Opinion: Melt Down

11/20/2014 - 09h26

The burgeoning crisis at the state-controlled oil giant Petrobras, the arrest of leading construction company executives, allegations of embezzlement for personal gain, kickbacks paid for over-invoiced contracts, and the accusation that this involved payoffs to leading Brazilian politicians, including members of congress, governors, ministers, as well as political parties, strikes at the heart of the nexus of Brazilian corruption.

It is a scandal staggering in its implications, and it presents the greatest challenges to the Brazilian political and economic and judicial elite since the end of military rule in the mid-1980's.

Paulo Roberto Costa, who headed the refining division of Petrobras between 2004 and 2012, has accused over 40 politicians of involvement in a vast kickback scheme involving a 3% surcharge on the value of contracts.

Together with convicted black-market money dealer Alberto Youssef, who "laundered" hundreds of millions of dollars, he is understood to have plea bargained with federal prosecutors in return for leniency.

Dilma Rousseff said in Australia that "This may change the country for ever." She added this will "end impunity." But Dilma was from 2003 until 2010 the chairwoman of the board of directors of Petrobras. She was a former minister of energy. She is famous as a "micromanager."

If this was just a Brazilian question the scandal might be contained. But it is not. Petrobras is an international company responsible for a quarter of Brazil's annual dollar-denominated bonds and also has American depository-receipts traded on the New York Stock Exchange.

It is already being investigated by the US Securities and Exchange Commission and the US Department of Justice. Among the many revelations made by former National Security Agency contractor, Edward Snowdon, was the fact that the US was spying on Petrobras.

Already the Netherland's based SBM, the world's largest leaser of off-shore oil-production vessels, has settled a bribery case involving Brazil, Angola, and Equatorial Africa, with Dutch prosecutors for $240 million.

It is my great regret that I never met Paulo Francis. Elio Gaspari was hoping to arrange a lunch for us to meet at Bravo Gianni, his favourite East Side Manhattan Italian restaurant (now sadly closed). But we never managed it.

Paulo Francis was pilloried for "speaking truth to power" on the television program "Manhattan Connection" when he claimed that "all the directors of Petrobras have accounts in Switzerland." The well-paid agents of Petrobras pursued Francis in a million dollar judicial action for his comments until his early death by heart attack in 1997.

Paulo Francis would undoubtedly have gained a quite satisfaction had he lived to see the denunciation by Paulo Roberto Costa. But be in no doubt The protective forces around Petrobras, the construction companies, and the politicians, are no less formidable today than they were in 1997.

Petrobras is a pillar of the Brazilian economy: nationalistic pride; cultural and academic sponsorships; 67,000 employees; billions of dollars in investment are involved; as well as the reputations of many members of the Brazilian elite. It will take more than the courageous action of few Federal prosecutors to unravel this tangled web.