2014-11-22 By Kenneth Maxwell
The burgeoning crisis at the state-controlled Brazilian oil giant Petrobras, the arrest of leading construction company executives, allegations of embezzlement for personal gain, kickbacks paid for over-invoiced contracts, and the accusation that this involved payoffs to leading Brazilian politicians, including members of congress, governors, ministers, as well as political parties, strikes at the heart of the nexus of Brazilian corruption.
It is a scandal staggering in its implications, and it presents the greatest challenges to the Brazilian political and economic and judicial elite since the end of military rule in the mid-1980’s.
Petrobras is a semi-public Brazilian multinational corporation with its Headquarters in Rio de Janeiro founded by President Getulio Vargas in 1953. It is the largest company by market capitalization and revenues in South America, and the Brazilian government controls directly or indirectly 64% of the company’s common shares.
It controls oil and energy assets in Brazil and in 18 countries in Africa, North America, South America, Europe, and in Asia.
It has been the most reliable blue chip on the Sao Paulo stock exchange (Bovesp).
It owns oil and gas production facilities and refineries, oil tankers, and is a major distributor of oil products.
Following the euphoria after major off shore oil discoveries Petrobras in 2010 conducted the largest share sale in history (US$ 72.8 billion).
Paulo Roberto Costa, who headed the refining division of Petrobras between 2004 and 2012, has accused over 40 politicians of involvement in a vast kickback scheme involving a 3% surcharge on the value of contracts (he has apparently named government ministers, three state governors, six senators, and dozens of members of congress). Together with convicted black-market money dealer Alberto Youssef, who “laundered” hundreds of millions of dollars, he is understood to have plea bargained with federal prosecutors in return for leniency.
Brazilian President Dilma Rousseff said in Australia, where she was attending the G-20 summit meeting, that “this may change the country for ever.”
She added it will “end impunity.” President Dilma Rousseff was recently re-elected in the tightest, most divisive, and most contentious Brazilian presidential contest in recent history.
She will be inaugurated for a second term on January 1st.
But from 2003 until 2010 she was the chairwoman of the board of directors of Petrobras.
She was also the former minister of energy (2002-2005). She was chief of staff for former president Lula da Silva. She is famous (notorious might be a better description) as a “micromanager.”
The CEO of Petrobras is Maria das Gracas Foster who worked with Dilma Rousseff at the ministry of energy. Joao Augusto Nardes, the president of the Brazilian Court of Accounts (TCU) has said that US$1.3 billion was skimmed of contracts.
It appears that major Brazilian contractors entered into a cartel (which including Brazilian multinationals, Odebrecht SA, Camargo Correia SA, Constructora OAS SA) with Petrobras employees, in order to drive up the price of the bids. 24 executives have been arrested as part of “Operation Car Wash” by the Brazilian Federal Police.
Maria das Gracas Forster has belatedly announced that Petrobras will establish a “compliance department” in order to “improve corporate governance,” and has contracted two law firms (one American and one Brazilian) to investigate the allegations of widespread embezzlement.
If this was just a Brazilian question the scandal might be contained. But it is not.
Petrobras is an international company responsible for a quarter of Brazil’s annual dollar-denominated bonds and also has American depository-receipts traded on the New York Stock Exchange. It is already being investigated by the US Securities and Exchange Commission (SEC) and the US Department of Justice (DoJ). The US Export-Import Bank in 2009 provided Petrobras with US$2 billion in loans and loan guarantees.
Among the many revelations made by former National Security Agency contractor, Edward Snowdon, was the fact that the US National Security Agency (NSA) was spying on Petrobras.
One of the most egregious cases of Petrobras overpaying was for the Pasadena Refinery in Texas. Already the Netherland’s based SBM, the world’s largest leaser of off-shore oil-production vessels, has settled a bribery case involving Brazil, Angola, and Equatorial Africa, with Dutch prosecutors for $240 million.
It is my great regret that I never met Paulo Francis, the New York based Brazilian journalist. The columnist Elio Gaspari was hoping to arrange a lunch for us to meet at Bravo Gianni, his favourite East Side Manhattan Italian restaurant (now sadly closed). But we never managed it.
Paulo Francis was pilloried for “speaking truth to power” on the television program “Manhattan Connection” when he claimed that “all the directors of Petrobras have accounts in Switzerland.”
The well-paid agents of Petrobras pursued Francis in a million dollar judicial action for his comments until his early death by heart attack in 1997.
Paulo Francis would undoubtedly have gained a quite satisfaction had he lived to see the denunciation by Paulo Roberto Costa.
But be in no doubt
The protective forces around Petrobras, the construction companies, and the politicians, are no less formidable today than they were in 1997.
Petrobras is a pillar of the Brazilian economy: nationalistic pride; cultural and academic sponsorships; 67,000 employees; billions of dollars in investment are involved; as well as the reputations of many members of the Brazilian elite.
It will take more than the courageous action of few Federal prosecutors to unravel this tangled web.