Corruption In Brazil: The Big Oily

Petrobras president Maria das Gracas Silva FosterReutersPresident of Brazil’s Oil Company Petrobras Maria das Gracas Silva Foster attends a meeting of the supervision and control committee, discussing corruption allegations involving the purchase of a refinery in Pasadena, Texas, at the Lower House of Congress in Brasilia April 30, 2014.

Nearly as ominous as the economic cloud hovering over Dilma Rousseff is the scandal surrounding Petrobras, the state-controlled oil company. It nearly cost her re-election, and could yet spoil her second term as Brazil’s president.

The affair began in March, when federal police arrested Paulo Roberto Costa, Petrobras’s chief of refining from 2004 to 2012, in a money-laundering investigation.

Mr Costa, seeking leniency, confessed to far more than that. Construction companies that won contracts from his division diverted 3% of their value into slush funds for political parties, he said. Police identified 10 billion reais ($US3.7 billion) of suspicious payments, making the petrolão (the “big oily”) Brazil’s biggest corruption scandal.

In November police arrested two dozen executives from Brazil’s six largest construction firms and another former Petrobras bigwig; 30 people have been indicted. Most of the alleged bribe-takers belong to the Workers’ Party, which Ms Rouseff leads, or to her coalition allies.

There is no evidence that Ms Rousseff knew of the mischief, but much of it took place while she was energy minister and chairman of Petrobras during the presidency of Luiz Inácio Lula da Silva, her predecessor. A former manager claims to have alerted Petrobras’s current boss, Maria das Graças Foster, and other executives about the irregularities. The company denies that Ms Foster, a friend of the president, had any knowledge of them.

The scandal will produce damning headlines for months to come. Most of the 28 politicians named by Mr Costa enjoy parliamentary privilege; only the Supreme Court may try them. Shares in Petrobras have dropped by more than half since their peak in September (in part because of falling oil prices).

Minority shareholders are furious. On December 24th the city of Providence, Rhode Island, one of several aggrieved investors, filed a case in New York naming Ms Rousseff as a potential witness. The Securities and Exchange Commission is investigating whether Petrobras violated anti-corruption laws. Expect more storms in 2015.

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