Brazil: Petrobras corruption arrests
Published 21 November 2014
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This article is no longer current. Please refer to Overseas Business Risk - Brazil
Summary
High profile police operation sees 27 corporate leaders arrested in six Brazilian states. Petrobras ex-director, plus Presidents of three major construction companies in custody. Judge freezes R$720 million of assets of some of Brazil’s top corporates.
Detail
The weekend’s arrests were made as part of an investigation into political corruption, which has now focussed on Petrobras. The allegation is that some of Brazil’s biggest infrastructure companies set up a cartel in the mid-2000s to win massive contracts from Petrobras in return for kickbacks. This money supposedly helped fund the PT and allies in the 2010 election.
The business people accused join dozens of high-level political figures – including at least one minister - who are being dragged into potentially the largest corruption scandal Brazil has ever seen. Some R$ 59 billion (£15bn) of contracts may be involved.
The enquiries go beyond Brazil and so are harder for the Brazilian authorities to control: last week the US SEC launched an investigation into Petrobras purchase, for an extraordinarily high price, of a refinery in Pasadena, because Petrobras is quoted on the NYSE. PWC refused to sign off Petrobras’ third quarter accounts because of concerns about governance. Petrobras have postponed announcing their Q3 results because of the investigation.
On 16 November, in her first comments since the arrests, President Dilma described this as an opportunity to clean up Brazil, but blamed individuals not institutions But the legal processes will drag on for years, and Brazil needs Petrobras to function. It matters economically to Brazil in a way no other company does: oil and gas provide 10% of Brazil’s GDP. Revenue from pre-salt oil will soon fund the president’s education and health policies. The scandal may reduce investment in one of Brazil’s major economic success stories.
This is a potentially transformational event. The mensalao scandal of cash for votes weakened impunity in politics. This may do the same for corruption between business and politics. The electorate is getting less tolerant of the old ways, and Brazil’s vigorously independent press is having a field day.
Disclaimer
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