Brazil’s Corruption Fallout

Federal investigators in Brazil have uncovered corruption at the highest levels of the government and in the country’s largest corporations.

 

Backgrounder by Claire Felter, Council on Foreign Relations

July 13, 2017

 

Introduction

 

Corruption probes that began in 2014 have reached the highest levels of the Brazilian government and corporate elite, implicating President Michel Temer, former presidents, and dozens of cabinet officials and senators. Operacao Lava Jato (Operation Car Wash) and overlapping investigations have led to prison sentences for top executives and politicians, mass layoffs, and billions of dollars paid in fines.

 

The scandals have complicated efforts to revive the economy amid its largest downturn in more than a century. The country’s biggest corporations have faced numerous setbacks, and the fallout from the scandals is expected to reverberate through Brazil’s 2018 general election. Millions of Brazilians have demonstrated in favor of the investigations, and many hope that shedding light on the scandals will end the widespread corruption that has plagued their country.

 

What is Lava Jato?

 

Federal prosecutors led by Judge Sergio Moro launched Lava Jato in March 2014, after the Finance Ministry’s intelligence unit discovered unusual bank transactions involving the state-owned oil company Petrobras. They suspected that Petrobras was accepting bribes from firms, including the construction giant Odebrecht, in exchange for contracts.

 

According to the public prosecutor’s office, by July 2017 Lava Jato had resulted in accusations against almost three hundred people and more than 150 convictions for crimes including corruption, abuse of the international financial system, drug trafficking, and money laundering. Executives from both Petrobras and Odebrecht, including the latter’s former chief executive, Marcelo Odebrecht, were sentenced to jail time. Facing financial losses that stem in part from the probe, the two companies have laid off more than one hundred thousand employees.

 

In April 2017, Odebrecht was ordered to pay fines totaling $2.6 billion to authorities in Brazil, Switzerland, and the United States after admitting to paying officials in twelve countries approximately $788 million in bribes; the company may also reach plea deals with other Latin American countries in which it operated. More than a dozen other corporations, as well as foreign leaders including Colombian President Juan Manuel Santos and former Peruvian President Alejandro Toledo, have also been implicated in Lava Jato.

 

Another investigation, Operacao Carne Fraca (Operation Weak Flesh), was announced publicly in March 2017; it began as a result of Lava Jato and pursued allegations that employees of JBS and BRF, the world’s largest beef and poultry exporters, respectively, bribed food inspectors to approve the sale of spoiled products. In the following months, the European Union suspended its meat imports from Brazil, along with China, Egypt, Japan, Mexico, and the United States. (Some of the bans were lifted soon thereafter, but EU and U.S. restrictions remain in place.) JBS’s heads, brothers Joesley and Wesley Batista, made plea bargains with prosecutors and resigned from their positions in May; their testimonies spurred a probe into President Temer. JBS’s controlling shareholder agreed that month to pay a record $3.16 billion fine after its executives admitted to bribing 1,829 politicians a total of nearly $600 million...

 

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https://www.cfr.org/backgrounder/brazils-corruption-fallout