Brazil’s Petrobras probe widens after arrest of billionaire banker
Authorities in Brazil opened a new frontier in the investigation into a vast bribes-for-contracts scheme at Petrobras this week when they arrested one of the country’s richest men at his Rio de Janeiro home after a raid at the investment bank he founded.
“They insisted that he must have his own room and kept looking for it without any joy,” said a person who witnessed the scene.
Alongside Mr Esteves, prosecutors also arrested a sitting member of Brazil’s powerful senate — Delcídio Amaral, the leader in the upper house of the ruling Workers’ Party, or PT— for the first time in Brazil’s democratic history
The detention of the pair, who both deny any wrongdoing, brings the investigation for the first time directly into the world of Brazilian high finance and the upper echelons of the country’s political scene.
Until now, the Petrobras scandal has been mostly confined to the murky underworld of the oil and gas and construction industries, where former executives are alleged to have conspired with construction bosses, black market money dealers and politicians to extract an estimated R$6bn through fraudulent contracts.
The latest arrests could not have come at a worst time for left-leaning president Dilma Rousseff, who is struggling with twin economic and political crises as Latin America’s biggest country slips into what promises to be its worst recession since the 1930s.
Indeed, if the group of elite young prosecutors, police and judges behind the probe into the scandal known in Portuguese as Lava J ato, or Car Wash, have their way, it may be only just beginning.
“We are trying to change the system here in Brazil so that the rule will not be impunity but will be a functional system that produces punishment when it is due,” said Deltan Dallagnol, one of the prosecutors leading the investigation. “We could have Lava Jatos all over the country.”
Aside from Mr Dallagnol and the team of prosecutors based in the southern city of Curitiba, the investigations are being led by a group of federal police, including Márcio Adriano Anselmo, the officer who first uncovered the corruption at Petrobras, as well as tax department investigators and a federal court judge, Sérgio Moro.
“There are groups inside the federal police and the MPF [federal prosecutors’ office] that are behaving in a very consistent way to change Brazil,” said Oscar Vilhena Vieira, dean of FGV Direito SP, a law school.
In September and October, analysts speculated that the Supreme Court was moving to diminish the influence of Curitiba over the investigation by redistributing those parts of the investigation not directly related to Petrobras to other cities, such as Rio, Brasília and São Paulo. The fear was these jurisdictions would be less rigorous in prosecuting wrongdoing.
Judge Moro responded by intensifying action on Petrobras, leading to this week’s arrests not only of Mr Esteves and Mr Amaral, but also of José Carlos Bumlai, a cattle rancher said to be close to Mr Lula da Silva.
“After the Supreme Court in October ‘decentralised’ the Lava Jato probe by delimiting the scope of investigations within it to only Petrobras, federal district court judge Sérgio Moro refocused investigations on the company,” said Eurasia Group, in a research note.
The concern for investors in Brazil is that the probe is moving ever closer to the core of the PT, threatening its main powerbroker, Mr Lula da Silva, and by default, Ms Rousseff, analysts say.
Senator Amaral was also close to the former president, Eurasia Group said. The more Mr Lula da Silva felt threatened, the more he would rally the PT’s far left. This in turn would jeopardise efforts by Ms Rousseff to implement a fiscal austerity programme which, while unpopular with the left, is widely seen as required to stem a widening budget deficit and stabilise Brazil`s economy.
“It’s a very bad scenario,” said Silvio Campos Neto, an economist at Tendências, a consultancy. He said his firm was predicting a contraction in GDP growth of 3.2 per cent this year and 2 per cent in 2016.
“Judging by the magnitude of the [Petrobras] process and the scope of the repercussions, it is expected to run throughout 2016,” he said, allotting a 30 per cent chance to Ms Rousseff being impeached.
If Mr Dallagnol has his way, the ramifications of the investigation will last much longer than just a year. The prosecutor said he and his peers are planning to petition congress to make important changes in laws that will make it harder for corrupt white-collar workers to get away with their crimes.
These include closing a loophole that allows white collar criminals to keep appealing in cases until they expire under Brazil`s statute of limitations, as well as increasing penalties.
Said Mr Dallagnol: “A person who commits corruption, he studies the cost and the benefits and here in Brazil you have a lot of benefits and you have no costs.”
When federal police entered the São Paulo headquarters of billionaire financier André Esteves seeking documents relating to corruption at the state-owned oil company, they were surprised to learn he did not have his own private office: in keeping with the meritocratic culture of BTG Pactual, a darling of foreign investors, Mr Esteves sat at an ordinary desk in the middle of the trading floor.
“They insisted that he must have his own room and kept looking for it without any joy,” said a person who witnessed the scene.
Alongside Mr Esteves, prosecutors also arrested a sitting member of Brazil’s powerful senate — Delcídio Amaral, the leader in the upper house of the ruling Workers’ Party, or PT— for the first time in Brazil’s democratic history
The detention of the pair, who both deny any wrongdoing, brings the investigation for the first time directly into the world of Brazilian high finance and the upper echelons of the country’s political scene.
Until now, the Petrobras scandal has been mostly confined to the murky underworld of the oil and gas and construction industries, where former executives are alleged to have conspired with construction bosses, black market money dealers and politicians to extract an estimated R$6bn through fraudulent contracts.
The latest arrests could not have come at a worst time for left-leaning president Dilma Rousseff, who is struggling with twin economic and political crises as Latin America’s biggest country slips into what promises to be its worst recession since the 1930s.
For the president, who is also fighting an impeachment movement against her in congress, the arrests are a reminder that after 20 months the politically explosive investigation, which has already implicated nearly 50 mostly ruling coalition politicians, is far from over.
“We are trying to change the system here in Brazil so that the rule will not be impunity but will be a functional system that produces punishment when it is due,” said Deltan Dallagnol, one of the prosecutors leading the investigation. “We could have Lava Jatos all over the country.”
Those arrested include corporate grandees such as Marcelo Odebrecht, head of Brazil’s biggest construction group of the same name, in jail since June. Others include the treasurer of Ms Rousseff`s PT, João Vaccari Neto, and the former chief of staff of ex-president Luiz Inácio Lula da Silva, José Dirceu.
“There are groups inside the federal police and the MPF [federal prosecutors’ office] that are behaving in a very consistent way to change Brazil,” said Oscar Vilhena Vieira, dean of FGV Direito SP, a law school.
In September and October, analysts speculated that the Supreme Court was moving to diminish the influence of Curitiba over the investigation by redistributing those parts of the investigation not directly related to Petrobras to other cities, such as Rio, Brasília and São Paulo. The fear was these jurisdictions would be less rigorous in prosecuting wrongdoing.
Judge Moro responded by intensifying action on Petrobras, leading to this week’s arrests not only of Mr Esteves and Mr Amaral, but also of José Carlos Bumlai, a cattle rancher said to be close to Mr Lula da Silva.
“After the Supreme Court in October ‘decentralised’ the Lava Jato probe by delimiting the scope of investigations within it to only Petrobras, federal district court judge Sérgio Moro refocused investigations on the company,” said Eurasia Group, in a research note.
The concern for investors in Brazil is that the probe is moving ever closer to the core of the PT, threatening its main powerbroker, Mr Lula da Silva, and by default, Ms Rousseff, analysts say.
Senator Amaral was also close to the former president, Eurasia Group said. The more Mr Lula da Silva felt threatened, the more he would rally the PT’s far left. This in turn would jeopardise efforts by Ms Rousseff to implement a fiscal austerity programme which, while unpopular with the left, is widely seen as required to stem a widening budget deficit and stabilise Brazil`s economy.
“It’s a very bad scenario,” said Silvio Campos Neto, an economist at Tendências, a consultancy. He said his firm was predicting a contraction in GDP growth of 3.2 per cent this year and 2 per cent in 2016.
“Judging by the magnitude of the [Petrobras] process and the scope of the repercussions, it is expected to run throughout 2016,” he said, allotting a 30 per cent chance to Ms Rousseff being impeached.
If Mr Dallagnol has his way, the ramifications of the investigation will last much longer than just a year. The prosecutor said he and his peers are planning to petition congress to make important changes in laws that will make it harder for corrupt white-collar workers to get away with their crimes.
These include closing a loophole that allows white collar criminals to keep appealing in cases until they expire under Brazil`s statute of limitations, as well as increasing penalties.
Said Mr Dallagnol: “A person who commits corruption, he studies the cost and the benefits and here in Brazil you have a lot of benefits and you have no costs.”
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