In 2010 a Swiss business school named Odebrecht as the world’s best family-run firm. Brazil’s construction giant, Odebrecht, built some of the most crucial infrastructure projects in Latin America. In the region Odebrecht represented development, jobs and with President Inacio Lula da Silva as its image and ambassador, the salience of Brazil as an emergent progressive power in the world. Today Odebrecht is a synonym for corruption and Lula the monument for the left die in sappointment.
The company is behind the biggest bribery scandal, the one shaking the continent’s political establishment. The bribery scandal has tarnished politicians and governments from Peru to
Colombia to Mexico. If only for its scope, it is a very complex almost unfathomable case.
Also it comes in the wake of another global corruption scandal, the Panama Papers, and although they are of a different nature, both cases have underlined the inability of national institutions to effectively prevent and punish corruption on its own and within national borders. This transnational multi-cases of corruption have gravely undermined public confidence in government institutions and fostered resentment and instability in the region.
In December 2016 Odebrecht settled with the United States, Brazil and Switzerland for up toUS$ 4.5 billion. It is the largest anticorruption settlement in history. Prosecutors said the company paid bribes on 100 projects in more than a dozen countries, from Mexico to Angola, in one case buying a local bank branch to hide the transactions, and even opening a division specifically dedicated to payoffs. This is what we know of its impact on individual countries:
MEXICO
Odebrecht acknowledged paying $ 10.5 million in bribes to “senior officials of a state-controlled [Mexican] company.” Representatives of the Brazilian construction company admitted in December to US judicial authorities that fines were paid between October 2013 and late 2014 to win contracts with a company that they did not reveal the name.
The Secretaría de la Función Pública, the office in charged with investigating allegations of government officials corruption, said it would investigate the case. Petróleos Mexicanos (Pemex, the state oil company) also made a public statement for reviewing three large contracts awarded to Odebrecht and for which it obtained $ 39 million in profits. Among them are the US$935mn contract awarded in 2014 to build the Los Ramones II Norte natural gas pipeline and the 2015 US$1.2bn contract for the development of a residuals utilization project for the Miguel Hidalgo refinery in Tula, Hidalgo state. At the time bribes were paid, Pemex was a key player in opening the Mexican energy sector. Brazilian magazine Veja reported that Hilberto Mascarenhas, another former high-level Odebrecht executive, testified that Emilio Lozoya, former CEO of Mexican state-owned company Petróleos Mexicanos had allegedly requested a US$5mn in return for benefits in Mexico. Mr. Lozoya was one of the main promoters of Mexico’s effort to open its oil industry to private investors for the first time in eight decades. He has denied the claims, but the case could undermine the credibility of the energy-sector overhaul, the most important economic initiative of President Enrique Peña Nieto.
An email between Roberto Prisco Ramos and Alexandro Alencar, both Odebrecht officials, detailed a meeting between then-Brazilian President Luiz Inácio Lula da Silva and former Mexican President Felipe Calderón as part of a business strategy with Pemex. However, even with Lula’s agency as de facto ambassador for the company no indication of bribery has been revealed so far.
Odebrecht’s division of structured operations – which the company allegedly used to make unrecorded illegal payments in return for lucrative public works contracts – reportedly made two wire transfers totaling US$ 383,000 related to the construction of PH Michoacán, a name used to refer to the Francisco J. Múgica dam that the company built in the Mexican state. The dam construction was plagued with irregularities related to cost overruns, delays and deficiencies in the infrastructure that was finally delivered. It was completed in 2013 – five years later than originally scheduled – and its final cost ended up being 2.91bn pesos (US$160mn), nearly double the original estimated price tag. Odebrecht currently holds a 30-year concession to manage potable water services in the state’s Veracruz and Medellín municipalities.
COLOMBIA
The Brazilian giant paid at least US$ 11 million in bribes to Colombian officers, and this has unleashed a political tsunami since it is suggested that president Juan Manuel Santos might be involved. The National Attorney’s office said that part of the money received as a bribe by an ex-senator arrested earlier this year “would have” ended in Santo’s presidential campaign in 2014. But there is no physical evidence yet. On January 14, Otto Bula a former congressman of the Liberal Party was arrested, accused of receiving US$ 4.6 million to favor Odebrecht in various projects in Colombia, including a road linking the country’s interior to the Magdalena River and Caribbean highway known as the Ruta del Sol. After the declaration of Bula, the government rallied to support Santos.
On January 12, was arrested Gabriel García, a former transportation minister during President Álvaro Uribe’s government in 2009 and 2010. He received US$ 6.5 million from Odebrecht to ensure a contract for one of the main roads in the country.
Also investigated is the possible involvement of Brazilian consultant Duda Mendoça, detained in the framework of Operation Lava Jato, in the campaign of Óscar Iván Zuluaga, the defeated rival of president Santos. According to the investigations, Odebrecht would have paid US$ 1.6 million to Mendoça to advise the campaign of Zuluaga, the presidential candidate of Álvaro Uribe.
BRAZIL
The corrupt plots affecting Brazil’s political and business class are intertwined and the Odebrecht case is no exception. According to the investigation into the open cause that affects Brazilian state oil company Petrobras, it is estimated that of the 20,000 million reais ($ 6,400 million) diverted, 7,000 ($ 2,250 million) went to Odebrecht.
The multinational is believed to have access to that source of money by paying up to 1 billion reais ($ 320 million) in bribes to politicians and other public agents, usually in the form of donations to electoral campaigns.
So far, the piece linked to Odebrecht required a court to validate the confession of up to 77 of its executives. This was done by the Supreme Court on January 30. The confession is under secrecy, but the Brazilian press has been filtering to the public some key names, among them the current president, Michel Temer and his predecessors Dilma Rousseff and Luiz Inacio Lula da Silva. There are also leaders of the Party of Brazilian Social Democracy (PSDB), from José Serra, the current foreign minister, to Geraldo Alckmin, governor of São Paulo and a favorite for the 2018 elections.
VENEZUELA
According to the details of the case opened by the US courts, Odebrecht paid at least $ 98 million to several Venezuelan government intermediaries to obtain confidential project information and to secure concessions.
However, Venezuela is the country where Odebrecht obtained the biggest and more profitable contracts and it is a black hole of information. Intelligence agents in Venezuela arrested two researchers from Transparency International and two Brazilian journalists while looking into an unfinished bridge over Lake Maracaibo, one of the company’s biggest projects.
Hugo Chávez, the former president of Venezuela, steered $11 billion toward Odebrecht for infrastructure projects, including public housing, that were vastly publicized but never concluded by his Socialist-inspired revolution. Odebrecht has left at least 23 multi-million dollar projects unfinished or stalled in Venezuela. According to Reuters the majority of projects also ended up costing several times their initial price. For example, one part of the Caracas hillside gondola system cost $262 million, five times that of a similar project in the Colombian city of Medellin, though the Venezuelan line is shorter and flatter. The construction of a bridge over Lake Maracaibo in the west of the country is only 17 percent completed but has cost three times the original budget, according to the documents and speeches. It remains unclear what proportion of the overpriced projects was the result of illegal transactions with government officials.
For example, Joao Santana a Brazilian strategist nicknamed the “maker of presidents” was paid $20 million under-the-table for the 2012 reelection campaign of the late Venezuelan leader Hugo Chavez, much of it handed over in cash by now President Nicolas Maduro, according to a plea bargain statement. Santana’s wife and partner, Monica Moura, detailed similar illegal, under-the-table payments totaling $53.9 million, mostly paid by Brazilian engineering companies, for their work abroad advising election campaigns in Panama, El Salvador and Angola. Moura told prosecutors that Maduro, then Chavez’s foreign minister, personally paid her $11 million in cash in his office in Caracas. Other $7 million was paid offshore to the couple by Odebrecht, and another $2 million by Brazilian builder Andrade Gutierrez. She said the Venezuelan government never paid a remaining $15 million for the 2012 campaign.
PERU
Perhaps the most spectacular case so far involves Alejandro Toledo, the president of Peru from 2001 to 2006, and a wanted man since a judge issued an arrest warrant last week on charges that he had accepted up to $35 million in bribes. Mr. Toledo is living in Paris and has denied any wrongdoing, on Twitter, he posted a statement attesting to his innocence: “I never fled from anything. When I left Peru, there were no Odebrecht charges against me, but they call me a ‘fugitive,’ ” he wrote, saying nothing of his location. The current Peruvian president, Pedro Pablo Kuczynski, has asked President Trump to extradite Mr. Toledo should he travel to the United States.
The Anti-Corruption Prosecutor has requested 18 months of preventive custody for Alejandro Toledo. However, he is not the only Peruvian ex-president tainted with Odebrecht’s corruption plot. Also, the legal situation of the former President Ollanta Humala is entangled after the revelation of the Brazilian newspaper Folha de Sao Paulo that the company had delivered three million dollars to its presidential campaign.
On January 31, the Peruvian authorities arrested Jorge Cuba, deputy communications minister during the second presidential term of Alan Garcia, Humala’s predecessor, on his arrival from the United States. The prosecution accuses Cuba of obtaining two million dollars for helping Odebrecht to keep bidding for some underground works.
Peru had to cancel the contract to build the South Gas Pipeline, whose investment of US$ 7 billion has been the largest in infrastructure in the history of this country. The bank punished the project lead by Odebrecht, denying the funding needed to complete it.
DOMINICAN REPUBLIC
Odebrecht money made it to at least a dozen prominent Dominican politicians, including a member of Danilo Medina’s cabinet, as well as lawmakers and state-owned company executives, accordingly with an investigation conducted by the Dominican attorney general’s office. So far, authorities there have charged 14 people with crimes ranging from accepting or distributing bribes to money laundering. They are awaiting trial.
Brazilian political consultant Joao Santana was instrumental to Odebrecht. He worked “for free” advising political candidates, in particular, those of the Dominican Liberation’s Party (PLD). Odebrecht supplied the money, and collected after the elections through ill-won state construction projects and inflating the costs by millions.
The PLD, the government party, had a long-standing relationship with Brazil’s Workers Party and Presidents Lula da Silva and Dilma Rousseff.
Odebrecht will pay in this country and over eight years $ 184 million of compensation for the bribes that the company admitted to have paid. A compensation that doubles the amount of recognized bribes.
ECUADOR
“Odebrecht, the corrupt and corrupting company, apparently did as it pleased during its entire time in Ecuador,” said new President Lenin Moreno. If it is a sudden realization or a cynic’s remark remains to be seen. President Moreno was the candidate of former President Rafael Correa and served in his cabinet.
Vice President, Jorge Glas, has been accused by a fugitive former oil minister of being “the ringleader” of the bribe network in the energy sector involving Odebrecht. Five people, including a relative of Glas, were arrested and several companies raided after Chief Prosecutor Carlos Baca met with Brazil’s attorney general.
Government officials received payments of 33.5 million between 2007 and 2016, but the Prosecutor has not named them. The company also recently pulled out of the US$1.4bn project to build the first line of Quito’s metro system.
ARGENTINA
Argentina’s anti-corruption office will seek to be included as a plaintiff in four investigations into the dealings of Odebrecht.
The probes include public works contracts for the project to expand the pipeline capacity of gas distributor TGS, a water treatment plant for AySA and the conversion of the Sarmiento railway into an underground line.
In Argentina, the idea that the Odebrecht case was a problem of Kirchnerism was well established. During the 13 years of Néstor and Cristina Kirchner’s rule, the Brazilian multinational made large businesses and, according to the judicial investigation, contributed $ 35 million to “intermediaries” in Buenos Aires that allowed them to access contracts for about $ 278 million.
However, the scandal has taken an unexpected turn and has touched Gustavo Arribas, a close friend of the current president, Mauricio Macri. The fourth investigation involves alleged bribes paid by Odebrecht to Arribas. He is the head of Argentina’s intelligence agency AFI. According to a January report in newspaper La Nación, an informant in Brazil admitted having transferred up to US$600,000 to Arribas.
PANAMA
Odebrecht is everywhere in Panama. The company was awarded important public works contracts during the current and the past two administrations. In 2010, won the contract to build the US$160mn Corredor Colón highway; the line No. 1 of Panama City’s Metro system; a tunnel and a wastewater treatment plant as part of the Panama Bay sanitation program. Currently, it is executing an extension of the Tocumen International Airport; an important highway; the second line of the metro system; the country’s third electric transmission line; several housing projects and is participating in the rehabilitation of historic buildings of the capital’s old quarter.
Once again publicist Joao Santana and his wife Mónica Moura Cunha are key to understand how the company operated. According to the case documents, following a request by Ricardo Martinelli, former Brazilian president Luiz Inácio “Lula” Da Silva coordinated with Odebrecht chairman Emílio Odebrecht to convince Santana to serve as a strategist in Jose Domingo Arias’ campaign. Afterward, Moura negotiated a US$21mn price tag to manage the campaign directly with Martinelli. Odebrecht paid US$16mn off the billed amount. However, Arias’ campaign turned out to be unsuccessful, as opposition candidate Juan Carlos Varela ended up winning the presidential election.
Former President Martinelli was detained in Miami under several charges of corruption and espionage in Panama, and Interpol has also issued arrest warrants against two of his children for allegedly being linked to the Odebrecht case.
Odebrecht has concluded a verbal agreement with the authorities of Panama to pay compensation of $ 59 million for the plot of bribes between 2010 and 2014.
THE LESSONS OF ODEBRECHT
Corruption by new Odebrecht standards can only be discovered and fought through international cooperation. Brazilian courts effectively rallied the USA and Switzerland thanks to a confession of Odebrecht executives within the framework of the US Foreign Corrupt Practices Act (FCPA) enacted in 1977.
Corruption, as this mammoth case has demonstrated, can no longer be understood as merely the iniquitous doings of individuals. Rather, it is “the operating system” of sophisticated networks that cross-sectoral and national boundaries in their drive to maximize returns for their members. Sarah Chayes, a fellow of the Carnegie Endowment of Peace, analyzed the case of Honduras as a prime example of such intertwined, or “integrated,” transnational kleptocratic networks. Apparently open or chaotic economies are in reality structured worldwide.
The FCPA, a 40 years old act was established as a defensive mechanism for the US by promoting American values around the world. Today one of the most outspoken critics of the FCPA occupy the White House and one may ask if he is likely to strengthen it or work for it to be downgraded. Trump says that its benefits are exaggerated, that it puts American companies at a competitive disadvantage, and that its costs are prohibitive. But the law pays itself the cost of enforcing it: in 2016, the US government collected more than $2.4 billion in penalties from some two dozen companies charged with FCPA violations.
Corruption is at the center of the dynamics that are driving climate change, persistent inequality, political repression and spiraling conflict in the Americas.
Corruption is contagious and by working in environments with weak institutions American companies could become agents of corruption themselves. Every year, the World Bank estimates businesses and individuals pay an estimated $1.5 trillion in bribes – the rough equivalent of two percent of global GDP—and ten times the value of overseas development assistance.
In the Americas, corruption is today the biggest source of instability threatening democracy. Global corruption is a fundamental obstacle to peace, prosperity, and human rights. It is fueling transnational criminal networks and violent extremism, and combating it should be elevated and prioritized across the US foreign policy efforts and the Inter-American system.