Political skirmishes hamper Petrobras’ efforts to escape scandal

09 April 2019, Week 14, Issue 758

State-run Petrobras’ efforts to close the door on its long-running corruption scandal, which has plagued the company since 2014, ran aground last week.

Petrobras announced on January 30 that it had paid US$682.6 million in fines as part of a deal reached with Brazilian federal prosecutors. Half of the money, Petrobras said, would go to a fund that “will invest in projects, initiatives and institutional development of suitable entities that reinforce the culture of respect for legality and democratic values.”

Federal prosecutors running the Petrobras investigation, called Operation Car Wash, said an independent foundation would manage the endowment fund. The rest of the money was to be paid to domestic investors who had also lost money.

The payment represented 80% of the amount agreed in penalties with the US Department of Justice and Securities & Exchange Commission (SEC) in September 2018 to resolve the US investigations into violations of the Foreign Corrupt Practices Act.

Three months later, however, and it seems to have all gone wrong, with the Attorney General’s office recommending last week that the deal be annulled. The move is a sign of how difficult it has proved for the Brazilian state-run oil company to leave its difficult past behind and how difficult it is, at times, for Brazilian business in general to move forward.

Complexities

“It shows you how big the corruption scheme was,” a senior analyst at not-for-profit Transparency International, Fabiano Angelico, told NewBase Intelligence (NBI). “A lot has been resolved, but there is still a lot to do.”

Some suspicious, graft-weary Brazilians have wondered if the prosecutors are really going to hand over the money. Leftists who opposed the graft probe, because it led to former president Luiz Inacio Lula da Silva being jailed, have been enraged. Some politicians and jurists argued this could lead to a “parallel state”, questioning why a private fund would control the money.

In the Folha de S.Paulo newspaper, columnist Elio Gaspari wrote that prosecutors had “overestimated their strength and extrapolated their work. They overestimated their powers putting under their jurisdiction money that should go to the Treasury”.

As criticisms raged and questions were asked in Congress, prosecutor general Raquel Dodge raised questions at the Supreme Court. Days later Supreme Court Judge Alexander de Moraes suspended the deal, which led to the Attorney General’s recommendation last week. And now nobody knows what to do.

Angelico said: “Unfortunately, the discussion was marked by the dispute between Car Wash prosecutors and some of their opponents. There were political issues. It was a very poor discussion.”

Keeping the money

In a 34-page document delivered to the Supreme Court, the Car Wash prosecutors said in general just 3% of fines agreed with foreign authorities are returned to the country of origin.

They added that they were committed – along with the Attorney General’s office, Comptroller General and Federal Court of Accounts – to look for the “best alternative for these resources in Brazil”, with the objective of “avoiding any risk that the money needs to go back to the US.”

The problem, Angelico said, is that this could still happen.

Petrobras should have created its own project, as Siemens did with its Siemens Integrity Initiative – which put more than US$100 million into organisations fighting corruption – after the company struck a deal with the World Bank to resolve its own problems in 2009. Instead, Petrobras left it to the prosecutors.

“It is not that in theory it can’t come back to federal government, in theory it can,” Angelico said. “But in this case, when you are dealing with a federal, state company and a penalty for this state company it does not seem reasonable that the money goes back to the controller.”

Edited by

Andrew Kemp

Editor

Any questions? Please get in touch