Brazil, one of the rising stars of world economies, the “B” in the “BRIC” nations, the acronym so named by Jim O’Neil over a decade ago as a group of countries he believed to possess the potential of significant economic development.
Jim O’Neil’s prediction was largely correct, all the four nations indeed made significant progress with China and India predicted to continue to grow. In those times, Brazil was not left out, major economic achievements with a lot of Brazilians lifted out of poverty with the creations of millions of middle classes.
While all these transformations were going on, Brazil was sitting on a powder keg. A corruption scandal on a monumental scale never seen before, which its continuing never-ending revelations look and sounds like a TV series or scripts from a Hollywood movie.
Indeed, corruption is not new in Brazil and to Brazilians, corruption is the road in Brazil, it is a default path, they even have a name for it ‘Jeitinho Brasileiro’ (the Brazilian way).
Ranked 79th in the world from possible 176 countries by Transparency International.
Act of CORRUPTION is enshrined in every facet of Brazil’s culture, from petty corrupt acts like offering a police officer money (note that Brazilians would rarely say ‘bribing’) to avoid a possible traffic fine, using a fake student ID to get discounts, queue barging, short-changing and paying a random person who claims he’s watching parked cars on the street (for fear that if you don’t pay he may slit your tyres) to the very top of Brazil’s ruling class.
So, corruption is not a news in Brazil, the news, however, is the scale and corporate style of running a web of very complex and multi-layered cartel never seen before. A system so well structured and organised that it does not leave any trace of the end recipients or beneficiaries of corrupt payments.
Everything changed though in 2014, by a sting that came to be known as the “car wash” investigation or “LAVA JATO” as it is known in Brazil.
The operation initially intended to investigate illegal currency exchange operators called doleiros (black market money dealers), and money launderers, who used small businesses, such as petrol stations and car washes, to launder the profits of crime, but like a can of worms, it quickly became a large-scale investigation into alleged fraud and corruption scheme designed to embezzle assets from Petrobras, a publicly traded energy and petroleum company, controlled by the Brazilian federal government, its majority stockholder.
The investigation uncovered a web of corruption and payment of over $5b to companies and government official around the world.
“Lava Jato” ended up Consuming the presidency of Dilma Rousseff in 2016, dragged her predecessor and allied Luiz Inácio Lula da Silva, known as Lula into the scandal and formally placed the sitting president Michel Temer under investigation
The impact of the corruption is palpable, some of the citizens that have moved up from lower class to middle class are now back to where they used to be. Reports of unpaid salaries are now a common recurrence in Brazil and unemployment rate is now over 13%.
Lava Jato: the scandal that keeps on giving.
No fewer than 20 different political parties have had members implicated. More than 200 people have reportedly been charged with crimes. the heads of both houses of Brazil’s Congress, more than 90 lawmakers and one-third of Temer’s cabinet are implicated.
The Supreme Court released documents and tapes implicating Mr Temer and former presidents Dilma Rousseff and Lula da Silva in accepting bribes; a tape also appeared to show Mr Temer approving payoffs to an already-jailed congressman.
Why are anti-graft agencies are having successes in their investigations?
Two factors can be attributed to the successful investigation and prosecution so far;
- The presidency of Dilma Rousseff to her credit strengthened the powers of investigative authorities and crucially refused to interfere, call it political naivety, this act turned out to be her downfall, and according to some experts, this act may be enough to salvage her name in the annals of Brazil’s history.
- Collaboration clause in the Brazilian criminal law which was formalised in the Organized Crime Law of 2013 (Law 12.850).
The aim of the collaboration clause was to achieve the following: (1) Identification of participants in the criminal organisation, with their respective crimes; (2) Exposure of the hierarchical structure and division of functions within the organisation; (3) Total or partial recovery of proceeds; (4) prevention of further crimes; (5) The safe release of victims in return for a lesser penalty.
This arrangement helped the prosecutors acquire vital testimonies and encouraged those under investigation to cooperate.
‘Were it not for the collaboration agreements between federal prosecutors and those under investigation, the Car Wash case would not have uncovered evidence of corruption beyond that involving Paulo Roberto Costa,’ the prosecutors’ office says. ‘We had evidence of bribes of less than R$100m [some US$31.5m at early April exchange rates]. Today we are investigating dozens of public officials as well as major companies, and there is evidence of crimes of corruption involving values far in excess of R$1bn [US$315m]. Just through the collaboration agreements, we have already recovered around R$500m [US$157m].
Paulo Roberto Costa was the director of Petrobras responsible for billion-dollar procurements, the whole scandal started unravelling when he was given an expensive car as a gift by Alberto Youssef black-market currency dealer known from an earlier corruption case. Both Costa and Youssef have since provided police with copious detail under collaboration agreements – Youssef’s collaboration testimony exceeds 100 hours, all recorded and encrypted.
The major benefits to Brazil despite the current political turmoil is that this ongoing scandal may birth a change away from the culture of corruption that has eaten into the fabrics of the nation and may even return Brazil to the path of economic success which has now been derailed.