Two separate discovery applications filed in the US by a Brazilian state attorney allege that the Brazilian owners of the world’s largest meat-processing company, JBS S.A., used Delaware company Blessed LLC and its Cayman Islands parent company Blessed Holding (Cayman) as vehicles for illicit funds.

The court applications are part of a ‘popular action’ that is pending in Brazilian federal court against Joesley and Wesley Batista and their companies to recover billions of dollars of public funds, which the Batistas allegedly obtained through a bribery and corruption scheme.

The Batista brothers spent about six months in jail in 2017 and 2018 after the large-scale investigation in the country, known as Operation Car Wash, exposed their role in a vast corruption and bribery scandal. In May 2017, the brothers entered into a plea agreement which granted them more lenient treatment in return for revealing what they knew about the scheme. Joesley Batista admitted to bribing more than 1,800 politicians, including three former Brazilian presidents, through the family holding company J&F Investimentos, which agreed to pay $3.2 billion in penalties and fines.

Last year, a Brazilian Parliamentary Inquiry Committee found that some kickbacks were paid to obtain about $2 billion in loans and financing for JBS from the Brazilian Social and Economic Development Bank (BNDES), which became the company’s second-largest shareholder. Since 2003, subsequent Brazilian governments had used the development bank in an effort to turn local companies into ‘national champions’ and multinational enterprises.

The Brazilian federal proceeding alleges, citing evidence from the Parliamentary Inquiry, that São Paolo stock market-listed JBS and the Batistas used illicitly obtained funds to make acquisitions in the US and to acquire Brazilian competitor Bertin in a “sham merger”. The transaction, through a share swap, allegedly overvalued the rival company and then recouped the overpayment through a secret “off-the-record contract” that transferred shares in the newly formed company to Blessed LLC for a nominal amount. This also, it is claimed, diluted the shareholdings of minority shareholders such as BNDES.

“Through bribery, corruption and other misdeeds, the Batistas secured equity resulting from this over-priced acquisition from government agencies, principally BNDES,” the court filings state.

The applications claim that a significant portion of the proceeds paid in the Bertin merger were transferred back to the Batistas through Blessed Holdings LLC, and then transferred to two offshore insurance companies, Cayman Islands-based Lighthouse Capital Insurance Company and Puerto Rico-based US Commonwealth Life, and two other entities located in the Bahamas.

In 2013 Tinto Holdings, which held the shares of the Bertin family in JBS after the merger, filed a lawsuit against J&F Investimentos, claiming that shares had been illegally transferred to Blessed, and that this company belonged to the Batistas.

At the time, JBS said Blessed was owned by Lighthouse Capital Insurance and US Commonwealth Life.

The matter was settled out of court in 2014 and the Bertin family sold their stake in JBS to other Batista family holding companies.

The court filings suggest that the shares in the new company were first placed into a Bahamas trust, managed by a Swiss tax lawyer, with two JBS executives named as protectors of the Graal Trust.

The shares were then used to fund life insurance policies with Lighthouse Capital Insurance and US Commonwealth Life in the names of Batista family members.

The life insurers subsequently funded Blessed Cayman to hold and manage the interests in the policies, the court documents state.

This type of structure, which appears to be an offshore insurance wrapper, is often used for legitimate insurance, tax and estate-planning purposes, but it can also be abused for tax evasion and asset protection.

After the Bertin merger, Blessed Holding (Cayman) appeared as an indirect shareholder in JBS’s ownership chain.

In 2017, JBS informed CVM, the Securities and Exchange Commission of Brazil, that Joesley and Wesley Batista were the beneficial owners of Blessed Holding Cayman, each holding 50% of the company, after it had discovered that the siblings had acquired the stakes in October 2016 for $150 million each.

The discovery applications seek information from JP Morgan, which it is claimed had helped set up Blessed LLC and the structure used for the Bertin merger, and from Blessed LLC, which has since been renamed Colorado Investment Holdings LLC.

The filings seek access to all documents and communication about the affairs of Blessed Holdings Cayman and Blessed LLC, as well as Lighthouse Capital Insurance Co. and US Commonwealth Life in relation to the Batista brothers, among others.

“While the particulars of this extensive fraud and bribery scheme are still being uncovered, there is certainly a valid basis (and compelling interest) for the Applicant to obtain relevant evidence located in the US for use in the Popular Action,” the court filings said. “Indeed, most of the allegations in the Popular Action are drawn from information uncovered by Brazilian investigators or admitted to by the Batistas themselves in plea agreements or testimony. The Applicant needs this US discovery into the creation and use of Blessed, inter alia, to properly trace these illicitly transferred Brazilian public funds to the [named] (and perhaps other) offshore entities and accounts.”

In October 2019, Brazilian federal prosecutors applied to have the plea bargain of the Batistas invalidated for breach of trust and insider trading. Prosecutors claim the brothers had illegally traded JBS stock and engaged in insider trading and market manipulation based on details contained in the plea agreement, which had not been publishe at the time.

In December 2019, federal prosecutors filed a suit against JBS and 14 others, including Joesley Batista, two former finance ministers and former BNDES president Luciano Coutinho for fraud in connection with the financial support granted to the meat processor.

The suit calls for the return of funds and penalties amounting to R$21 billion (US$5.16 billion).

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