Financial Times, May 15, 2018
Sérgio Moro dismisses suggestions corruption inquiry could clear way for authoritarians
Joe Leahy and Andres Schipani
Democracy in Brazil is safe despite a sweeping corruption investigation that has devastated the major political parties in Latin America’s largest country, the judge leading the probe said.
Federal judge Sérgio Moro, who is heading the “Car Wash” probe that last month jailed the country’s most popular politician, former leftist president Luiz Inácio Lula da Silva, dismissed suggestions it has created a political vacuum that could bring authoritarians to power in elections in October.
“Someone authoritarian taking power, or someone with authoritarian intentions who is not barred by our institutions, I don’t see that happening in Brazil,” Judge Moro told the Financial Times in an interview at his court in the southern city of Curitiba.
Car Wash, which has probed bribery at state-owned oil company Petrobras, has been widely praised for ending impunity for the rich and powerful in Brazil. But the collateral damage from the investigation has been to discredit the established centrist political classes who have led Brazil for the past 30 years and to boost the chances of victory in elections in October of far-right politician, Jair Bolsonaro, analysts say.
A former army captain and admirer of Brazil’s brutal former military dictatorship, Mr Bolsonaro advocates cracking down on crime by arming the population and wants to restore “family values”. His opponents criticise him for making disparaging statements about women, gays and black minority communities.
Mr Lula da Silva, who is popular among the poor for his social welfare programmes during his eight years in power ending in 2010, has double the voter intentions of Mr Bolsonaro with 31 per cent in a Datafolha poll in April. But his jailing has left Mr Bolsonaro in the lead in polls, with environmentalist Marina Silva close behind.
But Judge Moro said fears that Car Wash was endangering democracy were misplaced, with the investigation in fact strengthening Brazil’s institutions.
“There is sometimes a slightly imperfect picture of Brazil outside the country that democracy is at risk — no, that threat does not exist,” he said. “At least in my evaluation, the institutions are showing themselves to be firm [but] with occasional possibilities of frustration, of retrogression. But it’s something that is occurring within the democratic regime.”
Often compared with Italy’s Mani Pulite or “Clean Hands” investigation in the 1990s, which destroyed that country’s established political order, the Car Wash investigation has changed Brazilian politics.
According to the public prosecutors office, 107 people have been condemned to a total of nearly 1,635 years in prison. But like Mani Pulite, which prepared the ground for the rise of arch-populist Silvio Berlusconi, there are fears Car Wash has left a country sick of corruption and crime and reeling from its worst recession in history more open to populism.
But Judge Moro said there were many differences between the two investigations. For one, Car Wash had not swept the political scene clean — many of those being investigated in the probe were planning to run in the October elections. Most of the cases against politicians are still stuck in the slow-moving supreme court, which under the constitution has jurisdiction over sitting congressmen.
“I don’t see in the Brazilian scenario anyone with the profile of Berlusconi who could assume power in the same way . . . at least there doesn’t exist any candidate who is a proprietor of the means of communications,” Judge Moro said, referring to Mr Berlusconi’s control of Italy’s media.
Brazil’s Car Wash scandal puts pressure on companies to obey clean up rules
Andres Schipani
As Brazil’s investigation into its Car Wash (Lava Jato) corruption scandal enters its fifth year, Eduardo Staino, the head of compliance at Andrade Gutierrez, one of the country’s largest construction companies, recalls how the scandal took a toll on him.
“I am not going to say Lava Jato is the only reason for my marriage’s failure,” says Mr Staino, who divorced last year. “[But] I had my head in the job,” he adds, referring to the work hours and stress that he attributes to the scandal.
The continuing criminal investigation into bribery at Petrobras, the state-controlled oil producer, which came to light in 2014, has implicated a sizeable part of Brazil’s business and political establishment. Following the arrest and jailing of some Andrade Gutierrez executives and the imposition of a R$1bn ($290m) fine on the company, Mr Staino was put in charge of strengthening its compliance rules.
In common with managers in a similar position at other companies caught in the Car Wash deluge, much was left to him to protect the organisation from further legal exposure and to repair a sullied reputation. “We cannot make such a mistake again,” says Mr Staino. “We can see clearly today that if we do something wrong again we are finished.”
Such efforts as Mr Staino’s may, in the long term, help clean up the image of Brazil’s politics and business. In the meantime, the probe into graft at Petrobras, which revealed that a considerable number of companies received public contracts in exchange for bribes, has fuelled a regulatory compliance boom in Brazil.
As a result, companies have been compelled to develop codes of conduct and ethics. Such procedures as hotlines for complaints to limit opportunities for illicit payments have also become a feature of the business landscape.
The basis of a stronger legal framework came in the form of Brazil’s Clean Companies Act, in force from 2014. This has forced many companies to take compliance more seriously, not least because those found guilty of graft face potential fines of up to 20 per cent of their previous year’s gross income.
This was followed by a 2016 law that set governance and compliance rules for Brazil’s state companies, or those in which the state has a controlling interest such as Petrobras. Government ministers and members of political parties are banned from being appointed to such companies’ boards of directors.
Lava Jato has turned corruption into a “huge worry for everyone”, says Marcello Hallake, partner at Jones Day, international lawyers. In Brazil, compliance officers, heads of compliance and legal aides for compliance, he adds, are “much in demand these days”.
Mr Staino notes that it is not easy to develop and oversee compliance schemes. “This is not something you learn at school,” he says, and is “super challenging and complex”. A good compliance programme “is not something you can simply buy at a supermarket”.
At Andrade Gutierrez, robots have been brought in to help. Before the company makes a payment to a supplier, Mr Staino explains, a software robot can go through a database to check what links that supplier might have to politicians.
Where once Brazilian companies boasted about profits, now they may be as likely to emphasise how they stick to compliance rules. Fábio Januário, chief executive of construction company Odebrecht, which found itself very much part of the Lava Jato drama, says: “The company is going through a profound moment of transformation, perhaps like no other.”
A 2018 study by Berlin-based Transparency International, a non-governmental organisation, suggests a trend towards anti-corruption compliance and ethics in Brazil.
The 110 companies assessed on the strength and transparency of their anti-corruption programmes scored an average 65 out of 100, compared with 55 two years ago.
Katja Bechtel, Transparency International’s head of business integrity, warns that it is too early to say if “Brazil’s compliance hype” is part of a serious commitment to change things. “Cultural change does not happen overnight, but needs continuous efforts,” she adds.
Adopting anti-corruption and ethics schemes is a necessary but not sufficient measure, suggests Wagner Giovanini, former compliance chief for Latin America for German conglomerate Siemens and now a director of São Paulo-based consultancy Compliance Total.
“The vast majority” of companies in Brazil, says Mr Giovanini, have not yet realised the benefits to their business of having “a well-established compliance system”. Having a complaints hotline as part of a compliance scheme “is not enough to make things right”, he adds.
Brazil’s war on graft replaces costly gifts as the new soft power
John Paul Rathbone
There are few better symbols of Brazil’s influence in Latin America — what it was, is and may become — than Lima’s 37m-high statue of Christ the Redeemer.
Seven years ago, Brazilian construction company Odebrecht donated $800,000 to install the Peruvian version of Rio de Janeiro’s famed statue. Hewn from white stone, and with outstretched arms, it marked a high point of Brazil’s regional influence, global ambition and colour-blind approach to international relations.
This married Brazil’s “soft power” of soccer and samba with hard infrastructure funded by cheap loans from BNDES, the development bank and financial handmaid of Brazilian foreign policy. Diplomatically, this was backed up by Unasur, the union of South American nations that sought to isolate Mexico to the north, sidestep the US and unite South America under Brazilian leadership. Books with titles such as Brazil on the Rise, Brazil as an Economic Superpower and Brazil is the new America proliferated. Brazil, traditionally so inward looking, seemed to bestride the region.
Today, the statue, officially called the “Christ of the Pacific”, is known locally as the “Christ of Theft”. Odebrecht is in disgrace for being at the centre of a web of corruption — the Lava Jato, or “Car Wash” scandal — that the US Department of Justice has called the world’s biggest bribery scheme. Unasur has all but dissolved. Brazil’s worst recession and arguably worst political crisis have cast further doubt on its leadership.
At home, the hidden cost of Brazil’s rainbow policy has also been revealed. Former president Luiz Inácio Lula da Silva is, controversially, in jail on corruption charges. BNDES is stuck with $4bn of bad loans. These include $800m owed by Venezuela and must, reportedly, be incorporated into the budget, implying that Brazilians will ultimately foot the bill.
A remarkable rise and a tragic fall. That said, it would be wrong to think that it marks a dimming of Brazilian influence — the country’s size and $2tn economy see to that. Nevertheless, Brazil’s projection of soft diplomacy may also be expanding. Many hope this remains true whoever is president next and whatever the state of the economy.
That may sound paradoxical, especially as no one knows who will lead the world’s fifth-largest country after October’s presidential vote.
It is already an election like no other. After more than 20 years of power alternating between the Brazilian Social Democracy party and the Workers’ party, it is outsiders who lead the polls. The next president could be Jair Bolsonaro, a far-right congressman who makes Donald Trump seem mild; Marina Silva, a leftist environmentalist with market-friendly policies; or somebody in-between. According to online betting markets PredictIt and Betfair, Geraldo Alckmin, former governor of São Paulo state, has a 35 per cent chance of winning.
Whoever becomes president must contend with the shifting coalitions of Brazil’s fragmented congress. At present, it contains more than two dozen parties, with the largest controlling less than 12 per cent of the seats. That said, “winning the polls might prove to be a lot easier than actually governing the country”, suggests consultancy Stratfor, and against such a backdrop it is near impossible to anticipate what Brazilian foreign policy will be.
There are some constants amid the uncertainties. One of the most important is the constitutionally guaranteed independence of Brazil’s judiciary and prosecutors. These are the men and women who have pursued corruption probes, such as Lava Jato, that have led to the conviction of multiple business leaders and politicians. The investigations have shown that Latin America is not defenceless in the face of corruption, something that Sérgio Moro, the probe’s leading judge, has also emphasised.
While not perfect, the investigations have set a benchmark for fighting corruption — the emerging world’s biggest scourge. The World Bank estimates $1tn of bribes are paid every year, while the World Economic Forum believes that the annual cost of corruption is equivalent to 5 per cent of global economic output, or $2.6tn.
No other Bric country comes close to Brazil’s response. It has been propelled by pressure from civil society and led by an independent judiciary, unlike politically motivated purges in China, Russia or Saudi Arabia. It has also shown up countries that fail to tackle corruption in similarly systematic ways. Many in the region, especially Mexico, rue that such investigations have not happened there.
The approach has also been matched by other measures, especially in politics. Corporate donations are no longer allowed in Brazilian electoral campaigns and politicians are being stripped of their legal immunity. In short, Brazil’s anti-corruption drive is likely to continue.
Such leadership by example, as Marcos Troyjo, a Brazilian academic at Columbia University, has said, is the “very essence of soft power”.
Exporting the rule of law, rather than corruption, is also timely. As Brazil steps back from financing regional infrastructure as part of its foreign policy, China — not known for its transparency — may be stepping in instead.
“A monument should be built to those valiant [Brazilian] judges!” Nobel-prize winning author Mario Vargas Llosa recently told the Financial Times.
