Brazil’s Car Wash Scandal Reveals a Country Soaked in Corruption
What may be the largest corruption case in modern history runs deep in Latin America’s largest country.
In U.S. history, entire cities and states have been branded corrupt: Think Richard J. Daley’s Chicago or Huey Long’s Louisiana. But amid even the worst federal scandals, Watergate included, the country has never been nationally profiled as crooked—a venal society from coast to coast, from dog catcher to commander-in-chief.
Brazil feels that way right now, largely the result of a bribery scandal of Amazonian proportions known in Portuguese as Lava Jato, or Operation Car Wash, believed to be the <a
The multibillion-dollar tsunami of sleaze barreling through Latin America’s largest country and the economy is deeper and broader than any Trump-Russia allegations pouring out of Washington. And it could force the resignation of Brazilian President Michel Temer, who’s been fingered repeatedly in recent weeks for allegedly orchestrating and receiving millions of dollars in bribes.
The 76-year-old conservative denies the accusations—his lawyer, laughably, says Temer is too old to have to answer them—but he’s not the only Brazilian president under the interrogation lamp. His predecessor, Dilma Rousseff, who was impeached and removed from office last year, and her predecessor and mentor, Luiz Inácio “Lula” da Silva, are also alleged to have received tens of millions of dollars in graft.
They, too, deny it—but it hardly stops with them. Eight of Temer’s cabinet ministers are under investigation. So are powerful senators such as Aécio Neves, who narrowly lost the 2014 presidential election. The head of Brazil’s Chamber of Deputies, Eduardo da Cunha—who was shameless enough to hide some of the $40 million in bribes he pocketed in a religious shell company called Jesus.com—was convicted in March and sentenced to 15 years in prison. He has appealed the verdict.
Most Brazilians hope Lava Jato will be a crossroads for change. But sadly, that’s been said of most Brazilian scandals
Hundreds more legislators, governors, mayors, political bosses, and business executives are caught up in Lava Jato (named for a Brasília gas station where some of the payoff cash was laundered). They’re part of an epic network of bribes, kickbacks, hush money, and money laundering focused mainly on Brazil’s state-run oil company, Petrobras. Its executives, as well as such politicians as da Cunha, took bribes from businesses in exchange for greatly inflated Petrobras work contracts.
Since the scheme was detected three years ago, prosecutors have yet to reach bottom in their investigation—and the total sum of payoffs may exceed $5 billion. The criminality may also cost Petrobras, South America’s largest corporation, $13 billion in contract losses and legal settlements, and it’s already resulted in the layoff of thousands of Petrobras workers. Meanwhile, Odebrecht, the Brazilian construction giant that led the bribery bacchanal, is a disgraced and crumbling conglomerate. Its boss, Marcelo Odebrecht, was sentenced last year to 19 years in prison. He’s now a key witness and negotiating a lighter sentence. “This is a tense moment in our history,” Sérgio Moro, the federal judge heading the Lava Jato prosecution, said recently. “It is a crossroads.”
Moro and most Brazilians hope Lava Jato will be a crossroads for change. But sadly, that’s been said of most Brazilian scandals—which were then followed by even bigger ones. The 1992 corruption impeachment of President Fernando Collor de Mello for influence peddling was supposedly such a crossroads. But a decade later, during Lula’s presidency, came the Mensalão scandal, in which Lula’s Workers’ Party paid deputies and senators $50 million to sway legislation.
Mensalão should have been a turning point, too, especially since Lula’s chief of staff, José Dirceu, was sentenced to 32 years for his involvement—perhaps the first time in Brazil’s history that a high-ranking crooked official heard a cell door close behind him. (Dirceu is appealing the sentence.) But then came Lava Jato, as well as last year’s $2.5 billion federal pension fund scandal and the financial chicanery that tainted Brazil’s 2014 FIFA World Cup and Rio de Janeiro’s 2016 Summer Olympics.
And did I mention the just-as-appalling rot at state and local levels? Many lower-ranking public servants enjoy what Brazilians call O Trem da Alegria—the Joy Train—an embezzlement locomotive that can make overnight millionaires out of backwater bureaucrats such as Lidiane Leite.
When Leite became mayor of the northeastern town of Bom Jardim in 2012, she put the Joy Train in high gear. She gave herself an astronomical raise, bought a Toyota SUV, went on lavish shopping sprees, and attended Champagne parties, bragging about it on social media. Investigators say she pilfered as much as $4 million—a big reason kids in Bom Jardim went without school lunches. After being jailed briefly in 2016, Leite was convicted this year. But her sentence included only a fine and suspension from political activity, not prison time.
Cases like Leite’s are common in Brazil. I once interviewed a small-town mayor in Rio de Janeiro state who rode the Joy Train to make $264,000 a year—then twice the salary of Brazil’s president. Those minor league outrages help explain why major league catastrophes such as Lava Jato never become meaningful crossroads for Brazil’s 208 million people. It’s because corruption is the road in Brazil—a default path that experts estimate costs the country as much as 5 percent of its $2 trillion gross domestic product every year.
“When you think you’re headed to a different Brazil,” says Brazilian-born writer Juliana Barbassa, who investigated questionable spending for the Rio Olympiad, “you usually end up in the same Brazil.”
To understand why, you have to reach back two centuries, to when the country was a monarchy. In 1807, Napoleon’s Iberian invasion forced the Portuguese royal court into exile in Brazil, its colony at the time. The king returned to Lisbon in 1821. But when Brazilians declared independence a year later, they made his son who’d stayed behind their head of state: Emperor Dom Pedro I.
Brazil’s royal rule lasted until 1889. It helped Brazil avoid the civil warfare that plagued fledgling republics such as next-door Venezuela. But it also meant that for its first 67 years, the nation lived under a courtly system based less on public institutions than on personal favors. That bred three cancers, which, while widespread in Latin America, seem most malignant in Brazil.
The first is an incestuous relationship between business and a government run by a chaotic array of political parties. When Brazil became a republic, the palms to be greased now belonged to deputies in Congress instead of dukes in castles. Public ethics rarely if ever took root because graft continued to be the accepted public ethos. Lava Jato is simply the latest, largest tumor to grow from that reality. Executives at the meatpacking company JBS SA tell Brazil’s high court that the multimillion-dollar bribes they paid Planalto, the Brasília presidential palace, got them dirt-cheap loans from the state development bank JBS might not have been eligible for otherwise.
The second is staggering economic inequality. The monarchy created a caste structure (Brazil was the last country in the Americas to abolish slavery, in 1888) that kept wealth locked in the hands of the elites who were paying and receiving all those bribes and kickbacks. That squalid arrangement still exists—and it’s a big reason a recent University of Brasília study shows less than 1 percent of Brazil’s population still owns almost half its GDP.
And third, a monstrously bloated bureaucracy. The parasitic royal courtiers of Brazil’s 19th century morphed into the parasitic civil servants of its 20th. And, like Leite, they’re alive and well in the 21st, cadging outrageously inordinate salaries and pensions that drain two-thirds of all public revenue. Yet their performance hardly reflects their pay: In Brazil, it takes four months of red tape just to get approval to start a business.
Granted, Moro’s aggressive Lava Jato prosecution spawns hope that at least the serial impunity associated with Brazilian corruption might be ending. Ironically, the legacies of the most recent presidents are also encouraging: Lula put a dent in inequality, bringing some 40 million Brazilians into the middle class; Rousseff ordered the first real anticorruption campaign; Temer’s legislative agenda is a bureaucracy buster.
But it will take a generation or more before Brazil’s future finally overpowers its history, before the ghost of Dom Pedro is finally exorcised from the country.
About Gateway to South America
Gateway to South America was established in 2006 as a single office in Buenos Aires. The company has since expanded into a vibrant regional network, servicing the Southern Cone communities of Argentina, Brazil, Chile, Paraguay, Peru and Uruguay with professional real estate services. Founded by Geoffrey McRae a New Zealander who maintains an active role in the business it has developed into an International team that has a well-deserved reputation for strong local knowledge, experience and professionalism. I hope you enjoy reading our news site. Please share it on your social media below.