By Fabio Teixeira and Ricardo Brito
RIO DE JANEIRO/BRASILIA, June 12 (Reuters) - Brazilian refineries sold over 100 million liters of naphtha to a firm investigated in an alleged fraud scheme involving a criminal gang designated by the U.S. as a terrorist organization, according to a person close to the matter and documents seen by Reuters.
One major supplier was Riograndense, a refinery in southern Brazil owned by state-run oil firm Petrobras, petrochemical giant Braskem and energy conglomerate Ultrapar,
documents from oil regulator ANP show.
Receiving the naphtha was solvent producer Petrodansk, accused by Sao Paulo state prosecutors of diverting it to gas stations in a fuel-smuggling and money-laundering scheme linked to the First Capital Command (PCC), Brazil's largest criminal gang, according to a source close to the investigation.
The ongoing investigation into Petrodansk and its supply chain highlights the risks for major players in Brazil's vast energy sector from a new U.S. policy to crack down on the gang and its suspected sources of income.
The United States designated the PCC a Foreign Terrorist Organization this month, opening the door to stiffer penalties for companies working directly or indirectly with the gang, although those tougher consequences do not apply to activity prior to the terrorism designation.
Riograndense sent most of its naphtha shipments to Petrodansk in 2023 and 2024 without a chemical marker required by the regulator to stop fuel fraud, according to ANP documents. Riograndense says the irregularity in the shipments was an unintentional operational failure which it has since fixed.
Petrodansk did not reply to requests for comment. In a post on social media, the firm denied any wrongdoing, adding that "at the appropriate time, all clarifications will be provided."
Petrobras and Ultrapar said Riograndense is independently run and they had not been notified of any probe by Sao Paulo prosecutors. Braskem did not reply to a request for comment.
Riograndense said it blocked sales to Petrodansk in October 2024 after due diligence identified potential compliance issues, which it did not detail. The firm added that it met all legal and regulatory requirements to supply Petrodansk before then.
MASS MONEY LAUNDERING
Formed three decades ago in a Sao Paulo prison, the PCC has grown into South America's largest drug-trafficking group, with money-laundering operations across the formal economy, including in real estate, financial tech startups and the fuel sector.
"Unfortunately, in Brazil today the risk of companies inadvertently doing business with clients linked to the PCC is very real," said Ligia Maura Costa, managing director of the Centre for Ethics and Compliance at FGV EAESP Business School.
In 2021, the U.S. Office of Foreign Assets Control placed PCC on a Specially Designated Nationals list, meaning firms risk violating U.S. economic sanctions if they transact with the PCC in a way that has a U.S. connection.
The new terrorist designation steps up the consequences of such business ties, expanding jurisdiction, adding the risk of U.S. criminal prosecution and civil liability for providing material support, and including potential forfeiture of assets, said Matteson Ellis, head of the Latin America practice of U.S. law firm Miller & Chevalier.
"Civil forfeiture is a power that the U.S. government regularly exercises," Ellis added. He noted the recent seizures of two ships bound from Asia to Mexico, which the U.S. said were carrying precursor materials for meth production by cartels.
Last year, Washington shut down two commercial banks and a brokerage over their ties to Mexican cartels designated as terrorists.
FUEL SECTOR EXPOSED
While experts have widely flagged the new risks for Brazil's financial institutions, which rely on the U.S. for access to global markets, the vast Brazilian energy sector has also become a hotbed for money laundering by drug gangs.
In August, a criminal investigation in Brazil targeted PCC-linked fraud schemes involving some $10 billion of fuel sales.
One target was Caldic, a global chemicals distributor owned by U.S. private equity firm Advent International, now under scrutiny by Brazilian authorities, Reuters reported in April.
Another series of raids last month targeted fintechs and firms engaged in a naphtha-smuggling scheme, including Petrodansk, according to court documents seen by Reuters.
Since naphtha is less taxed than gasoline, criminals in Brazil often blend the two illegally to boost profits at gang-controlled gas stations, which can ruin car engines.
Naphtha alone is almost impossible to detect when mixed with gasoline. To combat illegal blends, Brazil requires naphtha to be marked with a chemical compound that oil regulator ANP can detect with tests.
However, the Riograndense refinery did not include that chemical marker in 116 million liters of the 139 million liters of naphtha that it sold to Petrodansk between February 2023 and September 2024, according to an ANP document.
By sending unmarked naphtha, Riograndense made it impossible for the ANP to check if the solvent was making its way to gas stations illegally, a source close to the investigation said.
In 2024, Riograndense recognized a failure in its marking system, the firm said in a statement. After an internal probe, it determined that the lack of marking was unintentional, resulting from an operational failure.
Riograndense said it has restructured its marking system and reinforced its due diligence procedures.
While refiners are not currently under investigation, that could change if evidence surfaces that the Petrobras-backed refinery knowingly sold unmarked naphtha, the same source said.
Determining if the violation by Riograndense was intentional presents a "great challenge" to investigators, the source added.
Riograndense said it has not been notified of any investigations.
FAKE SOLVENT SALES
Investigators have presented a sharper picture of what they say Petrodansk did with the naphtha it received from Riograndense.
Petrodansk is accused of engaging in a "systematic diversion of petrochemical naphtha to gas stations in the Sao Paulo metropolitan region" between June 2023 and May 2026, according to a court document filed by Sao Paulo state prosecutors.
According to investigators, Petrodansk issued fake receipts of solvent sales to dozens of shell companies across Brazil, while in fact shipping naphtha to fuel distributors that blended it with gasoline sold at gas stations.
Several firms that supposedly received the solvent do not exist, investigators said. In one case, the buyer of 4.7 million liters of solvent was a firm without employees run by a drug-trafficking convict on welfare in the distant state of Sergipe.
By tracking license plates, investigators found trucks supposedly carrying solvent to other states remained in Sao Paulo, where Petrodansk and the gas stations under investigation are based.
($1 = 5.17 reais)
(Reporting by Fabio Teixeira in Rio de Janeiro and Ricardo Brito in BrasiliaEditing by Brad Haynes and Alistair Bell)
