Sunday, December 28, 2014

International Contractors Caught Up In Brasil Graft Case

December 28, 2014 12:11 pm

International contractors caught up in Brazil graft case

View of the Line 4-Yellow train of the Sao Paulo Metro that runs between Luz and Butanta stations, displaying special Christmas decoration on December 1, 2014, in Sao Paulo. AFP PHOTO / Miguel SCHINCARIOL (Photo credit should read Miguel Schincariol/AFP/Getty Images)©AFP
Headlines in Brazil this month have been filled with allegations of corruption involving Brazil’s state-owned oil company Petrobras and the ruling coalition led by president Dilma Rousseff`s centre-left Workers’ party, or PT.
But while it has received less attention, another long-running scandal involving São Paulo’s commuter railway system is also coming to a head. This time, international contractors and the main opposition party, the PSDB, are in the hot seat.
Earlier this month, police indicted 33 people and froze more than R$600m (US$223m) in assets of six companies, including five foreign enterprises, among them Germany’s Siemens and France’s Alstom, embarrassing the PSDB, which has run the state of São Paulo for 20 years.
The Supreme Court is also considering whether to try two opposition politicians, including one from the PSDB, José Aníbal, over the case, in which contractors are accused of running a cartel to win construction tenders with the co-operation of politicians.
“A group of companies, among them Siemens and Alstom, joined together and formed a consortium to win an international tender for the construction of line five of the São Paulo metro with the intention of diminishing competition in an activity configured as a cartel,” the attorney-general said in a petition to the Supreme Court.
The alleged manipulation of tenders to build São Paulo’s underground Metro system and its above-ground CPTM lines are an embarrassment to the PSDB, whose candidate, Aécio Neves, came close to winning elections against Ms Rousseff in October.
Mr Neves repeatedly attacked Ms Rousseff and her party over the Petrobras scandal, in which scores of politicians, including ministers, are alleged to have collaborated with construction companies to receive kickbacks from Petrobras contracts.
The scandal has developed into a crisis for Brazil’s biggest company, which is being investigated by the US Securities and Exchange Commission, and is testing Ms Rousseff, who is resisting calls for her friend, Petrobras chief Maria das Graças Foster, to step down.
But the São Paulo commuter railway scandal, which allegedly spans 15 years of PSDB governments from 1998 to 2013, shows that corruption in public contracts is a Brazilian problem, not just a single-party challenge, say analysts.
“Conditions in Brazil are favourable to cartels,” said Carlos Ari Sundfeld of FGV, an academic institution in São Paulo.
Police have not named the 33 individuals and their companies indicted in the metro cartel case.
But the case first came to light after Brazil’s antitrust agency, Cade, offered Siemens leniency in exchange for co-operating with its investigations.
Cade earlier this year began proceedings alleging 18 companies, including Siemens, Alstom, Japan’s Mitsui, Canada’s Bombardier and others, and 109 individuals colluded to win tenders amounting to R$9.4bn across the country.
Conditions in Brazil are favourable to cartels
- Carlos Ari Sundfeld, FGV
It gave details of secret talks and other communications between alleged cartel members.
“These practices occurred since at least 1998 and extended at least until raids [by authorities] in July 2013,” Cade said in the administrative action.
Siemens said it was assisting in the case, which it said originated from information it voluntarily handed to authorities after an internal audit. Alstom said it was co-operating with the authorities. Lawyers for Mr Aníbal did not respond to requests for comment.
Mitsui said “if requested” it will collaborate with authorities on the case, while Bombardier said it observes the “highest ethical standards” and has been co-operating with the investigation.
The attorney-general’s office told the Supreme Court in its petition that companies involved in the case bribed public officials.
“We highlight the payment of undue advantages to public agents to assure victory,” it said.
Mr Sundfeld of FGV said the prosecution of the trains and Petrobras cases by Brazil’s public prosecutors’ office and federal police showed the development of more effective law enforcement institutions in the country in recent decades.
But he said Brazilian policy still encouraged the formation of cartels. Public authorities were required to hold open tenders, meaning companies that were suspected of collusion and price-setting could not be excluded from auction processes.
Brazilian local content rules that forced companies to produce equipment onshore also limited the field of competition in large projects, such as in the construction of rail lines or carriages, due to the limited number of companies globally with the capacity to fulfil such conditions.