Petrobras scandal’s key witness speaks out

By Ian Fraser

Published: The Financial Intelligencer

Date: 13 November 2015

paulorobertocosta222-e1446632790826-448x336The former oil industry executive whose evidence kicked off the corruption probe into Brazilian energy giant Petrobras – a scandal which has tipped Brazil into recession and may yet bring down its government – has spoken out for the first time since entering a plea-bargain agreement 18 months ago.

Paulo Roberto Costa, former head of refining and supply at majority state-owned Petrobras, last week claimed that evidence he provided as part of a collaboration agreement with Brazilian prosecutors had been critical in getting the sprawling Operação Lava Jato or “Operation Carwash” bribery and corruption investigation off the ground. “Without my tip-off, the probe would not have existed,” he said.

The criminal probe into bribery involving Petrobras began in earnest in September 2014 and has shaken Brazil’s establishment to its core. A string of arrests, charges and other collaboration deals has led to the jailing of several former executives of Petrobras, politicians and suppliers to the oil firm.

Costa, 61, who entered a plea-bargain after being arrested and accused of money-laundering said he felt he had become a “leper” after blowing the whistle on the scandal. In an interview with journalist Mario Cesar Carvalho, Costa said “The year I spent in prison was a year of leprosy. People fled from me and continue to flee, though that’s changing.” He said cries of “bandit” when boarding planes are becoming less common and that he is now even praised for having exposed politicians’ involvement in the affair.

Costa’s testimony, together with that of former colleague, Pedro Barusca, illustrated how the bribery scheme at Petrobras, which prosecutors claim ran from 2003 to 2012, operated.

It started with the payment of bribes by an alleged cartel of engineering and construction firms to Petrobras in exchange for contracts for the building of ships, rigs and other infrastructure. “Commissions” of around 3 per cent then ended up in the pockets of members of Brazil’s ruling coalition led by President Dilma Rousseff’s Workers’ Party (PT) or channelled into campaign slush funds.

Brazil’s Supreme Court has so far authorised the investigation of 48 current or former members of congress, including 12 senators, 22 congressmen, the president of the senate and the speaker of the lower house. The treasurer of the ruling Workers’ Party, João Vaccari, is already serving a 15 year jail term for corruption and money laundering as a result of the “Car Wash” probe.

In August Petrobras’s former head of international operations, Nestor Cervero was jailed for 12 years as a result of a $5m bribe allegedly paid to the speaker of Brazil’s lower house. On 3 November Sergio Cunha Mendes, former vice-president of Brazilian engineering firm Mendes Junior, a supplier to Petrobras was jailed for 19 years for his role in the scandal.

Seven other people, including former Mendes Junior executives, and intermediaries, were also convicted. Black-market currency dealer Alberto Youssef received a suspended sentence. Rousseff, who stepped down as chairman of Petrobras in 2010 in order to stand for Brazilian president, denies any involvement and has not been charged. She has been president since January 2011 and was re-elected last year.

The inventory of gifts handed over in the scandal included Rolex watches, $3,000 bottles of wine, yachts, helicopters and prostitutes as well cash, most of which flowed through a labyrinth of fake companies, according to the the New York Times. Some cash bungs were hand-delivered by Rafael Lopez, a “money mule” who flew around the world with shrink-wrapped bricks of cash strapped underneath his clothing.

The ill-gotten gains of some of the beneficiaries – including a 45-foot cabin cruiser and luxury condominiums – are now being sold through a Brazilian online auction website. According to the Wall Street Journal the cruiser has a guide price of $800,000 and is the most-visited “Car Wash” item in the sale, though it has yet to receive a bid.

Foreign firms sucked into the scandal include Rolls-Royce, which has been named as having allegedly paid bribes to secure a $100m contract to supply gas turbines for Petrobras’s oil rigs. Responding to the accusations, Rolls-Royce said: “We want to make it crystal clear that we will not tolerate improper business conduct of any sort and will take all necessary action to ensure compliance.” It is co-operating with Brazilian authorities.

Other overseas groups named as implicated in the scandal include Danish shipping and energy services company Maersk and Singapore-based offshore engineering group Sembcorp Marine. Sembcorp and Maersk have denied the accusations. Prosecutors have told foreign companies implicated in the scandal they should not to hesitate in coming forward, suggesting they can expect clemency in exchange for co-operation.

According to Thomas Kamm, a partner with public relations firm Brunswick in São Paulo, Carwash has moved beyond being a mere corruption scandal. “It has snowballed into at least three other crises that amount to a giant stress test for Brazil: a corporate crisis for many of the country’s biggest companies, whose business has dried up; an economic crisis as the scandal’s impact on investment drags Brazil deeper into stagflation; and a political crisis for President Dilma Rousseff only [a few] months into her new term, as the alleged involvement of many politicians from the ruling coalition raises questions over the country’s governability.”.

In last week’s interview Costa, who is also writing a book about his experiences, claimed that the overall sum paid out in bribes by Petrobras is lower than most estimates. “I don’t believe it’s as high as R$6 billion ($1.6 billion). It’s R$3 billion ($800 million) at most.” He also claimed Petrobras – once the bluest of Brazil’s blue-chip companies, whose shares were highly sought after by emerging-market equities investors – may struggle to survive the lower oil price, the rise in the U.S. dollar and all the embezzlement that took place. Its shares have slumped 76 per cent in the past five years and are currently trading at R$9.02

The Brazilian authorities have decided that Petrobras should be considered as a victim, not as a perpetrator, of the bribery scandal, even though construction firms and some of its foreign suppliers claim they faced a form of extortion – so called “pay to play”.

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