We Are Not Immune To This Monumental Petrobras Taint
Brazil is now officially another BRIC in the wall of shame.
Less than 10 years ago the BRIC nations were all the rage; the great emerging markets promising record profits, inviting investors, entrepreneurs, builders to the newest gold rush. But China’s growth is grinding down like a worn brake pad as its middle class asks for higher wages to buy endangered animal parts and its leaders are forced to embrace the demon of capitalism; Russia’s neo-Soviet rebirth has even the oligarchs feeling the squeeze; and Brazil’s largest company, a state-owned oil monster named Petrobras that at its height accounted for 10% of the nation’s GDP, has been embroiled in one of the biggest bid-rigging scandals in modern history, a multi-billion dollar cartel scheme that threatens to unseat the country’s first female president and destroy its powerful Workers’ Party.
It’s easy to look at the Petrobras scandal and shake our heads. Everybody knows those 3rd-world nations run on bribes and corruption and the only surprising thing is that anybody actually took them to task. Something like that could never happen to us, right? Right?
America Backs a Military Coup, Petrobras Becomes King and Odebrecht Goes Along For The Ride
This really all goes back to 1964, when a military dictatorship took power and adopted a policy to shut out most foreign contractors for government jobs (ironic since the U.S. military backed the armed coup, led by a guy literally named General Kruel, and was friendly with a communist dictatorship running Brasilia)(and yet we have issues with Cuba?). Among the many things this regime took over was Petrobras, a company founded by the government in 1953 and run as a monopoly until 1994. A couple families with the right friends basically built most of Brazil’s current infrastructure. Those companies became tight with the dictators, some of them even helping the government hunt down and torture dissidents. Arguably the most notable builder is Constructura Norberto Odebrecht Organization, a company that’s been cozying up to big politicos since 1944. A company whose first big jobs were building pipelines for Petrobras in the 50s and then its Rio de Janeiro headquarters in the 70s. In 1990 it was the first Brazilian firm to be awarded a US federal contract. Odebrecht Organization is now one of the world’s largest builders; and its recently-unseated CEO, Marcelo Odebrecht is as of this writing the biggest name to have been arrested as part of Operation Car Wash (Lava Jato). He likely won’t be the biggest when it’s all done. Dilma Roussef, the current president of Brazil, its former Minister of Energy and subsequently President Lula’s Chief of Staff, is creeping into the crosshairs of the massive investigation, as is Lula himself (despite a recent stay).
Once the nation returned to full democracy in 1984, the builders learned how to work with the modern system of democracy — namely, give money to political campaigns and get favor in return. One article has the Brazilian builders currently implicated in the Petrobras corporate/political scheme contributing 344 million reais (93.5 million dollars) to politicians in 2014 alone.
If you believe in a guy who’s going to be important and can support you in congress, you have to support him,” said Marcelo Odebrecht. “If you are someone who contributes to someone, at the least he’s going to give you a meeting and listen.’’
Remind you of anybody?
I was a businessman. I give to everybody. When they call, I give. And you know what? When I need something from them, two years later, three years later, I call them, and they are there for me. And that’s a broken system.” — Donald Trump
A Tale of a Builder and an Oil Champion
That was a low blow, absolutely. Sure the Donald contributed to politicians; everybody contributes to politicians. Marcelo isn’t going to jail for contributing to campaigns; he’s going to jail for heading a cartel of builders and engineers who gave Petrobras brass 3% kickbacks for awarding no-bid contracts to the cartel’s members. The firms in turn padded the prices, taking a job that had once been budgeted according to some sources at $800M up to over $7B and it’s still not done. The Donald has not done anything illegal; at least nothing that has gone public. Nor has Ted Cruz. Hillary has been called to the stand nearly every other week since she left the State department and every GOP talking head looking for his time in the sun has claimed she’s a criminal and that the FBI has evidence but nothing has come out. And Bernie seemingly has never broken any laws ever, much less big white collar crimes; his biggest crime is the fact that he’s alienated many of the most powerful people whose help he would need to govern. That and the fact that, should he advance to the general, his ideas will be compared to the very socialist ideas that led to Petrobras’ corruption and put off voters, even if he’s not even close to espousing nationalization of anything but our junkshow of a medical system.
But Ted Cruz begs a deeper look. Some of Cruz’s biggest individual contributors (not getting into the murky waters of digging through PACs and Super-PACs) are energy companies (read:oil, e.g. Moncrief) and builders, especially based in his hometown of Houston. And he’s also the most pro-oil of all the candidates, pledging, among other things, to allow the US to export oil. Ted Cruz has also received the most contributions from oil companies with one-and-a-half the oil funds making up his campaign lucre as the next biggest candidate Jeb Bush (politically deceased) and more than three times as much as the next candidate still in the running, Hilldog herself. Again, this is a legal part of American politics, dressing up bribes as political contributions and claiming any stances that benefit said companies just make good sense and are not due to these contributions. Okay. Another debate for another time.
Now let’s look at the Donald. Donald is a great dealmaker with a reputation for doing whatever it takes to make it happen. When he wants something he goes for it. Like the new Trump Hotel Rio Di Janeiro. Odebrecht was almost tapped to build the new hotel especially as it’s being touted as a shining star for Brazil’s upcoming beleaguered Olympics (for which Odebrecht Organization is also the chief contractor) but in the end it’s being built by LSH Barra SA, a company that’s strangely difficult to find any public details about. Doing a quick LinkedIn search, one of the few names I found was Andre Doblas, the procurement manager for LSH Barra and formerly a procurement manager for Diamond Offshore, one of Odebrecht’s largest vendors. It should be noted that Diamond has not been implicated in the Lava Jato scandal. My point is that within the still relatively-closed world of Brazil’s top builders and engineers, there’s a lot of overlap. Especially when one company dominated infrastructure-building in the nation for more than half a century. And especially when another company dominated the country’s economy, an oil company named Petroleo Brasil, to the point that the president of the country is essentially the president of the company as, again, it is still majority state-owned.
That’s Brazil. This is America. Sure, we dress up bribes as campaign support and lobbying funds but TECHNICALLY that’s not illegal. And as El Trumpo has said many times, it’s one of the things he wants to change and the reason why he’s bankrolling his election himself (of course many other outlets have debated how realistic that is though we’ll let that slide). But, again, that’s not America.
Welcome to Miami, Bienvenidos a Miami
Odebrecht is huge in Brazil. They’re also huge in America.
In Miami, one of our country’s largest metro seats, Mayor Carlos Gimenez raised $500,000 in campaign contributions for his reelection campaign in January alone, a MASSIVE haul for a mayoral candidate. Of that, one of the larger single campaign contributions, $15,000, came from Odebrecht USA. Yes, it’s the American subsidiary of Odebrecht Organization, and the Coral-Gables-based subsidiary has built many of the state’s largest construction projects. Most recently, the compant was just awarded a $65 million no-bid contract renewal for its work on MIA airport. Incidentally, Trump also contributed $15,000 for the mayor and is eyeing a contract for a golf course project.
Odebrecht USA built the AA Arena and parts of I-40, among other American infrastructure projects (a majority of which are in Florida with a few others in Texas and other parts mostly in the American south). According to their website, their operations in Texas include work in engineering & construction, wastewater & environmental services (despite being fined $2M for a Florida bridge job in which they illegally dumped construction waste into the water below said bridge), chem & petrochemicals and oil & gas. So Odebrecht has interests in oil and gas and petrochemicals in Texas? Probably tough these days, what with US gas prices some of the lowest in the world and them being unable to sell it overseas. It would really benefit a company like theirs, with massive international infrastructure, if they could sell that oil and gas around the world, eh?
Seemingly Unimportant DecisionS
Two lessons stick out from my college romp through business administration. One is from an American contractor who spoke to us about “SUDS”: Seemingly Unimportant DecisionS. In his case, that was bribing a local politician to get more contracts; he paid her in cash, of course. But eventually he got lazy so he just set up an account from which she could make withdrawals at any ATM. ATMs have cameras and that was the evidence that hung him.
The second lesson is from my international business teacher, who discussed how in many developing countries (i.e. the BRIC set) a bribe is a standard expense.
In Brazil they call their way of doing business “jeitinho.” Essentially it’s a traditional way they do business there summed up by a simple statement: “for my friends everything, for my enemies the Law.” That, sadly, for American politics also proves disturbingly apt quite often.
Trump has touted his previous actions to buy influence from politicians (including both Hillary Clinton and Ted Cruz) like the drug dealer who says the fact that he had to kill rival corner boys and build a heroin empire to get rich is an example of the lack of opportunities in the high-rises. And just recently Trump was proud to put his name on the newest hotel in Rio with LSH Barra. As the Trump-issued press release states, “Rio de Janeiro-based owner LSH Barra S.A. brings vital local expertise to the project.” Quite a roundabout way of invoking Brazil’s longstanding jeitinho. The CEO of LSH Barra mentioned in said press release is Paulo Figueiredo Filho. Figueiredo Filho was also a special adviser and chief of staff in the State Government and City Hall of Rio De Janeiro. So he has the right friends, it would seem.
Here’s the point: the Petrobras scandal can’t just be discounted as some isolated scandal in a corrupt country. Roussef and her predecessor, Luiz Inacio Lula da Silva (whom she just named as her chief of staff even though he presided over the company and country at the exact time that the bid-rigging was going down)(and yes, he’s referred to as Lula, like Pele and Neymar), who are facing very real threats of impeachment and calls for their resignation, aren’t just corrupt officials presiding over some isolated banana republic. In today’s shrinking globe, everybody has their hands in everything, everywhere. The former head of one of the largest companies in the world, a company with a massive footprint and well-documented influence in America and which still carries his name (technically the name of his grandfather, though…), has just been given a red card of 19 years in prison. His company, on the eve of his legal troubles, issued 1.7B in bonds internationally, those bonds backed by Odebrecht’s deals with Petrobras. And now that Petrobras is in the stock market shitter, no doubt Wall Street will take a hit. And considering the fact that America’s top industry is essentially selling financial services, Brazil’s corruption scandal will have US economic repercussions. As has most of the former BRIC hype for those poor suckers who listened to brokers’ tales of gold-paved streets emerging from 3rd-world nations that currently tout democratic capitalism light and running water and electricity for most (but not all).
So before you say this scandal-ridden nation’s business and political woes have nothing to do with us, check yourself. Because we’re just a few SUDS — and a few personnel connections — away from our own Petrobras scandal.