Lava Jato Brazil

The mother of all corruption scandals

 

…was the title of the Manager Magazine with view to the operation „Lavo Jato“, or: car wash. The name Lava Jato refers to the biggest and best-known of all international corruption scandals and stems from money laundering investigations at a simple car wash that turned out to be an international bribery and money laundering network.

The investigations reached far into Brazil`s biggests oil and construction industries targetting the semi-public oil company Petrobras and the international construction tycoon Odebrecht. In total, over 800 million USD were used to bribe officials in Argentina, Ecuador, Colombia, Guatemala, Panama, Peru and Venezuela. What makes the operation Lava Jato unique, though, is not only its volume but the consequences for those involved.

While in the past, corrupt business men and politicians often went unpunished, Brazil`s judiciary takes Lava Jato seriously and has already convicted more than 100 perpetrators . The investigations reach the highest political positions: former president Lula da Silva is imprisoned, his successor Dilma Roussef has been impeached and her successor and current president Michel Temer, is currently charged with corruption, the formation of a criminal organization, the obstruction of justice as well as the violation of the campaign contribution law. Only his presidential immunity is keeping him from being prosecuted.

Even the scandal`s main figure, the construction giant Odebrecht, had to face severe sanctions: penalty payments of 2,6 billion USD were paid because of the bribery of foreign officials, e.g. millions of illegal campaign contributions

 

The root of all evil

…is systemic. Political parties depend on campaign contributions, so do private companies on public contracts. At the same time, the public administration system is inflated, inefficient, and highly bureaucratic wherefore bribes and illegal donations can save a lot of time and money. Additionally, there are certain expectations as to how proceedings can and should be accelerated.

 

„Roubam e ainda fazem“

…means that „they steal but also do something“ which describes the Brazilian attitude towards criminal politicians whose actions are being accepted as long the economic growth does not suffer. This explains why 35% of the popular vote is still in favor of Lula for the presidential elections in October, even though he has been sentenced to 12 years in jail for corruption. While enriching himself, his social reforms lifted many Brazilians out of poverty. It also explains why the political climate has shifted since Dilma Roussef was in power because corruption is less accepted in time of recession. The connection of the political parties in terms of corruption have become clear when a former Minister to Temer called him to recommend exonerating Roussef in order to put an end to Lava Jato.

 

The solution of the problem

…is, despite judicial improvements in fighting corruption, not yet visible. More corrupt officials and business men are being prosecuted, the volume of sanctions increases, and laws like the „Ficha Limpa“ (Clean Record Act) help to reduce the influence of corrupt politicians. Additionally, leniency programs which offer substantive reductions of sanctions in case of giving testimony (as has been the case for Marcelo Odebrecht) have helped to uncover corruption networks.

Meanwhile, the quality of the judicial revision is only as high as is politically allowed by the regulatory agencies, the Federal Audit Office and the Federal Police. However, these institutions are also infiltrated by corrupt officials that hinder adequate investigations. Therefore, the Brazilian Federal Prosecution is increasingly asking for international help – administrative and judicial assistance has been requested in 33 countries and more than 180 cases.

However, the chance of an official to be sentenced due to corruption is currently only 3% due to the high backlog of 55.000 cases at the Supreme Court. The lack of capacities results in melting only the ice caps of corruption without addressing the underlying problem systematically.

The situation is aggravated by attempts of political intervention, e.g. through the introduction of an amensty law which would grant thousands of suspects quase absolution.

 

The consequences

…of the scandal for the Latin American economy are immense: apart from increased project costs based on the apportioment of bribe money many infrastructural projects are being put on hold for investigation. This affects the building of tunnels, streets, railway Networks, and hydroelectric power plants, and thus, sites crucial to the economic growth of a country.

…for the cooperation between the EU or Germany and Latin America are the increased scrutiny for the fight against corruption, e.g. through the creation of well-equipped and trained judicial institutions, the premise of transparency criteria for bank lending as well as an increased focus on a company`s compliance procedures.