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The web of fraudulent schemes that transpired across Latin America with Odebrecht at the center has been particularly intriguing to our investigations team at Gryphon. In our line of work, we often find that cases of fraud or bribery are isolated to a firm, executive or a politician, but the Odebrecht case involves dozens of politicians, government ministers and corporations spread across 12 nations. It’s another reminder of when doing business in emerging and frontier markets, it’s a must to conduct in depth due diligence to identify operational, reputational or political risks associated with an investment or partnership.

 

odenbrecht 1 On June 25th, the International Consortium of Investigative Journalists (ICIJ) published a new report showing that Odebrecht’s bribery operation was even larger than previously disclosed. The ICIJ’s report indicates that the biggest Latin America conglomerate made more than $90 million in secret payments related to the construction of rapid-transit systems in Ecuador, Panama and Venezuela, a coal-fired power plant in the Dominican Republic and a gas pipeline in Peru, among others projects in the region.

 

ICIJ’s investigation was based on the analysis of 13,000 previously unseen documents leaked from a secret communication platform used by Odebrecht’s Structured Operations, a division established in 2006 essentially used to pay bribes in connection with public contracts. The documents indicate that in addition to politicians, Odebrecht paid off other government officials, political parties and bankers through a global network of shell companies, off-book transactions and offshore bank accounts. In some cases, the documents implicate company executives based in Miami and suggest that payments may have been channeled via the Odebrecht’s US subsidiary in Florida. As the Miami Herald noted “the Odebrecht leak has exposed how a multinational conglomerate can employ offshores to rig the game in its favor.”

 

In 2016, Odebrecht signed a plea deal with U.S., Brazilian and Swiss authorities, in which it admitted making corrupt payments and agreed to pay $2.6 billion in fines in exchange for immunity or reduced penalties for the company and its executives. Seventy-seven executives also signed plea deals with Brazilian law enforcement, offering information in exchange for reduced prison terms. No executives have been charged in the US and the company’s US subsidiary was not implicated in the DOJ probe, in a development considered “striking” by some observers.

 

Odebrecht was the largest of the engineering companies caught in the Lava Jato probe, which was launched in Brazil in 2014 as an investigation into money laundering. The probe quickly reached state-controlled oil company Petrobras, uncovering a vast web of political and corporate corruption. Dozens of companies acknowledged paying bribes to politicians and officials in exchange for contracts with Petrobras. An international taskforce began looking into bribery in 10 countries, including Argentina, Colombia, Ecuador, Peru and Venezuela.

 

 The Lava Jato taskforce brought a political tsunami to the region. By May 2019the investigation had criminally investigatedodenb 2 429 different individuals, issuing 244 convictions for 159 people. Under enormous pressure from public opinion, Brazilian president Dilma Rousseff was impeached. Her successor, Michel Temer, was briefly arrested in 2019, and former president Luiz Inácio Lula da Silva was imprisoned in 2018. Marcelo Odebrecht, Odebrecht’s former CEO, received a 20-year sentence that has since been cut in half. In Peru, former President Pedro Pablo Kuczynsk is in pre-trial detention, with prosecutors seeking a 20-year sentence for his predecessor Ollanta Humala. Alan Garcia committed suicide in early 2019, when confronted by the police. Bribery investigations continue throughout the region.

 

Recent repercussions

 

Since the release of the ICIJ report, the President of the Dominican Republic stock exchange, Gregorio Salcedo Llibre, and an Administrator at the Dominican state bank BanReserva, José Manuel Guzmán Ibarra, have resigned. In Salcedo’s case, the documents revealed Odebrecht payments totaling $2.4 million to Value Added Finance, a company he owns, and Optimum Advisors Corp., where he served as President. Value Added received a payment of $500,000 in 2014 associated with the Punta Catalina coal-fired power plant, a massive infrastructure project carried out by Odebrecht. Salcedo was part of an economic team assembled by the Dominican state utility that advised the committee awarding the Punta Catalina contract to Odebrecht. Further, the construction giant also made $1.9 million in payments to Optimum Advisors in connection with the power plant and a highway project. Guzmán Ibarra’s company, Grupo Sophus Lanx, in turn, received $100,000 from Odebrecht, also associated with the Punta Catalina project.

 

According to Colombia Reports, former Colombian Presidents Alvaro Uribe and Andres Pastrana were summoned by Congress to appear on July 23 and 24 before the House Accusations Committee to give testimony about former President Juan Manuel Santos’ alleged knowledge of illegal payments made to his 2014 campaign by Odebrecht. Santos’ campaign manager, Roberto Prieto, was sentenced to five years in prison in May because of the illegal campaign financing by Odebrecht. According to the US Department of Justice, Odebrecht spent $27 million on bribes between 2009 and 2014 in Colombia alone.

 

In Peru, following the revelations by ICIJ’s team, the country’s prosecutors announced that they would interrogate former superintendents of Odebrecht in the country, Jorge Barata and Ricardo Boleira; the former Vice President of the Brazilian construction company for Latin America and Angola, Luiz Mameri; as well as Fernando Migliaccio, one of the heads of the Department of Structured Operations, and the former President of the company, Marcelo Odebrecht, again in late July 2019. Former President Alejandro Toledo was arrested in California on July 16, accused of taking $20 million in illicit payments from Odebrecht between 2001 and 2006.

 

The future of Odebrecht and Lava Jato

 

The ICIJ’s story should be read in light of an ongoing series of articles being published by The Intercept Brasil and other news outlets based on a trove of leaked private messages exchanged by members of the Lava Jato taskforce and the members of the judiciary. Content published thus far have called into question the integrity of the legal proceedings, raising serious concerns related to improper collaboration between judge and prosecution, selectivity and partisanship in the investigations, and use by the prosecution of admittedly fragile evidence to build cases.

 

odenb 3Sergio Moro, the Judge at the forefront of the Lava Jato convictions, has since become Minister of Justice of the Bolsonaro government and faced calls for resignation. Message exchanges among prosecutors revealed early concerns among members of the Lava Jato taskforce that the Moro’s appointment as a Minister in the far-right government could undermine the probe’s reputation and the convictions he handled.  The long-term effects of these leaks the investigations conducted in the context of Lava Jato remain unclear. As Foreign Policy noted in June 2019, “Investigators must now face the question of whether they can still achieve their aims amid heightened public polarization and with a Supreme Federal Court increasingly divided over questions about the investigation’s judicial autonomy.”

 

In June 2019, Odebrecht filed for bankruptcy protection while it restructures over $25 billion in debt. Odebrecht’s debt restructuring plan is one of the largest ever seen in Brazil and could severely impact public banks holding part of the debt and deal another blow to Brazilian taxpayers and the economy in the region. Moreover, the question as to why the new evidence released by the ICIJ was not previously disclosed or addressed by law enforcement will not be easily answered as new revelations from various sources add more layers of complexity to the story. The “largest bribery case in history” is far from over. The full picture of Odebrecht’s bribery scheme has yet to be completed and ongoing investigations could implicate even more companies and individuals.

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