Sunday, March 6, 2016

Brazilian Bribery Scandals for Dummies

A Swedish politician inadvertently uses her official credit card to have a haircut; she ruins her political career. A British lord spends his stipends on landscaping his garden or on prostitutes; national opprobrium forces him into exile in some backwater estate. A French minister lies about an insignificant secret Swiss bank account (€ 600,000); he is sacked and put on trial.

Conversely, when the Brazilian speaker of the Senate flew 2000 kilometers for free on an air force jet to have 10,000 hairs implanted he receives accolades from his peers. However, lambasted by the media, he grudgingly agreed to refund the state. Embroiled in another scandal, the serial offender was forced to step down. He has nonetheless been reelected speaker of the Senate. The speaker of the lower house of Congress one-ups him. He is accused of money laundering and of hoarding US$ 5 million of bribe money in several Swiss bank accounts. Undeterred, he made clear that he will not leave his post even if indicted. Bribe-taking seems to be in the majority of Brazilian politicians’ DNA. A former president, disgraced and impeached in the early 1990s, is now accused of taking a $ 1million bribe in the Petrolão, or Big Oil embezzlement scandal. And there is the case of Congressman Paulo Maluf, the poster boy for Brazil’s dysfunctional and flawed justice system. In the 1990s, when he was the mayor of São Paulo, he embezzled $ 300 million. He is an Interpol fugitive and France has in abstentia sentenced him to a three-year jail term for organized money laundering. Two years ago, he was reelected to Congress, thanks to his efficient vote buying structure.

The federal police enquiry, Operção Lava-Jato (Operation Car Wash) started innocuously enough about two and half years ago when it began investigating a money laundering scheme running in a chain of petrol stations. Now it had grown exponentially into a zillion dollar embezzlement scandal, and Brazil’s largest bribery and kickback scandal so far. The Petrolão corruption scheme is shaking the foundations of the state and that of Petrobras, the state-owned and publically-listed oil giant. Petrolão incriminates government officials, political parties and political leaders of the government coalition, large construction corporations, and middle men. The prosecutors are boldly casting a large net, implicating an increasing number of people, and uncovering additional but connected corruption cases.

Operation Car Wash with its cynical intrigue, star-powered cast and twist and turn plot is more exciting than even the most entertaining Brazilian telenovela, the celebrated soap operas. State-owned enterprises, particularly in the oil industry, are long-established government’s cash cows and piggy banks. What makes this scandal so infuriating is the mammoth amount of money embezzled from golden goose Petrobras by officials who are expected to be its guardian angels. Petrobras is a national icon and the outrage has been enormous in a population usually portrayed as corruption-blasé. Petrobras’ new management is said to have written down $2 billion for corruption cost. In 2015, the already very much in debt Petrobras may have lost up to $ 7 billion as a result of poor management and oversight, corruption, waste, and low oil prices. To the dismay of its shareholders, the company posted a 60% loss of market value.

How was Petrobras bled? Large construction companies agreed to pay bribes to get their hands on Petrobras’ juicy contracts. The bribes inflated the price of these million and billion dollar contracts by an estimated 3 percent. Moreover, to ensure that projects and bribes were evenly apportioned, contractors formed cartels between them. In the process, Petrobras was twice duped. Bribes are an inherent component of government’s infrastructure projects. In Petrolão, sleaze has a political dimension as most of the siphoned money ended up in the pockets of the government party and that of its coalition partners. The scheme was well lubricated thanks to the resourcefulness of the middle men who on behalf of Petrobras executives and their political benefactors, moved the money offshore to shell companies. The money then resurfaced into political campaign slush funds. Most of the money was disbursed during the 2014 campaign, and the left-over went towards funding the lavish lifestyle of political hacks.

The leftish Worker Party, whose acronym is PT in Portuguese, is the governing party. It was founded by the former president Lula da Silva (aka Lula) and the current president, Dilma Rousseff (aka Dilma) was handpicked by Lula. When Lula became president in 2003, the spoil system went into over-drive: the majority of executive and procurement positions in state-owned enterprises were gradually filled by party and government supporters. As technocrats were replaced by “yes” men, corruption intensified. It has now become endemic affecting all economic sectors. Under Lula’s presidency, nationalist fervor went as far as enacting a tough new national content legislation. Petrobras and other oil companies were required to purchase often shoddy and always overpriced Brazilian supplies and technology and use locally built shipyards. Worldwide, national content rules are regarded as conduit for corruption, and not surprisingly Brazil has finessed the scheme.

lula                   dilma

                                      Partners in Sleaze?                                           

Operation Car Wash is bringing both surprises and dismay; its appendages are now reaching beyond Petrobras into, among others, the energy, banking, and agricultural sectors. The prosecutors have handed down many convictions, and leading political figures of the governing majority have been implicated but not yet charged (so far they are about fifty). They have reacted with indignation denying wrong doing. Until now, about two dozen individuals have been jailed. They include Petrobras executives and construction sector tycoons who have been perp walked to the delight of the public and the media. Brazilian jail facilities have convinced many to cooperate with the police to seek leniency through plea bargains. They are singing like Zé Carioca the street wise, dapper parrot of Disney cartoons, to expose politicians whose jail terms are eagerly awaited by the Brazilian people. Only the Federal Supreme Court (FSC) can issue arrest warrants to elected officials, so it is a slow, frustrating and tortuous process.

Actually, the FSC regards obstruction of justice with harshness and recently sent a ruling party senator and senate whip to jail along with a famous investment banker. This episode, related to Petrolão, took a page from the script of a bad telenovela. The pair was trying to bribe and spirit out of the country a key witness whose plea bargain could have implicated them. Both denied wrongdoing and have now been released. The senator was freed after agreeing to a plea bargain. However, the pair is not yet out of the woods.

zecarioca          delcidio

                    Ze Carioca and imitator: who sings loudest?

Operation Car Wash may be the Federal police’s “piece of resistance”, but the cops are busy investigating other scandals, less hyped but just as damaging for the government. Operation Zelote stands out for the creativity of the probed corruption scheme. Members of a division of the tax department responsible for settling tax disputes with corporations were actually helping them to avoid taxes. The companies agreed to reward the corrupt bureaucrats with up to 10 percent of the money they saved through this arrangement. Interestingly, many of these companies are also implicated in the Petrobras case. It is estimated that over the last ten years the government lost a whopping $ 5.8 billion in tax revenue.

The Petrobras investigation has been going on for over two years; it is an increasingly complex and convoluted case and people tend to lose interest. However, Car Wash fatigue has not set in because every other week, the humdrum of the investigation is shaken by bombshell disclosures. The latest one is the arrest of Dilma’s campaign guru who allegedly overcharged Petrobras for work and distributed the excess money as kickbacks. Brazilian multinational Odebretch, the biggest construction company in Latin America, is in the spotlight for being involved in every scam. It has been identified by prosecutors as the money launderer-in-chief, giving bribes for business favors. Its cozy relationship with Lula is being scrutinized. The former president is now being investigated for influence-peddling on behalf of Odebrecht as well as bribe taking. The firm’s setbacks are not limited to Brazil. It is under investigation in Peru, Switzerland and in a couple of oil-producing African countries.

Petrobras is slowly returning to good health. People are eagerly waiting with for more arrests, hopefully closer to the center of power. The scandal is regarded a game-changer in Brazil, a country traditionally too complacent with grafts, swindlers and sleazy politicians. The economic downturn makes people less tolerant. Operation Car Wash may be a first step towards cleaning the Augean stables run by the scandal-ridden political elite, a self-entitled caste which until the Car Wash enquiry was a nexus of impunity beyond the reach of justice.

To the dismay of many politicians, and in spite of the spread of the zica virus, Operation Car Wash is still front page news. Nonetheless, politicians of all stripes rejoiced at a recent poll which indicated that Aedes aegypti, the multi-task mosquito, is Brazil’s enemy number one. Aedes aegypti would not have established its operation headquarters in Brazil if the country’s institutions had not been plundered by these criminal officials.

9 comments:

  1. A good overview--really helped me understand it better.
    LC

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  2. Excelente e parabens a voce.
    XX

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  3. There are no answers,my only hope is that the Police as well as the Justice dptm. will do their jobs, will not get corrupted by insiders or bought off stay independent we have Moro who is moving swiftly towards a cleansing of the bees nest and we need the country to collectively approve and also manifest themselves( March 13th ) against the PT against the so to say cacifes in power of which to my regret there are still too many around, the country is suffering on all levels.

    The PT hopefully will not call (CUT and MST) or Black hoods or incentivate populace to violence.

    Opposition has asked for serenity during these murky dark and as you so rightly mentioned convoluted times.

    Nevertheless those in power only think of their pockets, their power that counts the country can go to Hell as far as they are concerned and that is what and I hate to paraphrase Bush the axis of E V I l right in front of us Machiavellian, unfortunately I do not see a strong opposition. However maybe it will rise like a phoenix and make the so desired and needed changes so that Brazil as a democracy can once again grow and take its position as an emerging country that will and is aiming to be part of the first world. It has certainly lost the wind and sail and is economically stagnant… lost international respect . back to the drawing board. Many have already moved to other countries…to start anew.

    I am trying to be hopeful in the midst of the quagmire…

    As always B you write so well and so apropos that it is a delight!

    Thank you.
    J.R.

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  4. Good summary. Will share. Like J.R's concerns. Isn't de Gaulle who said decades ago that "le Bresil n'est pas un pays serieux?" On Lava Jato, more to come. Just hope that they catch the big fish.
    M.N.

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  5. Dear WB,
    Thanks for this blog.
    Judge Moro was cleaver. He first went after middle men and corporations in order to strike plea bargain deals with them. Consequently politicians who allegedly benefited from kickbacks were exposed.
    Brazil’s supreme court has approved the investigation of dozens of senior politicians, including a former president and leaders of congress. The political elite is no longer untouchable. But the jury is still out.

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  6. Parabens,excelente artigo sobre a situacao do Brasil.Muito bom passear com vc nas suas descricoes sobre suas viagens.
    S.

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  7. Brilliant. It is probably difficult for anyone who does not live in Brazil to believe all this, but I swear everything is true. It would be funny if it were not so sad. Let s wait for the next chapter.

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  8. Beau travail, j’ai tout compris. Tu vis chez des kléptomanes à grande echelle. Notre Cahuzac et ses 600,000 € cachés en Suisse est un enfant de coeur. Par contre Lula me deçoit, j’ai lu qu’il squattait chez des amis. Que fait-il de son fric? Ah! Et Dilma dans tout cela? Tjs sympa de lire tes petites histoires.

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  9. J'ai lu ton blog C'est tres intéressant mais un peu long et donc fastidieux à lire.

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