Kantianism was developed by Immanuel Kant who argued that one should act in a way that is right because it is right. The action must be rational and the reason for the action must be right. This is the principle behind Good Will. In order to decide if an action is ethical under Kant’s theory the Formula of Humanity is used. This formula states humanity must be treated “as an end and never as a means”. In this statement humanity is one’s rationality. In essence, your rationality and the rationality of other must be treated as if it has value in itself. The rationality is not just a way to get something else from others. 

Using Kantianism J&F’s actions are not ethical. In order to test this theory, a maxim must be formed. A maxim in this situation would be; I will bribe government officials in order to get them to give me funds and other resources that I want in order to expand my business”. This does not respect the rationality of another person. The government officials in this situation are being treated as an ends and not a means. J&F is using the position of power that the officials have in the Brazilian government to receive funding and other resources. J&F is using the Brazilian officials to get to the actual ends that they want which is the funding for their business. Therefore, the actions taken by J&F are unethical due to the lack of respect the bribes have for the rationality of the Brazilian officials. 

7. Virtue Theory

Virtue theory requires that actions are motivated by the right virtues. There are four cardinal virtues; courage, temperance, honesty and justice. Courage is the idea that one will take risks and stand up for the right actions and ideas. Honesty is the idea that one should give all the facts and be honest in all aspects of business. Temperance is self- control. In this regard, self- control refers to the ability to control desires and expectations. The last cardinal virtue is justice. Justice refers to fair business practices and making quality goods for the consumer.

J&F’s actions in the bribery scandal does not meet these virtues. First, their actions are not honest. J&F hid their actions from the public as well as the United States government for years until they were investigated, and their actions were brought to life. Second, they did not exhibit self-control. In this regard the company should have been able to control their desire for profits, and act in accordance with the law. Their actions did not do this, which makes them not virtuous. Third, J&F lacked courage. They did not stand up for what is right, and instead did the exact opposite by breaking a law. Lastly, they lacked Justice. The actions of J&F were not fair business practices. They received an advantage over other companies in the industry due to the bribes that they were giving to the Brazilian officials. Since J&F’s actions failed to meet the four cardinal virtues their actions are unethical.

8. Justicatied Ethics Evaluation

In my view the actions taken by J&F were impermissible. In this case, the bribes given by J&F were illegal in the United States. The United States would not have been involved, and the actions would not have been illegal if the company did not use American banks to make these transactions. The United States had seen bribes like this occur in the past, which is why the Foreign Corrupt Practices Act was passed into law. This act clearly states that any foreign entity that conducts a corrupt business act in the United States is conducting an illegal act. J&F did just that, which makes this impermissible. One could bring up the argument that the J&F was spending their own money in a way that the company saw fit, but this still makes their actions unethical. Yes, the funds that were used were funds that J&F Investimentos had made and retained in their business operations. Even though it was their funds, bribing officials for economic gain is unethical. In this situation deceit was involved. J&F Investimentos did not publicize the fact that they were conducting these fraudulent acts. If the company is not proud of their actions, then they should not be conducting them. Not only were the actions of J&F Investimentos employees who conducted these bribes unethical, but also the actions conducted by the Batista family were unethical. The brothers never completed any ethical training. They should have known that their actions were at the very least illegal. The brothers should have sought out ethical training when first put into the role of the CEO. In this training they probably would have realized that their company lacked an ethical code of conduct and would have worked to create one. If the employees and the brothers had strict guidelines to follow they most likely would not have found themselves in their current situation. 

9. Company Action Plan

J&F has multiple ways that they can change their inner workings in order to be compliant with ethical standards. First, J&F CEOs and employees should go through ethical training. This training should occur at every level of the business so that every employee knows what is ethically right and what is wrong. This way there is no excuse, and all employees understand the rules and regulations. The CEOs and managers should go through additional training. This way they can understand what regulations they must follow that is different than the rules of the general employees. The CEOs should also report compliance to ethical standards to the stockholders so that the company and its investors are aware of the actions the company is taking. 

Second, J&F should establish an internal investigation division. These employees would be separate from human resources and will be able to investigate all transactions or any internal complaints of compliance issues. These employees should have access to the accounting books and should be able to interview employees. Through this divisions J&F Investimentos should be able to internally control whether or not employees are following the ethics regulations. This division should also be able to report their finding to the investors. This way the information is not being blocked by an individual that is higher up in the business. The CEO would have to let the employees report their findings. This divsion should be headed by individuals that cannot be fired by the CEO, instead they can only be fired by a vote from the investors.

The last step J&F should take in order to move past the ethical issue is through public relations work. As a food exporter J&F could donate food to people in Brazil. By doing this J&F is changing the public perception of their business. People in Brazil have seen J&F Investimentos take steps that have undermined their government. Through donations and interacting with the people of Brazil, J&F will be able to change this perception.

Some of the meat J&F could donate to the people of Brazil to improve public opinion.

Through these two actions the company can still remain profitable. J&F will only be losing out on money spent to develop the ethics program, the money spent to establish an independent division within the business and any donations. This will not result in a huge hit to the profits of J&F. J&F can decide how much they would like to donate and how they would like to interact with the people of Brazil. With this amount of freedom their company can decide to limit how much they do donate so their profits are not hit too hard.

Works Cited

BNDES: The Brazilian development bank. https://www.bndes.gov.br/SiteBNDES/bndes/bndes_en/Institucional/The_BNDES/. Accessed 28 Nov. 2020

Desjardins, Joseph. An Introduction to Business Ethics, Fifth Edition. McGraw Hill- Companies, 2014. 

“BNamericas - Executives of Brazil's J&F Investimentos arrested” BNamericas.com, www.bnamericas.com/en/news/executives-of-brazils-j-f-investimentos-arrested. 

FOREIGN CORRUPT PRACTICES ACT. The United States Department of Justice, 3 Feb. 2017,                                      https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act. Accessed 13 Nov. 2020.

JBS Making Your World Stronger. JBS, 2020, https://jbssa.com/about/. Accessed 13 Nov. 2020.

J&F Investimentos S.A. Pleads Guilty and Agrees to Pay Over $256 Million to Resolve Criminal Foreign Bribery Case. The          United States Department of Justice, 14 Oct. 2020, https://www.justice.gov/opa/pr/jf-investimentos-sa-pleads-guilty-and-agreespay-over256- million-resolve-criminal-foreign. Accessed 13 Nov. 2020.

“J&F to nominate Wesley Batista Jr. as next JBS CEO”. Reuters, https://www.reuters.com/article/jbs-executive/jf-to-nominate-wesley-batista-jr-asnextjbs-ceo-newspaper-idUSL5N1LY0L4. Accessed 13 Nov. 2020. 

Sun, Mengqi. “J&F’s Bribery Settlements Highlight Compliance Breakdowns, Remediation Efforts”. The Wall Street Journal, https://www.wsj.com/articles/j-fsbribery-settlements-highlight-compliance-breakdowns-remediation-efforts11602840600. Accessed 13 Nov. 2020.

UNEP Finance Initiative. “Banco Nacional De Desenvolvimento Economico E Social” UNEP, United Nations Environment Programme – Finance Initiative, 2020, https://www.unepfi.org/member/banco-nacional-de-desenvolvimento-economico-e social-bndes/. Accessed 28 Nov. 2020.

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