Corruption and the Lava Jato Scandal in Latin America

Paul F Lagunes, Jan Svejnar, Paul F Lagunes, Jan Svejnar

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000081480
• Edition: 1
• Topic: Politique et relations internationales
• Subtopic: Corruption politique et inconduite

Corruption and the Lava Jato Scandal in Latin America brings together key international and interdisciplinary perspectives to shine new light on Lava Jato, or Operation Car Wash, Latin America's largest corruption scandal to date. Since 2014, this scandal has unfolded in surprising ways to expose collusion between construction companies and state officials in Brazil and 11 other countries. The corruption uncovered amounts in the order of hundreds of millions of dollars in bribes and billions of dollars in stolen state funds.

The volume features evidence that the main construction company at the center of the scandal was—apparently—deliberate about seeking business in corrupt markets. It also evaluates the ambiguous role played by the media, whose members often relied uncritically on classified information released by the authorities. The volume further contributes to our understanding with studies on a number of other relevant topics, including: the overlap between corruption and the planning of the Rio Olympics; Mexico and Peru's contrasting responses to Lava Jato; the policy reforms needed to avoid a similar scandal in the future; and the roadmap for how Lava Jato should end. Across 15 chapters by leading and emerging scholars and practitioners, this book engages with these issues from a balanced and unbiased perspective, including interviews with key stakeholders on both sides of the case.

As one of the first book-length studies to deal with Lava Jato in the English language, this ground-breaking volume is a compelling reading for advanced students and researchers in areas including Corruption Studies, Public Ethics, Political Science, and Latin American Studies, as well as for practitioners working to make governments more accountable.

Part I

An introduction to Lava Jato

1 Introduction¹

Paul Lagunes and Jan Svejnar

Introduction

The corruption scandal goes by several names. Some refer to it as, “Petrolão,” which plays off of the word for “oil” in Portuguese.² In English, there are those who refer to it as, “the Odebrecht scandal” or “the Petrobas scandal,” given the names of the companies at the center of the affair. However, the most common label for the scandal is actually “Lava Jato,” which means “Car Wash.”

Authorities in Brazil began uncovering Lava Jato in March of 2014. Prosecutors in the southern city of Curitiba were looking into the activities of black-market money dealers known locally as doleiros (Cifuentes, 2014). These doleiros were using gas and car wash stations to launder money, which is how the scandal—or, more precisely, the operation that uncovered the scandal—got its name (“Caso Lava Jato: Entenda O Caso,” n.d.).³ As the authorities extended their search, they found that a particular doleiro (Alberto Youssef) had links to Paulo Roberto Costa, a high-level executive of Brazil’s state-owned oil company Petrobras (Cifuentes, 2014; Segal, 2015).

Thus, what began as a local investigation into money-laundering, uncovered collusion between Petrobras employees and construction companies seeking contracts for public works projects (Davis, 2019, p. 163). The oil company’s employees took bribes, a portion of which they then shared with the politicians who had appointed them to their posts in Petrobras (Watts, 2017). Prosecutors found that corrupt practices involving Odebrecht, the region’s largest construction group, actually covered a total of 12 countries. In alphabetical order, these countries are: Angola, Argentina, Brazil, Colombia, the Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru, and Venezuela (“Odebrecht Bribed Across Latin America,” 2016). All told, the corruption scheme resulted in inflated costs for public works projects at the expense of taxpayers (“Petrobras Reaches Settlement With SEC for Misleading Investors,” 2018).

In one sense, Lava Jato is nothing new. The state of corruption in Latin America has long given observers cause for concern (Arellano-Gault, 2020, p. 7; Morris & Blake, 2009, p. 2). One of the earliest records of this in Latin America goes as far back as an eighteenth-century report (Juan & de Ulloa, 2011 [1749]). The report describes how colonial officials sold public offices; members of the judiciary placed their verdicts up for auction; and customs agents allowed merchants who paid an unofficial quota to import goods at reduced tax rates (McFarlane, 1996, pp. 42–43). Simply stated, the world has long known that Latin America, as a whole, struggles with accountability.

However, in another sense, Lava Jato is like nothing previous. It is a corruption scandal that has embroiled a vast portion of the continent, triggered massive protests, and—directly or indirectly—contributed to toppling more than one president. In a somewhat recent opinion piece, Matthew Taylor, a scholar whose joint effort produced the volume Corruption and Democracy in Brazil, writes: “[Lava Jato] could be the single largest corruption investigation ever undertaken, anywhere” (Taylor, 2016).⁴ There is even an 16-episode television show about the scandal.⁵ But setting audience’s morbid interests to one side, for several years now, many have been working to make sense of this elaborate, multi-year event that has frequently yielded new surprises.

Many months into writing and compiling this volume, Lava Jato again caught us and others off guard when an online news outlet (specifically, The Intercept) began publishing previously undisclosed exchanges between some of the authorities involved in the Operation. The reporting on these private exchanges, which allege that there may have been certain improprieties committed by those handling Lava Jato cases, is discussed at various points in this volume. However, those who thought that Lava Jato was fading or reaching its end were left scratching their heads toward the end of 2019. That is when the Operation extended its investigation to include the world’s largest container shipping company, Maersk, because of allegations regarding multimillion dollar bribe payments to Petrobras (Schipani, 2019).

Highlighting these unforeseen developments serves to demonstrate Lava Jato’s complexity and to underscore the need for research on the subject. This volume is a response to that need. Including this introduction, we collect a total of 15 chapters that capture the insights of 19 authors who have studied Lava Jato. Of these authors, 9 are Brazilian or are area specialists with extensive experience studying Brazil.⁶ In particular, Albert Fishlow, Professor Emeritus at University of California, Berkeley, and Columbia University, and former director of the Columbia Institute of Latin American Studies and the Center for the Study of Brazil at Columbia, has accumulated half-a-century of wisdom regarding this one country. A similar comparison can be made with Susan Rose-Ackerman, another of our chapter contributors, who is the Henry R. Luce Professor Emeritus of Law and Political Sciences at Yale University. Rose-Ackerman published her first of seven books about corruption in 1978. Among the other authors contributing to this volume are governance experts, current or former journalists, data analysts, and development specialists. All have their own views about Lava Jato, a fact that we believe makes for a richer and more balanced take on an inherently contentious topic.

Looking ahead, the following sections provide additional background information about Brazilian politics and about the Lava Jato scandal. As an introduction to this volume, the contextual information provided in the next few pages is far from exhaustive; however, the information we do include should prove helpful to readers who are approaching our project with limited prior knowledge on Brazil, Latin America, or corruption. We conclude this chapter with a section that maps out the structure and content of the volume.

But before proceeding, a conceptual note is in order. The definition of the term corruption, which is central to this volume, is a subject of much debate (Anechiarico & Jacobs, 1996; Gardiner, 2002; Heidenheimer, 1974; Scott, 1972). In addition to discussing the power dynamics associated with this debate, as evidence of the debate’s amplitude, Arellano-Gault (2020) compiles a sampling of over 20 definitions for the term. Some of these definitions endorse a broad understanding of the word, while others insist on a narrow interpretation.

On the one hand, the advantage of defining corruption broadly is that doing so accounts for the structural factors that give rise to the problem in the first place. From this perspective, corruption is understood as deviations from widely held principles (e.g., Kurer, 2005, p. 230; Mungiu-Pippidi, 2015, pp. 14–15; Rothstein, 2011, pp. 14–30). On the other hand, the advantage of narrower definitions of the term is that they do not require that everyone agree on what is right and good for society (Rose-Ackerman, 2018, p. 98). An example of such a definition states that corruption is the abuse of entrusted power for private gain (Corruption Perceptions Index 2018: Frequently Asked Questions, 2018b). This particular definition is the one we generally subscribe to for the purpose of this volume.

From scandal to scandal

Corruption scandals are not new to Brazilian politics. In fact, contrary to what some would like to believe, corruption was also present under military rule, which lasted from 1964 to 1985 (“Brazil: Protesters Storm Congress Seeking Military Rule,” 2016; Geddes & Ribeiro Neto, 1992). Corruption scandals have also tormented every presidential administration since civil order was reestablished in the mid-1980s (Taylor & Buranelli, 2007). A congressional inquiry found endemic corruption in José Sarney’s administration (1985–1990) (Long, 1988). Fernando Collor de Mello’s term, which began in 1990 with promises of clean government, ended with impeachment in 1992 after the president’s own brother accused him of accepting corrupt payoffs (Pereira, Power, & Raile, 2011; Pérez-Liñán, 2007; Weyland, 1993). On Itamar Franco’s watch (1992–1995), the congressional budget committee misappropriated funds (Taylor & Buranelli, 2007, p. 60). Fernando Henrique Cardoso (1995–2003) faced accusations of congressional vote buying (Taylor & Buranelli, 2007).

During Luiz Inácio Lula da Silva’s presidency (2003–2011), Brazil experienced a number of corruption scandals, including those known as Banestado, Caixa Dois, and Bingos (Astor, 2006; “Brazil Bingo Staff March Over Ban,” 2004; “Brazil Corruption Charges Urged,” 2004). But the most important scandal—a scandal that comes up multiple times throughout this volume—was the one called Mensalão, a scheme in which coalition parties accepted large clandestine monthly payments (mensalão) in exchange for their support of Lula’s party, known as the Workers’ Party or PT (“What is Brazil’s ‘Mensalão?’,” 2013). News about these illicit payments broke in 2005, when a disgruntled legislator by the name of Roberto Jefferson publicly accused Lula’s party of bribing its political allies. Essentially, the government paid some 12,000 US$ per month to members of the government coalition as a way to guarantee that proposed bills were voted into legislation (Michener & Pereira, 2016, p. 4). As The Economist (“What is Brazil’s ‘Mensalão?’,” 2013) aptly explains:

The money [for the bribes] was said to have come from the public purse via fake advertising contracts signed by state-owned companies with corrupt advertising firms. […] Overlapping congressional inquiries ended up accusing 18 congressmen of involvement in the vote-buying scheme. The biggest name among them was José Dirceu […], who had been chief of staff to the president, Luiz Inácio Lula da Silva, until forced by the scandal to step down.

The Supreme Court eventually took up the Mensalão case, but because of the court’s considerable backlog, the trials of more than three dozen politicians did not begin until mid-2012 (Downie, 2012). In the meantime, the PT won two more presidential elections, the first re-electing Lula, and the second Dilma Rousseff in 2010.

Rousseff is an economist and politician who, in her youth, had been imprisoned and tortured for her activism by the military dictatorship (Romero, 2012). She began her tenure by firing over five ministers because they were suspected of corruption (Forero, 2011). However, these and other actions, such as the enactment of a major government transparency law, were seen as insufficient by 2013, as Brazil’s economic outlook worsened (“Brazil,” 2017; “Brazilian Waxing and Waning,” 2016). Crowds took to the streets to protest corruption, and in particular the billions spent on new football stadiums for the 2014 World Cup, among other issues (“Brazil Unrest: ‘Million’ Join Protests in 100 Cities,” 2013; Watts, 2013).

Soon after the demonstrations, Rousseff stood for reelection in 2014; her margin of victory was the narrowest in modern Brazilian history (“Resultado da eleição é o mais apertado já visto no Brasil,” 2014). Against this backdrop of growing economic and political an...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• List of contributors
• Acknowledgments
• Foreword
• PART I: An introduction to Lava Jato
• PART II: Brazil’s experience with Lava Jato
• PART III: Lava Jato beyond Brazil
• PART IV: Where to from here?
• Index