Lava Jato: The scandal that swallowed a continent

Federal police in the Odebrecht corporation's headquarters during a Lava Jato sting operation. Source: Agencia Brasil
Federal police in the Odebrecht corporation's headquarters during a Lava Jato sting operation. Source: Agencia Brasil

It is the single biggest corruption scandal that has ever come to light in Latin America, and possibly anywhere in modern times, bringing down presidents and captains of industry alike.

From Brazil, its many tentacles stretched across the world, engulfing governments and societies in bribery, graft and political influence without discrimination for the left or the right.

The revelations of Lava Jato — “Operation Car Wash,” so named for the initial sting operation that ultimately revealed the scope of the corruption scandal — went on to plunge Brazil into an ongoing wave of turmoil that has since swept like a tsunami across the political landscapes of at least a dozen countries.

This includes Ecuador, where a vice-president was jailed; Colombia, where officials from both the Uribe and Santos governments received millions of dollars in bribes; plus Guatemala, Panama, Dominican Republic and wherever else a host of Brazilian multinationals and its cohorts have operated.

Brazil: Setting the stage

In each case these giant corporations — most notoriously the Odebrecht construction firm — spent hundreds of millions of dollars on bribes and influence peddling to procure billions of dollars in inflated contracts for public-works projects.

A December 4, 2016, protest in Rio de Janeiro in support of the Lava Jato investigations. (Source: Agencia Brasil/Wikimedia Commons)

These projects were often never completed, but came with great social, environmental and economic costs.

From 2000–2016 at least 16 corporations cooperated with each other to rig bids for lucrative contracts, particularly with Petrobras, Brazil’s state-owned oil company and the largest public company in Latin America.

An independent judiciary that owed its existence to then-President Dilma Rousseff began to throw corporate executives in jail — they were denied bail, but plea bargaining led to further revelations about the mechanisms of corruption.

The Worker’s Party government under Lula da Silva and Rousseff became a particular target of the investigation — to the glee of opposition leaders, until they started to go to jail as well.

The prosecutors and policemen who locked up the Brazilian oligarchy became folk heroes of sorts — and the investigations continue.

United States: Breaking it wide open

By 2016, Lava Jato had its day in court — in the United States, where illicit profits stashed in American banks had attracted the attention of the U.S Treasury and Justice departments.

In December 2016, the name Odebrecht became synonymous with the international reach of Lava Jato, as a district court in Brooklyn fined the company $788 million and named 11 additional countries where a scheme specific to the Odebrecht construction firm was in operation.

Court documents identified Odebrecht’s Structured Operations Division as the heart of the rot, managing a vast network of shell companies that were set up by Panamanian law firm Mossack Fonseca (of Panama Papers infamy) through banks in offshore havens such as Antigua and Barbuda.

The result was a mechanism for graft and corruption that enabled Odebrecht to influence and reward politicians internationally, paying vast sums of money in outright bribes, gifting luxury items and providing other favors.

The secrecy and Byzantine complexity of Odebrecht’s scheme was designed to thwart the strict anti-money-laundering laws of some countries, particularly those of the United States.

These details began to coming to light after the Odebrecht family, in return for lighter sentences, began cooperating with American investigators, and with politicians, legal personnel and journalists from countries where the construction firm operated.

Peru: Investigative journalism shines a light

In Brazil, the public breathlessly followed the journalists, who followed the actions of law enforcement and the independent judiciary.

Elsewhere, investigative journalists have had to lead the charge — and nowhere more impressively than in Peru.

Three major investigative journalism projects were launched from Peru: Convoca’s “Investiga Lava Jato,” in collaboration with 20 journalists from 10 other countries; IDL-Reportero’s six-country network; and the independent work of Ojo Publico.

With their in-depth local research and international collaborations, these projects turned up incriminating evidence that implicated every Peruvian president since the 1990s.

Of them, President Pedro Pablo Kucynski was forced to resign in 2018 for allegedly lying about receiving payments from Odebrecht in 2006,

Numerous other public figures were accused, with some tried and jailed.

The investigations also identified Odebrecht’s standard operational procedure — inflated bids from Brazilian companies for public works projects were approved, and the projects came in over cost, or were not completed, or did damage to the environment, or human rights were violated, or all of the above.

In total, according to an Ojo Publico investigation, the company spent almost US$2.5 billion on Peruvian politicians, gaining contracts on huge projects such as the Interoceanic Highway linking Peru’s Pacific Coast with the Brazilian Amazon — at enormous social and ecological costs.

In Peru, Odebrecht also invested aggressively in competing political parties on the left and the right, financing election campaigns, buying both politicians and their parties, and ensuring that whomever wins would deliver the right contracts.

Most recently, politician Keiko Fujimori, daughter of former President Alberto Fujimori, has been jailed, following years of investigations into the financial intricacies of her failed presidential campaign in 2011.

These financing schemes also revealed the fundamental power of check-wielding corporations over democratic political systems.

In Peru, this has produced a perception of a system that is rotten through and through.

Coming soon … Mexico

Brazilian Lava Jato prosecutors have recently noted the glaring absence of a Mexican investigation.

But that is soon to change.

Even before the dimensions of Lava Jato were known, in 2012, Santiago Nieto, an anti-corruption official in Mexico, called media attention to the relationship between Odebrecht and Mexico’s state-owned oil giant Pemex, which received huge illicit sums from the Brazilian corporation.

Nieto was sacked by the previous administration in 2017, but now he’s back and ready for a second go, poised to become Mexico’s new anti-corruption czar under the incoming presidency of Andres Manual Lopez Obrador, who was elected in large part on an anti-corruption platform.

At least one other Odebrecht corruption case has been brought to light by a member of Convoca.pe’s investigative-journalism project, involving an agroindustrial project in Michoacan state.

Dominican Republic: Doing some good?

Odebrecht’s activities in the Dominican Republic were as effective there as anywhere else the company operated.

This time, the scheme involved a power plant that was never completed, forcing the government to sell debt and scrap social programs to finish it.

Embraer, the global aerospace company, was also involved in the scandal. Their cost of doing business amounted to a $170 million fine, which legislators recently announced would be used revamp the country’s overcrowded penitentiaries.

Some 80 infrastructure projects will be launched to construct two new prisons and refurbish the many existing facilities.

Lemonade from lemons, some would say.

Prophetic words from The Guardian

Lava Jato has turned out to be a black hole that is engulfing the political and economic systems of entire countries.

Elimination of corruption is a noble goal, but the costs of doing so in endemically corrupt systems are also massive.

As corporations collapse, debts do not get paid, jobs disappear and economies shrink.

Political parties, meanwhile, use the chaos to gain power, often advancing agendas that have anything but the public interest in mind.

Brazil’s Lula, who is now in jail, did indeed engage in a corrupt system — but, his defenders say, he also created vast job growth by doing so, leaving many to ask whether the cure is worse than the disease.

So what happens when, in Brazil, the entire system is revealed to be rotten and thousands of politicians and wealthy businesspeople end up jailed?

A June 2017 article in The Guardian is, in retrospect, prophetic:

“Major companies and mainstream politicians have been utterly discredited. Voters struggle to find anyone to believe in. In the long term, many still hope Car Wash will ultimately make Brazil a fairer, more efficient nation, run by cleaner, law-abiding politicians. But there is also a risk that the operation will shake the country’s fragile democracy to the ground and clear the way for a rightwing evangelical theocracy or a return to rule by dictators. Whether or not this purge proves a cure for Brazil will depend not just on who falls, but on who follows.”

Today, Brazil is poised to elect Jair Bolsonaro, a political insider who has cast himself as an outsider, and an extreme right-wing evangelist calling for a return to the “law and order” times of Brazil’s brutal military dictatorship.

The scandal’s sprawl

Although Odebrecht has been the public face of the scandal, numerous other companies were involved in similar activities.

The Convoca network recently brought to light files from a failed 2008 Brazilian trial that fingers another Brazilian construction multinational, Camargo Correa, for Lava Jato-style corruption in the 1990s.

Camargo Correa operated like Odebrecht, but in 22 countries in the Americas, Africa and Asia.

And JBS S.A., the world’s largest meat-packing corporation, was also an essential player, with more than 1,000 politicians in its pocket, according to the The Guardian.

The sums of money that changed hands are massive — billions of dollars spent — but even so, what is known now is most likely only the tip of the iceberg.

Honduras, for example, has been investigating Odebrecht’s ties to a stalled hydroelectric project championed by former administrations, and they are not even one of the 12 countries named by the U.S. Justice Department in that initial court case in December 2016.

To what extent the true dimensions of Lava Jato will ever be known depends on the capacities of journalists and the willpower of truly independent and reform-minded governments.

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