Home Finance Brazil’s Petrobras Scandal Embroils a Number of High-Ranking Government Officials

Brazil’s Petrobras Scandal Embroils a Number of High-Ranking Government Officials

by internationalbanker

By Raymond Michaels – raymond.michaels@internationalbanker.com

Brazil’s state-controlled, multinational oil and gas giant, Petrobras, has fallen dramatically both in prestige and finances in recent months, bringing down the reputations of many of the nation’s top politicians and lawmakers with it, including the leaders of both chambers of Congress. The corporation, along with several leading government officials and executives of other high-profile Brazilian companies, are entangled in a scandal that has become the country’s largest government corruption case to date, allegedly involving multi-millions of dollars in kickbacks that primarily benefited the Workers’ Party, the party of the nation’s current president. Among its many distinctions, Petrobras (Petróleo Brasileiro SA) is Brazil’s largest company, and it is also in the world’s top five in terms of market capitalization.

Brazil’s Supreme Court, the only court in the land authorized to hear cases involving elected political leaders, is investigating 34 senators and congressmen from five parties, all but one of whom are on President Dilma Rousseff’s coalition of allies. The allegations against executives of Petrobras and of some of the nation’s largest construction, engineering and energy firms involve overpriced contracts, some of the excess funds of which were supposedly funneled to the campaigns of their partners in the political sphere. The main whistleblowers in the case were a former Petrobras executive along with a black-market currency trader, arrested nearly a year ago in a corruption probe dubbed “Operation Car Wash”, which has netted numerous indictments for money-laundering and racketeering schemes. Some of the funds were allegedly diverted to Swiss bank accounts. Prosecutors are seeking the return of these illegally generated funds, up to a value of $1.6 billion, from the companies involved.

The pesky issue couldn’t come at a worse time for President Rousseff, who is attempting to steer the country out of a recession, implement unpopular austerity measures to reduce the deficit and avoid a stinging sovereign credit-rating downgrade to junk status. The shares of Petrobras have already been reduced to junk status by Moody’s Corporation, and its market value has shrunk by more than 60 percent. Adding to its woes is the untimely drop in the global price of oil. The company is also being investigated by the US Securities and Exchange Commission and the US Department of Justice on corruption issues. Brazil’s President Rousseff was chairwoman of the board of directors of Petrobras from 2003 to 2010, a seven-year period during which much of the corruption supposedly occurred, though she denies knowing anything about it.

President Rousseff isn’t the only one denying any wrongdoing. Most politicians and company executives who have been implicated have claimed they were ignorant of the underhanded dealings. Opposition politicians are making use of the opportunity and demanding her impeachment, even though no tangible evidence has yet surfaced to implicate her.

Executives are not the only ones suffering. The effects of slowdowns and shutdowns in the affected companies are trickling down to employees, who are facing job layoffs and terminations. As well, the country’s currency and stock market have been hit. Brazil’s inspector general, in an effort to lessen the negative impacts on the country as a whole, has suggested the possibility of leniency deals, which would require the accused to admit guilt and pay damages as well as set in place measures to improve future compliance. But others, especially prosecutors, are opposed to such measures, suggesting they would allow the guilty to get off too lightly.

All involved are in agreement that this will not be an easy case to wrap up and may tie up the country’s top court for years to come.

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