A guilty plea in New York by a Brazilian engineering firm has far-reaching political and economic implications.
On 21 December, Brazil-based engineering and construction firm Odebrecht S.A. and its petrochemical-producing subsidiary, Braskem S.A., pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act in a federal court in New York. In pleading guilty, Odebrecht agreed to pay a fine of at least USD3.5 billion and announced it would not contest a fine of up to USD4.5 billion, and Braskem agreed to pay an additional fine of USD632 million, setting the stage for the court to impose what may be one of the largest criminal penalties ever assessed.
The same day, the Department of Justice issued two documents detailing the acts to which Odebrecht and its subsidiary were acknowledging guilt. The documents outline a major worldwide bribery network that has already led to a severe political crisis in Brazil and that increases political risk and instability in several other countries. Additionally, suspicions of corruption raised by the case have caused Brazil's Banco Nacional de Desenvolvimento Economico e Social (National Bank for Economic and Social Development, BNDES) to suspend over USD7 billion in loans meant to finance 25 major projects in nine countries. The completion of these projects has now been thrown into doubt, and construction on many of them has ground to a halt, with contractors going unpaid.
The Department of Justice documents do not provide complete information about the over 100 projects across 12 countries that Odebrecht and Braskem admit were tainted with bribery, nor do they name the recipients of any of the USD788 million in bribes that they admit they paid. Further, the leaders of the countries that are named in the documents have denied any wrongdoing.
However, a close reading of the documents allows an assessment of governments that are at risk of instability as well as major projects that may now be in doubt as a consequence of the revelations. What follows is an analysis of the corrupt acts to which Odebrecht and Braskem have pleaded guilty and the potential impacts the case has in several countries.
Over the past decade, Odebrecht paid about USD50 million in bribes to high-ranking Angolan government officials and an executive with a state-owned enterprise. President Jos' Eduardo dos Santos and the ruling Movimento Popular de Liberta''o de Angola (MPLA) party have been in power throughout the period.
Among the illegal payments to Angolan officials were USD8 million-worth of bribes paid to government officials in order to obtain an infrastructure tender in 2006, and another bribe of USD1.19 million paid to a high-ranking executive at an Angolan state-owned enterprise to obtain business. One witness in the Brazilian investigation of Odebrecht claimed that the company additionally contributed USD4.5million to the MPLA's 2012 general election bid.
It is unclear exactly which projects these bribes relate to, but Odebrecht has been responsible for a number of infrastructure and bio-fuel projects in Angola in the past decade. These include the building of the La'ca hydroelectric dam on the Kwanza River as well as the construction of the Biocom Angola sugar factory.
Last year, President dos Santos announced that he would hand over power in 2017, and Angolans will head to the polls in August to elect the members of their national assembly. Having run Angola as a one-party state since independence three decades ago, the MPLA will almost certainly retain power in elections that are unlikely to be free or fair. The revelations are therefore unlikely to seriously destabilise Angolan politics, although some lower officials may be affected by them.
Antigua and Barbuda
In mid-2015, an Odebrecht employee attended a meeting with a consular official and intermediary to a high-level politician from Antigua and Barbuda. This meeting took place in Miami, Florida. At the meeting, the Odebrecht employee agreed to pay the high-level official USD4 million in exchange for which the Antiguan government would refrain from providing banking documents that would reveal bribery payments made by Odebrecht to international investigators.
The country has a tiny diplomatic corps and only two consulates in the world. The consul general to the United States, Gilbert Boustany, is based in Miami, and is the only Antiguan consul general in the Americas. Although he acknowledged that assuming he was involved in the scheme is analogous to 'put[ting] one and one together,' he denied any involvement in corruption. Nevertheless, Boustany and Prime Minister Gaston Browne both heavily promote land purchases and associated development projects in Antigua, and these could be threatened by destabilising investigations into corruption.
Between 2007 and 2014, Odebrecht paid USD35 million to intermediaries of government officials. Most of this period was during the presidency of Cristina Fern'ndez de Kirchner, who was in office from December 2007 to December 2015. Prior to her taking office, her late husband, N'stor Kirchner, was president.
A prosecutor has opened an investigation into the contracts won by Odebrecht during that time. These include contracts related to the building of water treatment plants and aqueducts for AySA, the state-owned water company, as well as those related to the building of natural gas pipelines and a continuous catalytic reforming plant for YPF, the state-owned energy firm. The company also won government contracts related to the conversion of a commuter train line to an underground system as well as a project to increase the capacity of the country's electric grid. It is further involved in the construction of the Chaco Aqueduct and the Las Palmas water treatment plant, financing to both of which was suspended by the BNDES.
Fern'ndez de Kirchner has already been charged with corruption in a case that is strikingly similar to the Odebrecht scandal, in which the owner of Austral Construcciones, a construction company that received public contracts, is accused by prosecutors of having laundered money and engaged in corruption. The owner, L'zaro B'ez, has close business and personal ties to the Kirchner family. Fern'ndez de Kirchner has denounced the case as an example of political persecution.
Although the legal case does not involve Odebrecht, a website dedicated to the publication of leaked documents from the government of Fern'ndez de Kirchner last year uploaded an Odebrecht document that authorizes a transfer of ARG80,526 ' then worth approximately USD10,000 ' to Negocios Inmobiliarios S.A., a business owned by the Kirchners. The authenticity of the document cannot be verified.
The Kirchners jointly governed Argentina for over 13 years, and 'Kirchnerism' has become the dominate strain of Peronism, the most important political movement in the country. Any revelation of major corruption by officials in the Kirchner governments would be a major blow against the Peronist party, officially known as the Partido Justicialista (Justicialist Party).
Starting at least as early as 2003 and continuing through 2016, Odebrecht paid USD349 million to political parties, government officials, and their intermediaries to attain contracts in Brazil. Both the government and Petr'leo Brasileiro S.A. (Petrobras) were heavily corrupted by these payments.
The scandal has already resulted in a number of arrests and threatens the presidency of Michel Temer, several of whose ministers have been forced to resign amidst corruption allegations. Because much of the presidential line of succession has either been accused by former Odebrecht employees of corruption or is under investigation for other corrupt acts, the country is in a serious political crisis that has touched nearly all of Brazil's major political parties.
Between 2009 and 2014, Odebrecht paid USD11 million to government officials. This period covers both the presidency of 'lvaro Uribe and current president Juan Manuel Santos. A government minister said that any contract that is determined to be tied to a bribe paid by Odebrecht will be cancelled, putting partners of the company at risk. Between 2009 and 2014, when the bribes were paid, Odebrecht won contracts related to improving the navigability of the Rio Magdalena as well as the construction of a highway between Chiquinquira and Puerto Boyac' in the Boyac' department.
Between 2001 and 2014, Odebrecht paid USD92 million to government officials and their intermediaries. This time period covers the tenure of current president Danilo Medina as well as that of his two predecessors, Leonel Fern'ndez and Hip'lito Mej'a.
The scandal is a major setback to President Medina, as he has in the past suffered from rumours of Odebrecht-related corruption. In 2013, a consortium led by Odebrecht and Italian firm Maire Tecnimont SpA won a contract to build a coal-fired power plant in Punta Catalina despite its bid being more than twice that of the China Gezhouba Group Company and despite Odebrecht being legally disqualified from the bidding process by an active investigation against it. Opposition figures explained the irregularity by citing rumours that Odebrecht was helping raise funds for Medina's re-election campaign. Notably, in the course of the investigations, Swiss prosecutors blocked the assets of Jo'o Santana, a Brazilian publicist who advised Medina on his re-election campaign. Santana was arrested and is awaiting trial in Brazil. Medina has denied allegations of corruption.
The Dominican justice ministry and the prosecutor general's office have started probes into the matter, and the large scale of the bribery in the country threatens to seriously destabilise the political system. Furthermore, construction of several roadworks, irrigation projects and the power plant at Punta Catalina have been suspended as a result of the revelations.
Between 2007 and 2016, Odebrecht paid USD33.5 million to government officials. This timeframe notably coincides almost exactly with current president Rafael Correa's tenure, as he assumed office on 15 January 2007. In response to the revelation, police raided Odebrecht's office in the port city of Guayaquil, and prosecutors announced an investigation into political corruption tied to the firm. In 2015, a consortium led by Odebrecht and Spain's Acciona S.A. won a contract related to construction on the Quito metro system, one of the most lucrative public tenders that Odebrecht has won. The scandal threatens to cause political instability as well as the revocation of such contracts.
From 2013 to 2015, Odebrecht paid USD18 million to government officials, including USD11.5 million that was given to companies so that it could be accessed by a high-ranking official. Interestingly, this timeframe occurs entirely during the presidency of Otto P'rez Molina, who is currently awaiting trial on unrelated corruption charges that he denies.
Of particular note is that the bribery payments went to private companies connected to a 'high-ranking' official, a term that is used sparingly by the Department of Justice. A Guatemalan newspaper recently published accusations that P'rez Molina has been using a network of shell companies to recover assets that had been seized from him, and the unrelated corruption scandal for which he was arrested included the complicity of politically connected private firms.
Corruption poses a serious threat to legitimate businesses in Guatemala, and the revelations threaten to spark a new round of investigations into firms operating in the country, including probes by the International Commission against Impunity in Guatemala, an international body set up by the United Nations that investigates political corruption. Further, financing of construction on the eastern branch of highway CA-2 has been suspended due to corruption concerns arising from the case.
While Honduras is not mentioned in the Department of Justice documents, it is also impacted by the case. The same investigation into political corruption that ensnarled Odebrecht also led to the arrest of employees of Queiroz Galv'o S.A., a separate Brazilian construction conglomerate. Because Queiroz Galv'o was working on the Honduran segment of the 'Corredor Log'stico', a highway designed to link ports on the Pacific coast of Central America with those on its Atlantic coast, the BNDES suspended a USD145 million loan meant to finance the project.
From 2010 to 2014, Odebrecht paid USD110.5 million to officials, including USD6 million to a high-ranking official of a state-owned company. This period covers not only the tenure of Enrique Pe'a Nieto, but also part of that of his predecessor, Felipe Calder'n.
Notably, several contracts were awarded to Odebrecht by state-owned hydrocarbons company Pemex. An example of such a contract is the one related to work on the Ramones gas pipeline, which was won by a consortium of firms led by Odebrecht at the same time that a high-level official of a state-owned enterprise was receiving bribes from the company. This raises the spectre of major corruption at Pemex, which is currently attempting to attract greater foreign investment to the Mexican energy sector. Such a scandal could lead to serious political instability in Mexico, and many contracts being called into question.
Between 2011 and 2014, Odebrecht paid about USD900,000 to government officials, including a high-ranking official who was bribed so that Odebrecht could obtain favourable terms on a construction project that the government had not been inclined to accept before the bribe was paid. It is unclear what project this would refer to, but Odebrecht has been involved in three large projects in Mozambique in that period.
The implications of the scandal come as a blow to the government of Mozambique, President Filipe Nyusi, and the governing Frente de Liberta''o de Mo'ambique (Frelimo) party, which are already embroiled in a massive debt scandal. Last year it was revealed that the previous government had increased its debt by USD1.35 billion in undisclosed loans and that it had misallocated funds from international lenders. With hostilities between Frelimo government forces and the Resist'ncia Nacional Mo'ambicana (Renamo) armed opposition party having intensified throughout 2016, and divisions within the Frelimo ranks becoming increasingly evident, the Odebrecht scandal could contribute to increasing political uncertainty, although it is unlikely to be a deciding factor.
From 2010 to 2014, Odebrecht paid more than USD59 million to officials and their intermediaries, and from 2009 to 2012, the company entered into an agreement to pay USD6 million to two close relatives of a high-level government official on the understanding that the payments would facilitate winning contracts. This timeframe corresponds exactly to the presidency of Ricardo Martinelli. Authorities recently charged dozens of officials from the Martinelli administration with crimes against public administration, a class of crimes that includes corruption, and announced that approximately 250 officials from his presidency are currently under investigation. Martinelli himself is also under indictment: he is currently living in the United States, and Panama recently requested that the U.S. government extradite him so that he can be made to face corruption and wiretapping charges. A legal representative of Martinelli has said that his client is facing political persecution from the new Panamanian government, and Martinelli himself has called the allegations against him 'crazy'.
Martinelli oversaw a number of major infrastructure projects contracted to Odebrecht, including the expansion of the Panama Canal. The scandal threatens to upend major contracts for extremely large projects, as Panama has already announced the immediate suspension of all contracts with Odebrecht and has said it will take action to prevent the company from obtaining any future contracts for public works. The case may also devastate Martinelli's Cambio Democr'tico ('Democratic Change') party, a conservative, business-friendly party that is the second largest in the nation's congress.
From 2005 to 2014, Odebrecht paid USD29 million to government officials. This timeframe includes the tenures of three presidents, Alejandro Toledo, Alan Garc'a, and Ollanta Humala. Brazilian investigators previously alerted Peruvian authorities to an internal Odebrecht document they uncovered that detailed suspicious payments to Peru for what the Odebrecht document called 'Project O.H.' While the meaning of this name cannot be confirmed, O.H. are the initials of then-president Ollanta Humala. Toledo, Garc'a, and Humala have all denied any participation in corruption.
Further, current president Pedro Pablo Kuczynski was the minister of economy and finance from 2004 to 2005 and the prime minister from 2005 to 2006, creating a potential for his reputation to be damaged as well. Kuczynski said he never received any illicit payment and he called for investigations into Odebrecht's activities in Peru.
Notably, in 2005, Odebrecht agreed to begin off-the-books payments to companies owned by an intermediary of a high-level government official. Between 2005 and 2008, USD20 million was paid to these companies. Additionally, in 2008, Odebrecht paid USD1.4 million directly to a high-level official in order to secure a contract related to a public transportation project. The only contract won in Peru by Odebrecht that year was related to the construction of Lima's commuter rail project, the building of which was a major campaign promise by Alan Garc'a, the president at the time.
In 2014, during Humala's presidency, Odebrecht won a USD6.5 billion contract to work on the Gasoducto Sur Peruano, a planned natural gas pipeline, after the only other bidder was disqualified on the day of the auction. The project may be in jeopardy as a result of the investigations, and the degree to which corruption spread through several administrations is politically destabilising. The Peruvian government has said it will ban Odebrecht from future public tenders, and it has asked Odebrecht for an up-front payment of an undisclosed but 'substantial' amount in order to begin plea bargain negotiations with the company.
From 2006 to 2015, Odebrecht paid USD98 million to government officials and their intermediaries. This time period covers the presidency of current president Nicol's Maduro as well as his predecessor and mentor, Hugo Ch'vez.
Among the bribes paid were USD39 million that was given to an intermediary of an official on the understanding that it would facilitate awarding of favourable service agreements, amendments, and contracts by a state-owned and state-controlled enterprise. Notably, at the same time Odebrecht was paying bribes related to this state-owned enterprise, state-owned Petr'leos de Venezuela S.A. (PDVSA) and Odebrecht agreed to form a joint venture to carry out oil production in the state of Zulia.
Venezuela is already undergoing a major political and economic crisis, and the government could be even further destabilised by the revelations. Additionally, the legality of major PDVSA projects and ventures may be called into question, and the BNDES has suspended funding of several large-scale projects, including the construction of the Sider'rgica Nacional steel mill, the Astialba shipyard, several lines of the Caracas metro system, and an expansion of the Los Teques metro system. The loans to Venezuela that the BNDES has frozen total over USD3.15 billion, and the cash-strapped country is unlikely to be able to secure replacement funding.
Odebrecht used entities in the British overseas territories, which are under the jurisdiction of the United Kingdom, to commit bribery. Specifically, Golac Projects and Construction Corporation and Smith & Nash Engineering Company, two firms based in the British Virgin Islands, were used as shell companies by Odebrecht, which transferred bribery funds to and from the bank accounts of these firms to conceal their true origin.
The revelation of these facts makes it more likely that the corporate and banking practices in the British overseas territories will come under increased scrutiny.
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