A dynasty in decline?

Meat & Poultry, Dec. 15, 2017 - by Erica Shaffer
The legal problems facing Joesley Batista (pictured) and his brother Wesley raise questions about the future of JBS, the world’s largest meat packer.

In 2011, Joesley Batista and his brother, Wesley, were at the top of the family meat processing business, São Paulo, Brazil-based JBS SA. Joesley Batista was chairman and Wesley Mendonça Batista would find himself in the driver’s seat as the company’s new president and CEO.

But nearly seven years later, the brothers are imprisoned in a São Paulo penitentiary awaiting trial on charges of insider trading. Their father, José Batista Sobrinho, reprised his role as president of the meat processing company he founded, and Jeremiah O’Callaghan, who joined the company as investor relations officer, was promoted to chairman of the board.

Growing protein powerhouse

Scandal, recriminations and incarceration were not in the Batista brothers’ business plans – growth was the goal at JBS SA.

In 2013, the company announced plans to acquire Seara Brasil, a poultry producer formerly owned by Marfrig Alimentos, for $2.5 billion.

In 2014, the company acquired Primo Smallgoods Group, a leading producer of ham, bacon and smallgoods in Australia and New Zealand, for $1.25 billion. That same year saw “Operation Lava Jato,” or “Operation Car Wash,” break wide open. Federal prosecutors and police had launched a criminal investigation that uncovered an ever-widening web of corruption involving Brazilian government and businesses. The media in Brazil pointed a finger at JBS for payments made to a company caught up in the probe, but the meatpacker denied any involvement in criminal activity.

Cargill’s US-based pork business was JBS’s next target in 2015. Wesley Batista said at the time that JBS had been interested in Cargill’s pork business for several years. Cargill eventually agreed to sell in a transaction valued at $1.45 billion.

By 2016, the company prepared to expand further into global markets and embarked on a dramatic reorganization aimed at raising its profile in the investor community and improving access to capital markets. Executives filed registration statements with the US Securities and Exchange Commission to launch an initial public offering that would create JBS Foods International, a publicly traded company listed on the New York Stock Exchange under the symbol “JBS.”

“Through strategic acquisition in new geographies, primarily in the United States, Australia, Brazil and Europe, we have created a diversified global platform that allows us to prepare, package and deliver fresh, processed and value-added beef, poultry, pork, lamb and sheep products and animal byproducts from our facilities located around the world,” JBS said.

Things fall apart

But signs of trouble emerged months before JBS announced plans for an IPO and an international spin-off business.

Joesley Batista was indicted for allegedly violating Brazilian law prohibiting loans from one financial entity to its owners. Prosecutors alleged that in December 2011, Banco Rural lent 80 million reis to a pair of companies controlled by J&F Investimentos SA, JBS’s parent company which was led by Joesley. The companies deposited the money in J&F’s financial unit, which then lent the money back to Banco Rural’s parent company, Trapezio SA. Such “triangular transactions” are prohibited under Brazilian law. Several other executives also were named in the indictment.

Operation weak flesh

From 2016 through 2017, the Batista name became linked to multiple criminal investigations stemming from that initial blockbuster Operation Car Wash probe. One such investigation was “Operation Weak Flesh” which exposed bribes paid to food safety inspectors in Brazil. The situation only worsened for JBS and the Batistas.

In March, the Federal Police in Brazil raided the facilities of dozens of meatpackers, including JBS SA and BRF SA, as part of a two-year criminal investigation which found at least 40 cases of federal regulators accepting bribes in exchange for loosening regulations and helping food processors put adulterated food products in the marketplace. Law enforcement officers in Brazil served a total of 309 court orders, including 194 for search and seizures at the homes and businesses of individuals allegedly linked to the crimes.

“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.”

Again, JBS denied any wrongdoing, saying “The company strongly repudiates any practices related to product adulteration or tampering, whether in the production or sale of products, and it is available to address any concerns with the authorities.”

Push-back in the US

 The following month, cattle producers and consumer groups in the United States made clear their concerns about meat products imported from Brazil and urged the Trump Administration to ban imports of Brazilian beef.

R-CALF launched a petition drive asking for a Brazilian beef ban and reinstatement of country of origin labeling. Food & Water Watch, an environmental advocacy group, urged then-Acting Agriculture Secretary Michael Young to revoke the meat inspection equivalency status of Brazil.

After months of uncertainty involving the Batistas and other JBS executives, the company announced that in May, seven executives of JBS and parent company J&F Investimentos, agreed to a plea bargain with federal prosecutors, including paying a fine of nearly $68 million. In addition to paying the fine, the executives agreed to cooperate with federal prosecutors in their anti-corruption investigations.

Around the same time, federal police and the National Economic and Social Development Bank (BNDES) launched “Operation Bullish,” an investigation into loans made by the bank’s subsidiary BNDESPAR. And in June, federal police raided the offices of JBS and FB Participações SA as part of an insider trading probe. The raid came three days after JBS had reached an agreement to sell its beef operations in Argentina, Paraguay and Uruguay to companies controlled by Minerva SA for $300 million.

Court documents would later show that Joesley Batista 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 surrendered to prosecutors as part of the plea deal.

Under arrest, out of time

The insider trading investigation prompted the Supreme Court in Brazil to approve a warrant for Joesley Batista’s arrest – he surrendered to authorities. Police arrested Wesley Batista days later.

Federal prosecutors allege that Joesley and Wesley Batista authorized the sale of millions of JBS shares weeks before submitting evidence of bribes paid to nearly 2,000 Brazilian officials, knowing that the disclosures would cause the company’s share price to fall. The revelations sparked a sell-off on the Brazilian stock exchange, and trading was suspended temporarily. The Batistas later repurchased the shares at a significantly lower price, prosecutors allege.

Prosecutors brought formal charges against the brothers in October.

No regrets

Speaking before a joint parliamentary committee inquiry into JBS assembled in November, Wesley Batista said he had no regrets about entering a plea deal with federal prosecutors. He said before making the deal “…we had no idea how much it would affect our lives, the lives of our families and our children.” He called the experience a process of deep personal and professional transformation.

Batista proclaimed his innocence, and denied ever violating the plea agreement with prosecutors.

The Batista brothers remain in pre-trial detention by federal police in São Paulo.