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May 30, 2017
Friday, February 10, 2017

The Latin American connection in Brazil’s corruption scandal

By Patricio Navia
For the Herald

NEW YORK — The Lava Jato corruption scandal triggered an earthquake that radically changed the political landscape in Brazil — one whose aftershocks are still being felt throughout Latin America. From Peru to Colombia, from Panama to Chile, accusations of bribery, corruption and illegal campaign contributions associated with nine Brazilian construction companies, including Odebrecht and OAS, have exposed a weakness in democratic institutions and a lack of transparency concerning electoral campaign funding in the region. Though the consequences of the Latin American connection in the Lava Jato scandals have yet to be fully determined, there is an obvious need to introduce reforms to make campaign contributions more transparent and prevent bribery schemes in the awardings of public infrastructure projects.

The Operation Car Wash (Lava Jato) investigation started out as a money-laundering case investigated by Brazilian judge Sérgio Moro in 2014. Since then, it has evolved into a massive inquest into bribes and illegal campaign contributions to politicians in Brazil and elsewhere in Latin America. As some of the Brazilian companies involved in the scheme have branches in other countries, the investigation has reached far beyond Brazil. Through a plea bargain Odebrecht and the Brazilian petrochemical company Braskem SA struck with the US Justice Department, new information was made public in late December 2016 about payments Odebrecht made to politicians in other Latin American countries. Since paying bribes constitutes a violation of the Foreign Corrupt Practices Act (FCPA), Odebrecht negotiated a deal by pleading guilty and agreeing to pay a US$ 4.6-billion penalty to the US, Switzerland and Brazil. The information revealed in that plea bargain has sent shockwaves through different countries in the region.

First, in Peru, the prosecutor’s office raided the home of former president Alejandro Toledo (2001-2006), who is accused of having received a US$20-million bribe to award a multimillion-dollar contract to build a highway between Peru and Brazil. The prosecutor’s office has issued an international arrest warrant against the former president, who lives in California, where he is a fellow at Stanford University. Toledo has denied any wrongdoing and has accused Odebrecht of implicating him to land a better plea deal with US authorities. Since current president Pedro Pablo Kuczynski (PPK) was a minister in the Toledo government, some of Toledo’s allies have also tried to implicate him. PPK has called for a thorough investigation. Given the particular murkiness of campaign financing in Peru, many observers suspect that many other politicians might be implicated in schemes similar to those uncovered by the investigations initiated against Odebrecht in Brazil and the US.

The Odebrecht plea bargain agreement with US authorities has also set off aftershocks in Colombia and Ecuador, where high government officials are also suspected of bribe-taking. The president of Colombia, Nobel Peace Prize winner Juan Manuel Santos has also called for an investigation as the rumour spreads that his campaign in 2014 — and his main rival’s as well — received illegal contributions from Odebrecht. In Ecuador, Vice-President Jorge Glas — who is also the vice-presidential candidate for the ruling party coalition in the upcoming February 19 first-round vote — has also been implicated. Similar scandals have embroiled politicians in Panama, Argentina, the Dominican Republic and Chile.

The extension of Odebrecht’s reach in the scheme to win government contracts by bribing government officials and channeling illegal campaign contributions point to an evident institutional weakness in democracies in Latin America. Campaign finance rules are non-transparent or insufficiently clear on what is allowed and how campaign donations should be reported both to the authorities and the general public. The absence of appropriate legislation creates a gray area susceptible to the kind of illegal schemes foreign companies like Odebrecht successfully devised to support allies who could then award them government contracts for infrastructure projects.

The scandals have fed popular discontent with authorities seen as too cozy with the business sector and unaccountable to public watchdogs. Even leaders nominally opposed to private business interests seem permeable to bribes, either because they need to fund their campaigns or because they want to build up their personal wealth. In any event, the absence of the appropriate regulatory framework and the weakness of monitoring institutions are responsible for the problems that the investigation of corruption allegations in Brazil began to reveal in 2014.

The challenge ahead for all countries affected by the scandal is twofold. First, their judicial systems are under stress to demonstrate independence and the power to prosecute those involved in the scandal, whatever positions they hold. An independent judiciary must show that nobody is above the law. Secondly, the challenge ahead for the political establishment is to introduce reforms that will both strengthen the power of watchdogs to prevent these kinds of schemes in the future and introduce sensible campaign finance legislation promoting transparency and suitably regulating the inevitable role money plays in elections.


@patricionavia

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