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Secret Unit Helped Brazilian Company Bribe Government Officials

At Latin America's biggest construction company, bribing government officials around the world became so common that a division was created devoted to tracking and facilitating kickbacks.

When wire transfers were inconvenient, workers in this division at Odebrecht of Brazil would organize deliveries of cash-stuffed suitcases to secret locations.

The scheme lasted more than two decades and involved bribes to government officials in a dozen countries across three continents, but eventually it came undone. On Wednesday, Odebrecht and its affiliated petrochemical firm, Braskem, pleaded guilty in Federal District Court in Brooklyn to charges that they paid hundreds of millions of dollars in bribes. Together the companies will pay at least $3.5 billion in penalties in a case brought by authorities in the United States, Brazil and Switzerland.

It is the biggest penalty for a violation of the Foreign Corrupt Practices Act of 1977, surpassing a $800 million penalty paid by Siemens in 2008 to authorities in the United States. American officials said on Wednesday that their investigation was continuing and that individuals could also be prosecuted.

The settlement followed a broad investigation in Brazil into corruption at Petrobras, the state-owned oil company, that plunged the country into political crisis and spurred protests that led to the ouster of President Dilma Rousseff. While not implicated — Ms. Rousseff was convicted by Brazil's senate in a separate matter — the plunge in popular support paved the way for her impeachment in August.

Odebrecht, which built the Miami International Airport and has operations in 27 countries including the United States, China and Venezuela, has been accused of colluding with Petrobras executives and other contractors as well as Braskem to take more than a billion dollars in kickbacks from the oil company. Under the terms of the agreement with prosecutors, Odebrecht has said it will pay $2.6 billion, while Braskem has agreed to pay $957 million.

The Brazilian investigation into Petrobras, called "Operation Carwash," a reference to a service station that laundered money, has shaken the political establishment to the core. The authorities there have secured 112 convictions of 83 people ensnared in the investigation, including executives of Odebrecht. The scandal has left Brazil's oil industry bereft of investment during the country's worst economic crisis in decades.

Odebrecht built a secret internal group it called the Division of Structured Operations, where workers facilitated bribery payments through offshore entities as far-reaching as Antigua, prosecutors said. Sometimes, cash was delivered in packages or suitcases. The division included a separate communication system to hide its activities. Payments were made to members of Brazil's congress, officials at Brazil's two leading political parties and government officials in 12 countries including Angola, Argentina, Colombia, Panama and Mozambique.

In all, the company benefited to the tune of $1.4 billion, federal prosecutors said on Wednesday.

In Angola, for example, Odebrecht paid $50 million to local government officials to secure public work contracts. These projects resulted in profits of $261.7 million, prosecutors said. In Argentina, the company made $35 million in corrupt payments to intermediaries related to three infrastructure projects, knowing that some funds would be given to government officials. Its profits related to these payments were $278 million, prosecutors said.

"Odebrecht and Braskem used a hidden but fully functioning Odebrecht business unit — a 'Department of Bribery,' so to speak — that systematically paid hundreds of millions of dollars to corrupt government officials in countries on three continents," said Sung-Hee Suh, the deputy assistant attorney general of the criminal division of the Justice Department.

"Such brazen wrongdoing calls for a strong response from law enforcement, and through a strong effort with our colleagues in Brazil and Switzerland, we have seen just that," Ms. Suh said.

Odebrecht published a statement on Dec. 1 apologizing for its "participation in illicit activities." William Burck, a lawyer who represents Odebrecht at Quinn Emanuel Urquhart & Sullivan, on Wednesday said: "Odebrecht has cooperated fully and will continue to do so. The company is glad to be turning the page and focusing on its future."

Odebrecht's power has reached across political ideologies in Brazil and beyond the country as it made an aggressive push in Latin America and Africa.

"Everyone is involved," said Gil Castello Branco, founder of Contas Abertas, a transparency watchdog in Brazil. Mr. Branco added that even in the huge "Operating Carwash" scheme that has touched so many business executives and politicians, Odebrecht's actions stand out.

"Odebrecht's behavior is without precedent" in Brazil, said Mr. Castello Branco. "I've never heard of anything even close."

Founded in 1944 by Norberto Odebrecht, the firm employs more than 250,000 people.

Marcelo Odebrecht, its former chief executive, was convicted of corruption and money laundering in March and sentenced to 19 years in prison. While president, Mr. Odebrecht fostered close ties with Ms. Rousseff and her mentor and predecessor, former president Luiz Inácio Lula da Silva.

As an indication of the favor it has been able to curry with the government, from 2007 to early 2015, more than 70 percent of the financing that Brazil's national development bank, BNDES, provided to Brazilian companies for infrastructure projects overseas went to Odebrecht, according to Contas Abertas. That was about 8.2 billion reais (or $2.5 billion based on current exchange rates) over that period of taxpayer subsidized financing, the group estimated.

Braskem, which is controlled by Odebrecht, also used Odebrecht's bribery division to pay $250 million to politicians, government officials, and an official at Petrobras, according to a civil order filed by the Securities and Exchange Commission on Wednesday. In exchange, officials intervened on behalf of the company on several occasions. In one instance, officials influenced Petrobras to ensure more favorable pricing on its supply of a crude oil byproduct that Braskem used for its petrochemical production. In exchange for this intervention, Braskem paid more than $20 million in bribes, the S.E.C. said.

Government officials were also bribed to pass a law allowing a tax credit for the purchase of that crude byproduct and other raw materials.

Braskem, in a filing on Wednesday with Brazil's securities regulator, acknowledged it had completed an agreement with authorities and had "concluded the last stage of the global settlement negotiations."

It also said that under the terms of the agreement, the company "will continue to cooperate with the competent authorities and improve its governance and anti-corruption compliance practices." It noted that it will be subject to external monitoring for about three years.

United States authorities said on Wednesday that Odebrecht had agreed to pay a $4.5 billion penalty but said it could only pay $2.6 billion. The final amount will be decided at a hearing on April 17.

Authorities have focused on Odebrecht's bribery scheme that took place over more than 20 years, but the company became most brazen as investigators in Brazil were drawing closer in 2014. Brazilian law enforcement had just announced their Operation Carwash investigation into Petrobras, and Odebrecht employees began to destroy documents, American prosecutors said.

In 2015, an Odebrecht employee arranged a meeting in Miami with an Antiguan consular official. At the meeting, the employee requested that a high-level official in Antigua refrain from sending international authorities banking documents that would show illicit payments were made on behalf of Odebrecht. The employee offered to pay $4 million for the favor, prosecutors said. In the end, 3 million euros in payments were transferred to the official.

[Source: By Alexandra Stevenson and Vinod Sreeharsha, The New York Times, 21Dec16]

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Corruption and Organized Crime
small logoThis document has been published on 26Dec16 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.