Fall of fugitive "Batman" puts global oil trading on the spot

To his friends, Rodrigo Berkowitz lived within his means in a rented house in the suburbs of Houston.

The former oil trader for state-controlled producer Petroleo Brasileiro SA bought clothes in outlet malls and sent his two daughters to public school.

For a family Christmas trip to Orlando, his plan was to drive the 960-mile route in their black Honda CR-V sport utility -- because it was crazy to spend on plane tickets, he said.

So they were shocked when the news broke in December that Brazilian federal police had issued arrest warrants for about 15 former oil traders and intermediaries.

While some of the suspects had surfaced in previous corruption investigations in Brazil, this time a new name came up: Berkowitz.

Brazilian prosecutors said that the 39-year-old trader was among a group of former Petrobras employees accused of taking more than $31m in bribes from intermediaries linked to some of the biggest commodity-trading firms in the world; Glencore, Vitol Group and Trafigura, between 2011 and 2014.

In exchange, the firms were fed more contracts at discounted prices.

Digging into popular culture for code names, Berkowitz was "Batman" while one former boss used "Phil Collins" and another "Flipper", court documents show.

Carwash scandal

The investigation is an outgrowth of the long-running Carwash bribery scandal in Brazil, which has so far ensnared scores of local business leaders, including several Petrobras executives, and politicians, notably former President Luiz Inacio Lula da Silva.

Now, Berkowitz’s case could potentially open a window into the opaque world of commodity trading, where firms buy and sell billions of dollars of raw materials and fossil fuels, often with little direct regulatory oversight.

Brazilian police are seeking cooperation from authorities in the United States, Switzerland, United Kingdom, Bahamas and Uruguay, which could expose the firms to widespread scrutiny.

The United State Justice Department and Federal Bureau of Investigation have joined Brazil’s investigation, and American authorities could open a probe of their own, Filipe Pace, head of the Carwash probe, said in an interview in Curitiba, Brazil.

The Justice Department declined to comment on Petrobras.

"We think there’s extensive evidence produced in Brazil for the U.S. to open a formal probe,” Pace said. "We want whoever is proven to have committed a crime to be prosecuted, in Brazil or in the US".

"Zero tolerance"

Vitol said it’s cooperating with Brazilian authorities and it would be inappropriate to comment on specific allegations.

"Vitol reiterates that it has a zero tolerance policy in respect of bribery and corruption and, as stated previously, Vitol will always cooperate with the authorities in any jurisdiction in which it operates," the company said in a statement.

Trafigura said it’s taking allegations seriously and denies management had any knowledge of the alleged scheme. Glencore said it takes ethics and compliance seriously, and that it’s cooperating with the investigation.

Informant visa

Suspects are already cooperating with authorities. A Brazilian accused of being a middleman for the trading firms, who was briefly detained in Florida in December, is working with U.S authorities and has been granted a witness visa, Pace said.

A former top Trafigura executive and ex-board member is trying to obtain a plea bargain in Brazil.

Berkowitz is also cooperating with U.S. authorities and could potentially expose his allegedly illegal links to trading firms, according to a person with knowledge of the investigations, who asked not to be named because the information isn’t public.

There’s evidence he was conducting illegal activities until a Brazilian judge issued an arrest warrant for him in early December, the person said.

Among the Petrobras officials targeted by Brazilian prosecutors, Berkowitz was the only one still employed when the accusations surfaced, while others have retired since the alleged crimes occurred.

"Very proud"

Emails intercepted by Carwash suggest strong links with executives at Vitol, Pace said.

"He brags in messages that no one had been able to negotiate with Vitol like he did," Pace said of Berkowitz.

"He was very proud of what he was doing."

The trader, who worked for Petrobras for 17 years, was fired on the same day the arrest warrant was issued, banned from entering Petrobras’s Houston office, and his belongings were shipped in a box to his home.

He’s now considered a fugitive by Brazilian authorities. His name has been placed on Interpol’s Red Notice list of individuals to be detained and extradited.

Berkowitz didn’t respond to phone calls seeking comment. Petrobras said it launched an internal investigation on Dec. 5, which is still ongoing.

The charges against Berkowitz didn’t match the reputation he had at work in Houston. Peers praised his competence and organizational skills.

They saw him as a role model of ethical compliance in a company that’s been left traumatized after several former top executives were sent to jail since Carwash started in 2014.

Normal life

For a fugitive, Berkowitz seems to be living normally, according to people who have spotted him and asked not to be identified. They say they’ve seen him buying groceries at a Target Corp. store, eating at restaurants and taking his kids to parks in Texas.

Berkowitz’s father was arrested in Brazil and is accused of laundering at least $910,000 for his son through an offshore account in Uruguay. Brazilian police traced bank records of the transactions and emails of the negotiations.

They include payments from accounts in Switzerland to Uruguay.

His father confirmed the financial transactions but said he wasn’t aware they resulted from illegal activities, according to a petition filed to a court in Brazil’s Parana state. His lawyer, Joao Francisco Neto, said his release has been granted by a judge, pending a bail payment of 5 million reais, which the defense is disputing.

Vessel fuel

Berkowitz was among a group of traders empowered to negotiate deals to sell Petrobras oil products. With a phone call, his group could close multimillion-dollar contracts with trading firms, which then would sell the product to end users.

Berkowitz was tasked specifically with selling Petrobras’s fuel oil, a byproduct of crude refining that’s mostly used to generate power or as fuel for large ships. It’s a volatile market: Hurricanes or refinery explosions can make prices spike unexpectedly.

For years, Berkowitz allegedly took bribes in exchange for giving trading firms contracts and a discount on fuel oil, according to a Dec. 19 accusation by prosecutors made public on a court website.

On Vitol’s deals, for example, Brazilian police traced more than 80 transactions for fuel oil and another product called VGO, or Vacuum Gas Oil, that’s used by refineries, according to the indictment.

Trader's cut

In one of the transactions, participants shared $1 per barrel in bribes -- 27 cents for Berkowitz and the rest for his peers, according to prosecutors. The money was diverted to offshore accounts in the United States, United Kingdom, Sweden, Switzerland and Uruguay, among other countries.

"With large volumes and tiny price variation they could generate millions in bribes," prosecutors said in a court document.

The prosecutors say top executives from the trading firms had "total and unequivocal" knowledge of the graft.

At Vitol, police and prosecutors say the firm’s top executive in the US, Mike Loya, and Tony Maarraoui, who’s responsible for Latin America and the Caribbean, were "involved" and "gave consent" to alleged illegal transactions Berkowitz would have generated as a trader, according to court documents.

"It is too naive to think that such high-level executives had no knowledge of how the industry works and its dirty side and did not know they were authorizing bribes," Pace said. Loya and Maarraoui couldn’t immediately be reached for comment.

Brazil focus

Loya and Maarraoui haven’t been charged in Brazil. Pace said his team is focusing on Brazilians and expects foreigners to be prosecuted by authorities in the US or other countries where they were based. That would be more efficient and increase the chances of conviction, he said.

NGOs active in anti-corruption campaigns have been calling on regulators and Swiss authorities to investigate the use of middlemen to secure lucrative deals in oil rich countries.

In November, Global Witness called on the UK, US and Switzerland to examine the activities of Glencore, Vitol and Trafigura in Brazil.

Meanwhile, Berkowitz has left the rented home and moved to a two-bedroom apartment in the same area, according to people who know him. A posting on Facebook shows the family is selling furniture and appliances, including a French door refrigerator, "because it doesn’t fit in our apartment".

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