The world’s largest corruption scandal is known as Lava Jato – or Operation Car Wash, its police code name.
All 5 living former presidents of Brazil and almost a 1/3 of cabinet ministers along with more than half the Senate have either been indicted or are under investigation due to a massive scam that involved bribes for public works contracts and pro-business changes to legislation.
It also helped pitch the country into a deep recession, wiped out nearly 500,000 jobs and the consequences went well beyond Brazil.
Politicians in several Latin America countries were found to be involved in the corruption.
In April, Peru’s two time President Alan García killed himself after police arrived at his door with an arrest warrant related to the Odebrecht investigations.
Two more of Peru’s former presidents, Ollanta Humala and Pedro Pablo Kuczynski are under indictment or in jail because of Odebrecht-related inquiries and the investigation widened to over 12 countries and key members of Brazil’s business elite – many of whom are now making the adjustment from billionaire lifestyle to a life behind bars.
It began as a small-time money-laundering investigation in a southern Brazilian town, but has swelled to the point, it threatens the entire Brazilian political class and nearly put Brazil out of business.
The investigation begin by accident on March 17, 2014 at a Petrobas car wash in Rio de Janeiro, Brazil. a federal police team had the location under surveillance.
Petróleo Brasileiro S.A. — Petrobras, is more commonly known as simply Petrobras, is a semi-public Brazilian multinational corporation in the petroleum industry headquartered in Rio de Janeiro, Brazil.
Investigators felt it was at the center of a money laundering operation led by prior convicted criminal Alberto Youssef, suspected of making payments to a third party for a Land Rover evoke, for an executive of Petrbas, which immediately raised suspicions.
The excutive turned out to be, Petrobras’ former director of refining and supply, Paulo Roberto Costa.
Costa was eventually arrested and held without bail for trying to destroy evidence of money laundering in the amount of 26 mil Reias or about $8 mil . Charges were formalized 6 months later. Costa then entered a plea agreement.
For weeks, Costa had promised to tell what he knew about the suspected money-laundering scheme, but kept holding back, according to prosecutors. Then he learned they were investigating his family, as well, for potential evidence tampering.
Paulo Roberto Costa began to talk.
The haggard-looking former oil executive stared across a table at six stone-faced federal prosecutors in a cramped office in southern Brazil and confessed to a bribery scheme much larger than anyone could have ever anticipated or imagined.
For nearly 10 years as a senior executive at Petróleo Brasileiro SA, known as Petrobras, Costa took bribes from the country’s biggest construction firms, allowing them to skim hundreds of millions of dollars from the state-controlled oil company through inflated contracts, according to an account he gave prosecutors and eventually to Brazil’s Congress.
Other executives and Brazilian politicians got a cut of the cash, he said, while a web of money launderers helped them hide some of it overseas and offshore accounts.
Police soon raided dozens of homes, turning up sports cars and safes filled with money and jewelry.
They seized so many valuable paintings allegedly bought with bribery proceeds, including a Salvador Dalí, they allowed a museum to exhibit along with some of the other works.
Marcelo Odebrecht
Marcelo Odebrecht’s part in the scheme wasn’t revealed until he was presented with very consistent accusations by the prosecution, after his company was charged with cheating Petrobras out of R$6.4bn ($1.9bn), he became the latest member of Brazil’s elite to be sucked into the country’s biggest-ever corruption scandal — and also one of the most unusual.
The 47-year-old is president and chief executive of Odebrecht — the Brazilian multinational, that is Latin America’s largest construction company but also, because it is privately held, one of the world’s biggest companies that most people have never heard of.
Only a few months ago, Mr Odebrecht bestrode the world.
With $41bn in revenues, 181,000 employees and businesses that include building football stadiums and nuclear submarines, his company operates in 23 countries, from Angola to the UK and most of Latin America.
Odebrecht has a global reach and diplomatic mystique — it has large operations in Cuba and the US, despite Washington’s embargo which usually makes such dual-country business impossible — stems from the 2000s.
Then it almost acted as the corporate handmaiden of Brazilian foreign policy, managing complex infrastructure projects in strategic locations that had caught the eye of former president Luiz Inácio Lula da Silva.
Now, in the latest sign of how Brazilian business and politics it is being reconfigured by the Petrobras scandal and Mr Odebrecht is being held without bail in a sparse cell in the southern city of Curitiba.
The news stories ran, “We are in a kind of different story now,” said Professor Sérgio Lazzarini of São Paulo’s Insper business university. “It [the investigation] is changing the perspective of many businessmen.”
Under the so-called Lava Jato, or car wash, investigation, senior Brazilian politicians and former Petrobras executives stand accused of conspiring with construction companies in return for kickbacks and bribes.
Mr Lula da Silva is being investigated on separate allegations that he improperly used his connections to help Odebrecht win international contracts. Mr Lula da Silva and Odebrecht vehemently deny any wrongdoing.
The probe, aided by the Swiss attorney-general’s office and Portuguese and Latin American prosecutors, promised to illuminate the shadier side of Latin American business practices.
Moody’s, the rating agency, has warned the case could jeopardise some of Odebrecht’s $34bn backlog of construction contracts, including $3bn of Colombian projects.
“[If] proven guilty in Brazil, that could generate inabilities [for the company] in Colombia,” Luis Fernando Andrade, head of Colombia’s infrastructure agency, told the Financial Times.
However, even that wasn’t enough to impede further investigations.
Although other Brazilian construction companies have been charged under the probe, Odebrecht is the biggest and enjoyed the greatest aura of mystery – they did not expect such clear evidence would surface.
After Marcelo, was sentenced to 19 yrs, he started talking in hopes of a sentence reduction.
Also, 77 other Odebrecht executives have provided detailed information to prosecutors on the company’s long history of bribery.
This allowed for exponential expansion of the investigation referred to as the “Big Bang” in the Operation Car Wash investigation, because Costa started testifying that Land Rover was just one of many companies used to bribe construction companies.
An intrinsic system of payment was laid out, where multinational corporations spend personal and public investments to further their interests and supposed to have allowed Brazil to export corruption on a scale never seen in history before and the fallout has shaken political elites to the core.
The Car Wash scandal became so large was because it was very efficient , it would use the same system over and over again exploiting a systemic mechanism of traditional overcharging.
Company Cartels would resist contracts until the amount of money paid would reach a prearranged amount determined by the members of its club of owners, officials and companies.
The investigation found that Petrobas acted in a prearranged way for construction contracts with the construction company Odebrecht and a amount would be distributed to each member of the club according to a secret agreement that dated back at least 10 yrs.
According to evidence and internal documents the club would nominate one of it’s members based on a point system outlined as “championship rules”.
There were 16 championship players and their only goal was to maximize profits and prizes in national and international markets.
The cartel wars resulted in steep overpayment of public funds. Petrobas executives were bribed to play along and the bribes were built into the contracts.
However , the scheme stretched far beyond the state owned Petrobas.
It extended to building stadiums like the 2014 World Cup stadium and the 2016 Olympic stadiums, and even further into major internal construction projects of Brazil.
Prosecutors stated some of the main players in the cartel were :
Odebrecht, Braskem, Andrade Gutierrez, Camargo Correa, Lesa, Engevix, Mendez, UTC, and Rolls – Royce
By June 2015 the task force moved against the companies in the cartel.
In a step never before taken in Brazilian history, 12 top level executives and the most powerful prince Marcelo Odebrecht were arrested , CEO of Odebrecht, one of the largest construction companies in Latin America, operates in over 20 countries and in 2017 had a revenue of about $26 bil.
Huge infrastructure projects – highways, bridges, sanitation facilities and power plants – are frozen or have been scrapped as prosecutors probe bloated contracts and a web of kickbacks.
The public-works contracts were held by Brazilian construction giants such as Odebrecht SA or OAS, which are at the heart of the Lava Jato investigations. Brazil’s National Bank for Economic and Social Development was a key funder of many of the projects.
Loans for 25 projects in 9 countries totalling $7-billion (U.S.) are now frozen.
How Odebrecht would pay bribes to Petrobas executives became clear when authorities uncovered a secret accounting system along with it’s own off the books bank with funds to bribe not only companies and executives, but also politicians who received kick backs in favor of Petrobas executive contracts.
Though many congress members, senators, and ministers were implicated by Odebrecht in this scandal, it was the Working Party of Brazil which was dealt a heavy blow as he implicated Former Brazilian President Lula Silva and his successor Dilma Rousseff, who 2 weeks later had formal charges laid against them both.
On 12 July 2017, Lula was convicted of money laundering and passive corruption, defined in Brazilian criminal law as the receipt of a bribe by a civil servant or government official.
Lula was sentenced to 9 years and 6 months in prison by judge Sérgio Moro, but he remained free pending an appeal of the sentence.
On 24 January 2018, the Regional Federal Court of the 4th Region, which is a panel of three appellate judges, unanimously upheld Moro’s ruling against Lula and increased the sentence to 12 years.
On 5 April 2018, the Supreme Federal Court voted to reject Lula’s habeas corpus plea and on the same day a warrant was issued for his arrest.
He turned himself in and began serving his sentence on 7 April 2018.
Temer, who will still face several corruption charges while free, left his cell in a facility near Rio de Janeiro for an undisclosed location after an order from a federal judge.
Judge Antonio Ivan Athie said earlier there’s no need to jail the 78-year-old politician because he doesn’t pose a risk to the investigation into the charges.
Lula announced his candidacy for the 2018 presidential election, but he was disqualified from running under Brazil’s Clean Slate Law by the Superior Electoral Court on 31 August 2018 and was replaced by Fernando Haddad on 11 September 2018.
The United Nations Human Rights Committee requested that the Brazilian government allow Lula to exercise his political rights as a presidential candidate.
Prior to being barred, Lula led all scenarios in polls for the October election, achieving 39 percent in voter intentions within one month of the first round. In June 2019, the investigative newspaper
The Intercept reported that the prosecutor responsible for investigations of Lava Jato Deltan Dallagnol and then Judge Sérgio Moro plotted to prevent Lula’s candidacy for the 2018 presidential election.
He is the fifth President of Brazil who has ever gone to jail and the first to be arrested for corruption.
Impeachment proceedings against Dilma Rousseff began in the Chamber of Deputies on 3 December 2015.
On 12 May 2016, the Senate of Brazil suspended President Rousseff’s powers and duties for up to six months or until the Senate decided whether to remove her from office or to acquit her.
Vice President Michel Temer assumed her powers and duties as Acting President of Brazil during her suspension.
On 31 August 2016, the Senate voted 61–20 to impeach, finding Rousseff guilty of breaking budgetary laws and removing her from office.
While Brazil was making steady progress they also asked for and received help fom the US Justice Dept.
It is one of the world’s main centers for financial transactions which gave it jurisdiction over many of the money laundering crimes that happen around the world on a daily basis.
They are very efficient at identifying money laundering , which helped Brazil , because they were able to turn over many documents needed in this case very quickly.
Odebrecht agreed to pay a world record $3.5-billion fine after admitting it paid $788-million in bribes to win contracts in 12 countries.
Odebrecht showed it had used Peru’s offshore banking industry to set up shell companies by Mossak Fonseca to pay bribes all over the world , but most especially in Switzerland.
Later Mossak Fonseca, at one time, the world’s fourth largest provider of offshore financial services.
From its 1977 foundation until the April 2016 publication of the Panama Papers it remained mostly obscure, even though it sat at the heart of the global offshore industry, and acted for about 300,000 companies.
More than half are registered in British tax havens – as well as in the UK.
The firm received worldwide media attention in April 2016, when the International Consortium of Investigative Journalists published information about its clients’ financial dealings in the Panama Papers articles, following the release of an enormous cache of its documents from between 1970 and 2015 leaked to the news media.
On March 14, 2018, the law firm announced that it was shutting down, because of the economic and reputational damage inflicted by the disclosure of its role in global tax evasion by the Panama Papers.
Marcelo Odebrecht, however , was still not done taking down those who conspired with them.
He implicated the Peruvian President Alejandro Toledo , on accusations of taking $20m in bribes from Odebrecht, a Brazilian construction company at the centre of Latin America’s biggest corruption scandal.
Corruption beyond Brazil: Where the ‘Car Wash’ scandal has splashed across Latin America
Toledo was was arrested in the United States following an extradition request in July 2019 and has recently been denied bail.
Even though Brazil’s economy has been crippled by Lava Jato.
Colombia and Peru, which have the region’s two strongest economies, are also being hit hard. Peru’s Economy Minister says the Lava Jato-related project freezes will trim between 0.5 and one percentage point off his country’s economic growth this year.
Peru has banned Odebrecht from bidding on new contracts in the country and Colombia is considering a similar move.
In all the affected countries, contracts held by Odebrecht or the other Brazilian firms are being reopened for new tenders – a process that has set the building of badly needed ports and subway systems back by years.
The shortage of critical transportation infrastructure – ports, highways, airports – and energy infrastructure such as hydroelectric plants and gas pipelines is a key bottleneck for growth across the region.
In addition to fines in the United States, Odebrecht is paying $189-million in penalties in the Dominican Republic and $59-million in Panama. Investigators say there are still years of work ahead to unravel the kickback network involving the other firms and warn that more projects could be affected.
Mexico
Prosecutors in Brazil say a number of contracts wi th Mexican state oil company Pemex were awarded through bribes from Odebrecht and that documents tie former president Felipe Calderon to the scam.
Cuba
During the 13 years of Workers’ Party rule in Brazil, the government cultivated close ties with Cuba, and Odebrecht and other firms got Brazilian government-backed loans to build Cuba’s massive new port zone and other infrastructure.
Dominican Republic
Odebrecht says it paid $92-million to win contracts in the Dominican Republic. President Danilo Medina and two of his predecessors are all under investigation for bribery related to Lava Jato, and Minister of Industry and Trade Juan Temistocles Montas was arrested on May 29. Dozens of other senior political figures have been named as suspects in the graft scheme.
The vast array of projects and huge size of the bribes threaten the stability of the government.
Guatemala
Honduras
