How a scandal that started in Brazil is now roiling other Latin American countries

BRASILIA — Some of the world’s most iconic companies cast themselves as emblems of their nation’s values — all-American Coca-Cola, for instance, or quintessentially Japanese Toyota. And for a while, that was also true of the Brazilian construction behemoth Odebrecht. In a good way.

Odebrecht was on a cloud during the first decade of the millennium, when Brazil won hosting rights to the 2014 World Cup and the 2016 Olympic Games, affirming its status as a rising star. With the charismatic President Luiz Inácio Lula da Silva touting Odebrecht abroad, the company secured lucrative foreign contracts to build highways, transportation systems, stadiums and power plants.

But Odebrecht’s other export was Brazilian-scale corruption, undermining countries it was supposed to be building up. The company is today at the core of Brazil’s biggest-ever graft scandal, a $2 billion kickback scheme in which nearly 100 executives and politicians have been imprisoned. 

The fallout is spreading across the region, creating a test for other countries tainted by Odebrecht’s dirty money. Prosecutors in Brazil, the United States and elsewhere have unearthed evidence that could implicate current and former presidents across the Americas in criminal conduct.

The case, known as “Car Wash,” has been a breakthrough for judicial independence in Brazil, garnering broad public support. Whether it will lead to cleanups or coverups elsewhere has become a barometer of good governance across Latin America. So far, there have been few arrests outside Brazil, but prosecutors in several countries in the region are pressing for more information from Brazilian investigators and former company executives.

“The scale of what Odebrecht did was unique, but it’s not like the Lula government or Odebrecht invented corruption in Latin America,” said Brazil expert Brian Winter, editor of the Americas Quarterly journal. “What was unique about Odebrecht was that they got caught.”

In December, Odebrecht agreed to pay $3.5 billion in global penalties, the largest foreign bribery settlement in the history of the U.S. Department of Justice, which, together with Swiss and Brazilian prosecutors, uncovered an $800 million web of graft spanning at least 12 countries in Latin America and Africa. 

The company had a secret branch, the “Structured Operations Division,” which managed payments through accounts in the British Virgin Islands and hidden servers in Switzerland, functioning “as a stand-alone bribe department,” prosecutors said.

Marcelo Odebrecht, the company’s former chief executive, has been sentenced to 19 years in prison, and so far, nearly 80 Odebrecht executives have accepted plea deals in exchange for more-lenient sentencing. 

Odebrecht remains in business, but it has shed nearly a third of its 180,000 employees since the scandal erupted, and its revenue has plunged 50 percent. It has signed plea agreements in the United States, Switzerland and the Dominican Republic and is negotiating deals with Peru, Colombia and Panama.

Although it may seem counterintuitive, Winter said, the countries most shaken by the scandal so far are the ones whose judiciaries are strong enough to act. In Peru, former president Alejandro Toledo is accused of taking more than $20 million in bribes from the company, and Peru’s government think he’s on the lam in United States. 

Just as fury in Brazil over the Car Wash scandal contributed to last year’s impeachment of Lula’s successor, Dilma Rousseff, Latin Americans elsewhere also appear fed up. Anti-corruption protesters marched in the streets last month in the Dominican Republic, where Odebrecht allegedly paid $92 million in bribes but where no charges have been filed. 

Colombia’s top prosecutor made an explosive allegation this month: that Odebrecht channeled $1 million in illegal donations into President Juan Manuel Santos’s 2012 reelection campaign. But the jailed ex-senator who allegedly made the claim denied it a week later.

In Panama, 17 business executives and former officials have been charged, and one former Odebrecht executive has said he paid bribes to the sons of former president Ricardo Martinelli. The sons deny it. Prosecutors investigating the Odebrecht case have also raided the offices of Mossack Fonseca, the law firm at the heart of the “Panama Papers” leak.

Then there are countries such as Venezuela, where Odebrecht has left bridges to nowhere rusting in the jungle. The late Hugo Chávez gave the company $11 billion in contracts, and Odebrecht paid an estimated $98 million in bribes, according to the Justice Department. Chávez’s successor, Nicolás Maduro, said the government will investigate, but the only arrests it has made so far are of journalists and activists trying to rake through the muck. 

And in Ecuador, where leftist Lula ally Rafael Correa is not running for reelection, his party’s loss in an upcoming runoff vote could open the books on $116 million worth of deals allegedly greased with $34 million in bribes.

One reason the sums of money are so staggering, according to analyst Michael Shifter, is that cutthroat political campaigns in the region have become more and more expensive. “Corruption is deeply entrenched, and it will take an enormous, sustained effort over a long period of time to cleanse that,” said Shifter, president of the Inter-American Dialogue, a think tank in Washington. 

“What’s happening in Brazil’s judiciary is very heartening,” he said, “but whether that can be sustained and produce change on a significant scale is still a big question.”

Odebrecht made a humble start in Brazil’s muggy northeast, where in 1944, founder Norberto Odebrecht launched a neighborhood construction firm with global ambitions. 

“He believed in a model based on trusting people,” said one former Odebrecht executive, who spoke on the condition of anonymity because of the sensitivity of the investigation. “He said, ‘If I choose them well, the sky’s the limit.’ ” 

Corruption has been endemic in Brazilian politics for centuries, but in the construction sector, it was all but written into the rules of the game. During a building boom under the military dictatorship of the 1970s, companies negotiated directly with generals, according to Pedro Campos, author of a book about the era. 

“They had unfettered access to the country’s military rulers,” Campos said. 

Soon a “pay to play” system developed, where bribes were a prerequisite for winning government contracts. By the time the country returned to democracy in 1985, the construction companies were skilled at greasing palms in Congress and financing campaigns to try to influence public policy, Campos said. “The company would decide that instead of a hospital, an airport should be built in a rural corner of the country. Instead of universal health care, a new stadium was needed.”

Odebrecht professionalized the exchange of money for influence and exported that model around the world, according to the Justice Department investigation. In an effort to reduce the impact of Brazil’s chronic booms and busts, the company expanded its operations abroad in 1979, first in Latin America, then to Angola in 1984, and eventually to the United States. All the while, the Odebrecht family remained in control but established a decentralized structure that gave regional leaders autonomy over their domain. 

This decentralized structure facilitated the proliferation of the corruption abroad and was particularly effective in places with weak institutions, according to former executives. 

Odebrecht’s golden era came with the rise of Lula, a former trade unionist, and his Brazilian Workers’ Party, as they presided over a commodity boom and a surge in government spending. The two giants developed a symbiotic relationship, often fed by corruption.

“The idea was to create twin dynasties — political power that would last for 50 to 100 years and an economic powerhouse that would become one of the greatest in the world,” said a second former Odebrecht executive, who also spoke on the condition of anonymity because so many of his former colleagues are under investigation.

Lula is also under indictment in the Car Wash probe but insists that he is innocent.

Under the Workers’ Party, the Brazilian government used Odebrecht as a tool of soft power to curry favor in countries with shared ideological leanings. Lula pushed Odebrecht to take on specific projects, such as building the Mariel port in Cuba, according to former executives. 

This close relationship to the government gave the company the illusion that it would always be protected.

“That was their strategic error,” the second former executive said. “They thought they were untouchable.”

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