The open veins in Brazilian politics

brasilobserver - Dec 19 2014
Money-laundering scheme investigated originally moved up to 10 billion reais (Photo: Agência Brasil)

(Leia em Português)

‘Lava Jato Operation’, which has lead to the imprisonment of executives from Brazil’s largest construction companies, exposes the historical promiscuity between economic and political powers

By Wagner de Alcântara Aragão

During the G20 meeting in Australia, Brazilian President Dilma Rousseff said the ‘Lava Jato Operation’ – an investigation into corruption that had sent executives of the largest construction companies in Brazil to prison that week – represented a milestone in the history of the country.

Rousseff’s declaration of was not mere rhetoric, or a simple attempt to capitalise on bonus of bringing out the often veiled promiscuous relationship between economic and political powers, them ‘Lava Jato’ is leaving a genuine legacy in cleaning up Brazilian business.

That’s what the president of the Celso Furtado International Centre, Roberto Saturnino Braga thinks. Author of books on politics and economics, former Senator and Mayor of Rio de Janeiro, Braga believes the results of the Brazil’s Federal Police operation will force changes in national politics. He also believes it will also change the behaviour of big corporations in their relations with the governmental actors.

Rousseff included political reform as a priority for her second term – a task that is not up to the Executive; the Legislative has the biggest responsibility on the matter. Braga considers that given the ‘Lava Jato’ scandal the Congressmen should be forced by public opinion to move, legislating for changes in the rules of the political game.

“The impact of the operation will force Congress to express its views. It has historically omitted the necessity for political reform; after all, the model favours who has been elected, the mandate holders. But not anymore, the Congress will have to speak,” Braga told Brasil Observer.

A theme that has found resonance in the political debate and tends to gain strength after ‘Lava Jeto’ is the financing model for political campaigns. Almost all parties – or at least all the big ones – are covered by donations of funds from contractors currently being investigated by the Federal Police operation. Braga evaluates that after the ‘Lava Jeto’, it will be very difficult to maintain the current model. “I think it will change the way private companies finance campaigns. And the companies themselves will have much more cautious [in participating donations]”.

Corrupt and corruptor

In the opinion of lawyer Rodrigo Gava, a specialist in Economic Law, Master in Law and a PhD student in Political Science, the ‘Lava Jato Operation’ made clear to society that corruption exists only because, if in one side there is the corrupt (public office or politician), on the other there is a corruptor, represented by the economic power.

“It seems that Brazil is finally opening its eyes to the other side of the coin,” said Gava. “Today, if politicians and civil servants and party leaders who are or were in power sink, take along part of Brazilian magnates who never honoured the pants of capitalism they wear”.

But is it not too early to be optimistic about the punishment of “sharks”? Does messing with gigantic, powerful and entrenched economic interests put the operation at risk, like same outcome that Satyagraha Operation, which six years ago came to take bankers to jail, but that ended up resulting in impunity?

Roberto Saturnino Braga said he believed that this time, the situation is different. “I do not think there will be disqualification of ‘Lava Jato’. My concern is more with the demoralisation of Petrobras. There is a huge interest against Petrobras,” said the former Congressman.

Can the circumstances in which the country lives – with a more attentive and demanding society – inhibit attempts to dampen the ‘Lava Jato’? If the answer is yes, more than capitalising the success of the operation, the President Dilma Rousseff should take the collective ambition and to take actions that show other deviations.

That’s what Rodrio Gava defends. “There is much more around and beyond the already traditional contractors. It’s time to move the hornet’s nest of public transport, the regulated services and many other concessions in the hands of illegitimate liquidators of the republic that are so harmful and contrary to the public interest. It is time for Dilma appears on national television every week, to show what she does and what she will do to change the country”.


The Association of Petrobras Engineers held an action in defence of the Brazilian public company in November, in front of the company’s headquarters in Rio de Janeiro. Trade unions and social movements have also shown concern about the political use of ‘Lava Jato Operation’ in order to demoralise and discredit the company, and thus create a favourable environment for multinational explore one of the nation’s greatest assets – reservations of oil in the pre-salt layer.

“Petrobras is our greatest asset. Especially after the pre-salt discovery, it became the target of giant economic interests. There is a devaluation of the company’s motion, to create difficulties,” said Roberto Saturnino Braga.

The concern is echoed in the words of President Dilma Rousseff. She has warned the press that care should be taken so that Brazilian society does not “condemn” Petrobras for acts of corruption committed by some officials and directors.

In the second week of December, the US law firm Wolf Popper filed a collective action against Petrobras in a court of New York on behalf of investors who purchased receipts representing Brazilian state company’s shares and that are listed on the New York Stock Exchange. The action alleges that Petrobras provided false and misleading communications and showed a culture of corruption in the company. By the time of writing, the Brazilian company had not spoken about it, saying only that “it was not notified of the lawsuit”.

If ‘Lava Jato Operation’ will have the power to change the direction of national politics, it is not known. But with open wounds, it is with great anticipation that much of society is awaiting the outcome.




What is the ‘Lava Jato Operation’?

It is an investigation of the Federal Police and the Federal Prosecutor’s Office regarding a criminal organisation formed by politicians, civil servants, contractors and money changers executives. Contractors distributed among themselves contracts with public companies, especially Petrobras, through the payment of bribes and misuse of public money, passed on to political parties.


How did the corruption work?

According to the Prosecutor’s Office, contractors previously met up and decided who would perform each of the works offered by the public power. The value of its offer in the bidding was added a certain percentage, diverted to public officials and political parties. This budget was passed by the contractors to the gang by “consulting” companies linked to scheme members, “washing” the money.


Who was involved?

The money changer Alberto Youssef was the financial operator of the scheme, while former Supply Director of Petrobras Paulo Roberto Costa was the political operator. In testimony to the Justice, Costa said the scheme also worked in other Petrobras areas, such as Services, Gas and Energy, Production and International.


Which contractors were parts of the gang?

‘Lava Jato’ has investigated executives from nine contractors: Camargo Corrêa, OAS, UTC/Constram, Odebrecht, Mendes Júnior, Engevix, Queiroz Galvão, Iesa Óleo & Gás and Galvão Engenharia.


How much money did the scheme move?

The money-laundering scheme investigated originally moved up to 10 billion reais. There is no information on how much public money was diverted. The federal judge Sergio Moro said the damage suffered only by Petrobras “reach millions or even billions of reais.” In March, when Youssef was arrested, the Federal Police met with him a list of 750 works involving large construction and public works.


Why has most of the news only focussed on Petrobras?

Every story needs a focus and the investigation of the Federal Police began with Alberto Youssef and Paulo Roberto Costa. The more information is obtained, the more the story should be expanded. Although the focus is on Petrobras, other public companies have appeared in investigations such as the Energy Company of Minas Gerais (Cemig, in Portuguese), a leading electric utility in Brazil.


Who benefited from the scheme?

Testimonials of Costa and Youssef indicate that the money transferred to political parties served to irrigate the coffers of members of the Workers Party (PT), Democratic Movement Party (PMDB) and Progressive Party (PP). Among others involved in the scheme would be the former president of the Social Democracy Party (PSDB), Sergio Guerra, who died in March 2014.


How old is the scheme?

The contractor’s cartel scheme in Petrobras works existed for at least 15 years. “Although it is not possible to measure the total amount of damage, it can be said that the criminal scheme operated for at least 15 years at Petrobras,” wrote the attorneys in the petition asking for authorization to the outbreak of the seventh phase of the operation.


What is the future of ‘Lava Jato’?

The processes and investigations into the ‘Lava Jato’ will follow in two separate tables. While the federal judge Sergio Moro continues with its efforts in Curitiba, in order to prove the criminal scheme involving contractors, money changers and public companies, the Attorney General of the Republic, Rodrigo Janot, looks at the evidence for, before the Supreme Federal Court (STF), conduct the investigation of the privileged forum holders, politicians.

Read more: Brasil Observer #23