South America has been a special part of my life for four decades. I have lived many years in Brasil and Peru. I am married to an incredible lady from Argentina. I want to share South America with you.
It revamped the Maracanã stadium, Brazil’s home of football in Rio de Janeiro, for the 2014 World Cup, developed one of the largest hydroelectric dams in Africa and built a $1bn port in Cuba. But now Odebrecht, Latin America’s largest construction group, is in danger of being better known for creating one of the biggest bribery machines in corporate history.
The US Department of Justice last week described the operation, which channelled almost $788m to politicians and officials across a dozencountries, as an “unparalleled bribery and bid rigging scheme” as it together with Brazilian and Swiss authorities slapped a record fine of at least $3.5bn on Odebrecht.
The scandal that has torn through Odebrecht and threatens to unseat senior politicians in Brazil and across the region had discreet beginnings in the company’s mundane sounding “structured operations” division.
It was there — a secret operation in full public view — that Maria Tavares, a secretary at the company, began her work day, she told prosecutors, by “downloading a spreadsheet that contained the [bribery] payments to be made for that week” — essentially a payroll for politicians and public officials stretching from Brasília to Maputo in Mozambique.
So sophisticated was the operation, which ran for at least a decade starting in 2001, that it used its own separate computer and email systems complete with code names for the payees, the payments — known as acarajés after a local fried bean cake — and the bag men who delivered the money. Odebrecht even set up its own, one-stop bribery shop by buying a bank in Antigua where the corrupt could open accounts and receive direct payments.
The revelations provided by Ms Tavares and others that Odebrecht engaged in “brazen” systematic international bribery were revealed as part of a plea bargain agreed with US, Brazilian and Swiss prosecutors last week. Odebrecht will pay at least $3.5bn for its wrongdoing, including a $957m fine for Braskem, its petrochemical arm.
Beyond the figures, the discovery that one of the most important companies in Latin America’s largest economy conducted such a crime for so long and in so many jurisdictions has shaken Brazil’s business establishment to its foundations.
“Never has the political and economic system been hit so profoundly,” Gilmar Mendes, a Brazilian Supreme Court judge, told the Financial Times.
With many of the payments made through legitimate banking systems, the scandal is also raising questions over global compliance requirements, particularly in the developing world, where Odebrecht paid off scores of senior public officials and was only undone by a determined investigation by Brazilian federal police and prosecutors with the support of crusading judges.
For the government of President Michel Temer and its efforts to revive Brazil’s economy the episode poses a threat. Brought to power in August after his predecessor, the leftist president Dilma Rousseff, was impeached for manipulating the budget, investors are depending on an ambitious reform agenda to rescue what was six years ago one of the world’s fastest growing economies from its worst recession in more than a century.
Aside from the plea bargain announced in the US this month, nearly 80 executives of Odebrecht, including its former chief executive and scion of the founding family, Marcelo Odebrecht, have filed detailed witness testimonies — that are yet to be made public — with Brazil’s Supreme Court.
Leaks to Brazilian media have claimed that Mr Temer and senior figures in his ruling Brazilian Democratic Movement party have been implicated in some of the testimonies of these plea bargains. They deny wrongdoing.
Alongside the wider probe into corruption by construction groups and politicians at state-owned oil company Petrobras, known as lava jato (car wash), the Odebrecht investigation is changing the culture of impunity in Brazil.
“Popular pressure is very strong in Brazil these days and no one can really stand corruption any longer,” says Sérgio Lazzarini, an author of books on crony capitalism in Brazil. “Everyone has the sensation we have been robbed all these years.”
Presiding over expansion
If one man summed up the sense of impunity that used to pervade Brazil, it was Marcelo Odebrecht. Barely into his 40s, he assumed the leadership of the conglomerate founded by his grandfather Norberto Odebrecht, a descendant of German immigrants to Brazil, in 2009. The group employs 128,000 people of 70 nationalities and operates projects ranging from ports, dams, metro networks, highways and a nuclear submarine base in countries such as the US, Angola and Panama. It was one of Brazil’s first multinationals, with 58 per cent of its operating income coming from offshore.
It prospered under Marcelo’s leadership and under the leftist governments of the Workers’ party, or PT. In the years following the re-election in 2006 of former PT president Luiz Inácio Lula da Silva, himself now a defendant in the Petrobras political funding scandal, Odebrecht’s gross revenue increased nearly sixfold to R$126.6bn($38.6bn) for the 12 months ending June 2016.
An exercise fanatic who reportedly was such a workaholic he had to make notes in his calendar to remind himself to give his wife Bela and their three children a hug, Marcelo kept a hectic schedule. He would host heads of state from the developing world while plotting with his lieutenants how to influence various political contacts and manipulate bills going through congress to benefit Odebrecht and Braskem, according to court documents. He was particularly close to Mr Lula da Silva. He and his father Emílio Odebrecht regularly travelled with the former president, who has denied accusations of receiving favours from the company, around Africa and Latin America to meet world leaders.
Sense of invulnerability
When the Petrobras scandal first broke in 2014 it exposed the nexus between big business and the illicit funding of political parties and should have sent shivers around Odebrecht. It involved a cartel of construction companies that collaborated with Petrobras executives and politicians to exchange bribes and kickbacks for contracts.
The investigation has led to 82 people — ranging from former PT treasurer João Vaccari Neto to Marcelo Odebrecht himself — being convicted in the lower courts on charges ranging from corruption to money laundering while the Supreme Court, which is responsible for trying serving politicians, is processing a further 74 cases.
And yet such was the sense of power at Odebrecht that Marcelo and his executives did not panic when prosecutors began probing Petrobras.
One associate remembers a meeting early in the investigation to discuss a loan in which the former Odebrecht chief became indignant when asked about the investigations and insisted it was all a plot to get at him and the PT-led government. Marcelo seemed confident until the end in his ability to subvert the probes, discussing strategies for doing so with his senior executives, according to prosecutors. He even paid €3m to a “high official” in Antigua in exchange for the official refusing to provide information on Odebrecht to Brazilian authorities, according to the plea bargain lodged in the US.
Indeed, for a long time, Marcelo seemed untouchable. But then in February 2015 the Petrobras scandal reached his door when a former executive at the energy company, Paulo Roberto Costa, told prosecutors he had received $31.5m in bribes from Odebrecht paid into a Swiss account. In June that year federal police swooped in an operation they called Erga Omnes — a Latin term signifying that the law applies equally to everyone. They arrested Marcelo and seized 11 mobile phones from his home. As they dug deeper, they discovered the remarkable extent to which the Odebrecht group had gone to run its parallel payments network.
In March this year, Marcelo was sentenced to 19 years in jail for corruption and other charges.
After his arrest Marcelo initially denied any wrongdoing. But the growing weight of the evidence, including Ms Tavares’ revelations about the structured operations unit, coupled with the troubled financial condition of the group, which is struggling to secure loans even as its construction arm suffers a one-third contraction in new business, forced him to negotiate the plea bargain that led to this month’s settlement with the US, Brazilian and Swiss governments.
In exchange for providing testimony to the Supreme Court, Marcelo and the nearly 80 executives of his company involved in the plea bargain will be given leniency. While a relief for Odebrecht and its former chief, who could be released early from prison, the plea bargains are causing fresh tremors in a Brazilian political scene battered by the Petrobras scandal.
Newspapers this month detailed leaked testimony from Marcelo and another Odebrecht executive alleging that Mr Temer had sought political donations worth R$10m in May 2014 ahead of presidential elections that year. Mr Temer, who wasMs Rousseff’s vice-president, has denied any wrongdoing.
The leaks have sparked concerns about Mr Temer’s survival as president. The economy is showing few signs of life, shrinking at an annual rate of nearly 3 per cent in the third quarter. A poll by Pulso Brasil last week showed that 15 per cent of those surveyed approved of Mr Temer while 77 per cent disapproved.
But analysts argue that unlike Ms Rousseff, he has the markets and congress on his side. Where she alienated investors by backtracking on promises to rein in budget deficits, Mr Temer has pushed through a constitutional amendment freezing expenses in real terms for up to 20 years and has started difficult pension reforms. Ironically, his lack of popularity is leading him to try reforms few others have had the courage to attempt, say analysts.
“The paradox is that a highly unpopular government that therefore has little to lose has turned out to be a government that acts with conviction and in a pragmatic way,” says Fernando Schüler, a political scientist at Insper university in São Paulo.
With the plea bargain payout, Odebrecht, which will struggle to pay the $3.5bn, has promised to turn over a new leaf. The structured operations division has gone. Ms Tavares told prosecutors how one day in August last year, she was suddenly sent to another division of Odebrecht. The structured operations division was “closed, there was not one person left there”, she said, and two of the most senior staff fled to Miami.
The question is whether the Odebrecht plea bargain and the car wash probe will mark an end to the endemic corruption affecting Brazil.
Many analysts argue corruption will not be wiped out until there is sweeping reform to lower the cost of political campaigns and reduce the incentives for graft. Brazil’s system allows an extreme number of parties — currently 35 in all — most of which exist only to extract rent from the system, analysts say. But the Odebrecht scandal and the car wash investigation have at least finally put the need for these reforms at the top of the political agenda, analysts say.
Mr Mendes, the judge, says: “I think [the car wash probe] has had this virtue: it has made reform of the system inevitable.”
President Mauricio Macri has appointed a fiscal hawk as treasury minister as part of his first major cabinet reshuffle in an effort to reinvigorate Argentina’s tepid economic growth.
Mr Macri sacked Alfonso Prat-Gay, his finance minister, on Monday due to internal conflicts within the economic team. Mr Prat-Gay’s treasury and finance ministry has been divided in two with economist Nicolás Dujovne, who is regarded as a fiscal hardliner, taking over as treasury minister. The appointment puts greater focus on the fiscal consolidation seen as essential for Argentina’s economy.
“Having an unapologetic fiscal hawk in one of the two new economy ministry divisions sends a positive signal to the markets,” says Walter Stoeppelwerth, head of research at Balanz Capital, an investment bank in Buenos Aires. Argentina’s fiscal deficit has long been seen as the cause of a string of economic crises over the past half century.
But it remains to be seen if Mr Dujovne can effectively implement his plans next year, with legislative elections due that Mr Macri needs to win to ensure his market-orientated economic reform programme continues.
Analysts at Banco Mariva, a local bank, see a “change in style but not in substance” in the reshuffle, in which Luis Caputo, Mr Prat-Gay’s finance secretary, takes over as finance minister in recognition of his role in Argentina’s return to the international capital markets earlier this year.
“The promotion of Caputo shows Macri’s administration does not want to hurt its relationship with Wall Street, knowing that Argentina will need to raise about $30bn in the market in 2017 to finance next year’s fiscal needs,” wrote analysts at Banco Mariva.
Having an unapologetic fiscal hawk in one of the two new economy ministry divisions sends a positive signal to the markets
Under Mr Prat-Gay, a well connected former central bank governor and currency strategist at JPMorgan, Argentina managed to rebuild its broken financial relations with the rest of the world. That included removing distortionary currency controls, putting an end to a debt default that had dragged on since Argentina’s 2001 economic crisis, and a tax amnesty under way aimed at luring back some of the $400bn that Argentines hold in foreign bank accounts.
“Prat-Gay made significant contributions to some historic triumphs for Macri,” says Mr Stoeppelwerth.
However, he has faced growing criticism as the economy has taken longer to recover than he predicted.
Most observers attribute Mr Prat-Gay’s departure to personal differences within the government’s economic team after Mr Macri watered down the role of Argentina’s traditionally powerful economy “super minister”. Instead, he distributed responsibility for economic policy around several ministries.
“The country is not going to be saved by one enlightened person, but a team,” said Mario Quintana, the secretary for interministerial co-ordination at the cabinet office.
“There is not going to be a change in policy, because economic policy is decided by president Macri. Yes there will be nuances, and the incorporation of Nicolás [Dujovne] will help greatly in the ordering of public spending and the elaboration of a tax reform,” added Mr Quintana.
Mr Quintana described Mr Dujovne as an “expert in fiscal strategy”, pointing out that he has worked as an adviser at Mr Macri’s Think Foundation. Many observers consider him already to be an insider.
Mr Dujovne, who writes a weekly column in La Nación, an influential newspaper, and frequently appears on television chat shows, has repeatedly warned that Argentina is ill-prepared for a tightening in global financial conditions after the victory of Donald Trump in the US presidential elections.
Arguing that the fiscal deficit is unsustainable and markets will not continue funding Argentina indefinitely, Mr Dujovne has raised the possibility of requesting an “easily obtained” $25bn loan from the International Monetary Fund.
That is a controversial proposal for many Argentines given the IMF’s role in the 2001 crisis, with the previous populist government severing relations with the multilateral lender in 2006.
Cristina Fernández de Kirchner, Argentina’s former president, has been charged over corruption accusations in public works projects, marking the most significant legal setback for the embattled populist leader.
Judge Julián Ercolini cleared the way on Tuesday for legal proceedings against Ms Fernández in what is the second of several cases being investigated to go to trial. She was indicted in May over allegations of manipulating the central bank’s sale of future dollar contracts in the final months of her presidency.
Ms Fernández’s Peronist party lost elections against the centre-right Mauricio Macri a year ago, after he had campaigned on a pledge to battle corruption. Since then her political movement has been damaged by a string of charges that include money laundering, bribery and embezzlement.
Many Argentines hope that these moves are the start of a cleansing of public life in Argentina. Renewed zeal for attacking corruption in Latin America has seen the downfall of several powerful figures this year, including Dilma Rousseff, Brazil’s former president.
In the latest signs of the legal noose tightening, Judge Ercolini approved Ms Fernández’s trial for alleged illicit association and administrative fraud. The case is connected to infrastructure projects awarded to a company owned by Lazaro Báez, a close associate now in jail.
Ms Fernández took to Twitter to defend herself on Tuesday, claiming that charges of illicit association were used “by all the dictatorships to persecute opposition leaders”. She dismissed Judge Ercolini as a “mouthpiece” for Mr Macri’s justice minister, accusing him of waiting until now to pursue a case that he had been sitting on for more than eight years.
“Will he also try the 46 per cent and the 54 per cent [of the population] who voted for us in 2007 and 2010?” she asked, proceeding to mock Mr Macri for going on holiday at the same time as sacking his finance minister, Alfonso Prat-Gay on Monday. The president has appointed Nicolás Dujovne, a fiscal hardliner, as his successor.
She has repeatedly claimed that allegations against her are designed to smear her legacy and distract attention from Argentines’ economic troubles. About a third of the population live in poverty.
Judge Ercolini’s resolution also ordered that about $640m of Ms Fernández’s assets be frozen, and indicted Julio de Vido, a former planning minister, and José López, a former public works secretary. The latter was imprisoned this year after trying to hide bags containing about $9m in cash in a monastery.
Other former officials being investigated over corruption accusations include Ms Fernández’s cabinet chief, Aníbal Fernández (no relation), who is accused of masterminding an ephedrine trafficking ring, and Amado Boudou, the vice-president.
Although observers point to parallels with the situation in Brazil, where politicians of all stripes and top business leaders face charges, many fear a similar purge will not follow in Argentina because many judges are politically motivated and not fully independent.
So far, many are disappointed with the results of Mr Macri’s pledges to undertake thorough judicial reform. However, analysts argue that this is unlikely to happen until after legislative elections next year.
In the latest legal setback for one of Latin America’s most charismatic leaders, who styled herself on the Argentine heroine Evita Perón, Ms Fernandez will be tried for allegedly steering public contracts to Mr Báez. The millionaire businessman has been under investigation since 2013 as the frontman for Ms Fernández and her late husband and predecessor, Néstor Kirchner, in an elaborate money laundering scheme. This involved luxury hotels in Patagonian resorts that news reports claim are usually empty.
Elisa Carrió, an important figure in Mr Macri’s coalition and an outspoken crusader against corruption, assured the Financial Times earlier this year that Ms Fernández would “end up in prison” since she was involved in “almost all the lawsuits” connected to the previous government.