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Petrobras Scandal: Brazil’s Biggest Corruption Case |
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| Despite the global belief in its ethical credentials, Petrobras found itself at the center of the largest corruption scandal in Brazil’s history in 2014. The corruption at Petrobras caused widespread anger among Brazilians who were concerned that public funds were being used to enrich the political and economic elite. But corruption was not new to Brazilian society. For much of its modern history, the country had been plagued by severe corruption. There was deep-rooted inequlity in Brazil since colonial times, when the Portuguese colonists had grown rich by exploiting slaves. Though Brazil abolished slavery in 1888, inequality and corruption remained firmly entrenched in post-slavery Brazil. According to Brian Winter (Winter), vice president of the Americas Society and Council of the Americas AS/COA).. |
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| The Petrobras scandal, dubbed petrolao (the “big oily” ), was a massive conspiracy carried out from 2004 to 2012 to defraud Petrobras. The scandal was an enormous matrix of secretive schemes involving three sectors – politicians, businessmen, and Petrobras employees who had joined hands over the years to illicitly channel billions of dollars out of the company. The scandal involved the payment of bribes by an alleged cartel of engineering and construction firms to Petrobras executives to win overpriced contracts from the state-run oil firm.. |
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| The Petrobras scandal came to light in mid-2013, when the Brazilian police detained a money launderer, Alberto Youssef (Youssef), on charges of bribing Paulo Roberto Costa (Costa), former director of supply at Petrobras. Youssef revealed shocking information that led to the discovery of a massive kickback scheme involving many of the elite from Brazil’s public and private sectors. Costa confessed that construction companies had won contracts by channeling over US$3.7 billion into campaign slush funds. In March 2014, former Petrobras manager Pedro Barusco (Barusco) offered evidence of corruption that some of the Petrobras contracts had been inflated. Public prosecutors claimed that Costa had collected 1-5% bribes on flattened contracts, for which a club of contractors from six companies organized an illegal cartel to fix Petrobras bids.... |
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| Though the scandal first came to light in March 2014, its economic and political repercussions were being measured after a year. With the unfolding of the scandal, the country faced the challenges of rising unemployment, mounting inflation, and devaluation of the currency and the government budget deficit rose to 6.75% in 2014, more than double what it had been in 2013. Given the size and breadth of Petrobras’ reach in the country’s economy, Samuel Pessoa (Pessoa), a leading economist, projected that the company’s distress would plunge the faltering Brazilian economy into recession, the worst in 25 years... |
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| The Petrobras scandal tarnished the image of the country and was regarded as a national shame. After the breakout of the kickback scheme, Brazil was rocked by anti-government demonstrations and protests, with investigations being demanded into the corruption by politicians. It altered the political landscape, away from the preference of the leftist PT for state control of the economy. The scandal was so audacious and implicated such well-known political figures that it left Brazil in shock. It dramatically brought down the reputation of many of the nation’s top politicians and law makers, including the leaders of both chambers of Congress.... |
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| The Operation Car Wash investigation was criticized by 105 lawyers representing the defendants who accused the Judge and the prosecutors of violating their clients’ presumption of innocence and right to due process. They alleged that Moro had abused the power to imprison defendants temporarily in order to force them to sign plea agreements. Some observers were concerned about the investigation that relied too heavily on evidence derived from plea bargains. Critics pointed out that both Rousseff and Lula faced a smear campaign by the country’s right-wing opposition parties who alleged that the ruling party had lost control... |
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| Despite the major challenges that Petrobras was facing, some analysts felt that it was still not the end of the road for the company. Ben Van Beurden (Beurden), CEO of Royal Dutch Shell plc, said, “I have 100 percent confidence that Petrobras will come through this probably as a stronger company than it was before.” Observers expected that the investigation would help Brazil’s institutions emerge stronger and enable them to correct the wrongdoings, which might set the stage for a better investment and credit risk environment in the country in the long run. Since 85% of Brazil’s sovereign debt was held domestically, the country would be less affected by currency depreciation, they said.. |
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Exhibit I:Forbes’ List of the 10 Biggest Public Oil & Gas Companies in the World (2016)
Exhibit II: Operation Car Wash in Numbers
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