The $100m man’s guide to Brazilian graft

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February 15, 2015 12:34 pm

The $100m man’s guide to Brazilian graft

Workers from a company under contract for the Brazilian state-owned oil company Petrobras take part in a protest to demand the payment of three months of wages in arrears, in Rio de Janeiro, Brazil, on February 5, 2015. The chief executive of Brazilian oil giant Petrobras, Graca Foster, resigned along with the entire board of directors as the company reels from a massive corruption scandal, officials said. AFP PHOTO/VANDERLEI ALMEIDAVANDERLEI ALMEIDA/AFP/Getty Images©AFP

Workers demand the payment of wages in arrears from Petrobras in Rio de Janeiro AFP/Getty Images

One October night in 2011 in Milan, Italy, a group of four Brazilian businessmen linked to Petrobras, Brazil’s state-owned oil operator, sat down for dinner with the manager of a Swiss bank, Banque Cramer.

On the menu for the Brazilians was allegedly a plan to create one of the most ambitious corruption schemes their country had seen.

The men were plotting to divert nearly 1 per cent of $22bn in contracts held by Sete Brasil, one of the world’s largest drilling rig companies that was being set up by Petrobras, into their own accounts and those of political contacts, alleges one of the participants at the dinner, Pedro José Barusco Filho. They were meeting the banker to discuss opening offshore accounts for the money, the former Petrobras and Sete Brasil executive said. There was no suggestion Banque Cramer was party to the scheme.

“The day after the dinner, everyone opened accounts in the name of offshore companies,” said Mr Barusco, who has agreed with Brazil’s federal police to provide testimony in exchange for leniency, in statements filed with a Brazilian court in Curitiba, in Brazil’s south and published on the federal justice system website.

The alleged corruption scheme at Sete Brasil is just one part of a wide-reaching scandal at Petrobras that is threatening to envelop the government of Brazilian president Dilma Rousseff and bankrupt the country’s most important company.

Over the past year, police have uncovered allegations that Petrobras contractors, which include many of the country’s largest construction groups as well as foreign companies, paid bribes to the oil company`s executives and politicians from the ruling coalition led by Ms Rousseff’s Workers’ Party in exchange for tens of billions of dollars in contracts.

Mr Barusco is not the most senior former Petrobras executive implicated in the scandal. But he gained notoriety in the Brazilian media when he offered to reimburse the government roughly $100m that he stole over more than a decade of self-confessed corrupt dealings, shocking a society inured to tales of graft.

His testimony on Sete Brasil and his earlier experiences at Petrobras read almost like a manual on how to run complex corruption schemes and are a warning for foreign companies on doing business with government entities in Brazil.

The payment of bribes in Petrobras was something endemic andinstitutionalised– Pedro José Barusco Filho, former Petrobras executive

A career Petrobras executive, Mr Barusco joined the company in 1979 and left about four years ago, when he helped to set up Sete Brasil. A private company partly controlled by banks, including Spain’s Santander and Brazil’s BTG Pactual, Sete Brasil has Petrobras as an important shareholder.

Mr Barusco recounted how, together with former Sete Brasil chief executive officer, João Carlos de Medeiros Ferraz, he organised a tender by Sete for contracts for 28 drilling rigs to five shipbuilding companies, two of them Singaporean and three Brazilian with Japanese shareholders.

The pair immediately set up a corresponding corruption scheme under which the shipbuilders would be required to pay bribes through their agents, Mr Barusco alleged. “It took a very long time to establish the system of payments because of the big number of people involved,” Mr Barusco said in the testimony.

He alleged two key recipients of the bribes were his former boss at Petrobras, Renato Duque, who was then director of services, and João Vaccari Neto, the treasurer of Ms Rousseff`s Workers` Party. Mr Duque and Mr Vaccari met regularly at the Windsor Hotel on Copacabana beach in Rio de Janeiro or in São Paulo, so the treasurer could keep track of Petrobras’s contracts, Mr Barusco told police.

Mr Barusco alleged the conspirators agreed that two-thirds of the Sete Brasil bribes would go to Mr Vaccari and one-third to Petrobras and Sete Brasil officials. He, Mr Duque, Mr Ferraz and a fixer allegedly then went to Italy to arrange the accounts.

Describing Mr Duque as disorganised when it came to managing his bribes, Mr Barusco said much of the bookkeeping fell to him. He kept spreadsheets using code names — Mr Duque was dubbed “MW”, or “My Way” after the song popularised by Frank Sinatra, while Mr Barusco denoted himself as SAB, or Sabrina, the name of an ex-girlfriend. Mr Vaccari was identified as “Moch”, short in Portuguese for “backpack” because the treasurer always went around with one.

Mr Duque and Mr Vaccari have denied receiving payments and the shipbuilders have denied making them. Mr Duque accused Mr Barusco of being a “confessed criminal” who is lying to try to win his freedom. The Workers’ Party said there was no proof behind the allegations and pledged to sue the “accusers”. Mr Ferraz could not be reached for comment.

Sete Brasil said its “present management” was analysing Mr Barusco’s testimony, adding that he left the company in 2013 while Mr Ferraz left the following year.

Mr Barusco said in his statement that instituting the scheme at Sete Brasil was natural because “the payment of bribes in Petrobras was something endemic and institutionalised”.

When he earlier worked under Mr Duque at Petrobras, the pair funnelled millions of dollars in bribes from 90 large contracts between 2003 and 2013 into the accounts of offshore companies with names such as Backspin and Daydream, he alleged. Agents representing construction companies also allegedly paid Mr Barusco in cash at his home or during “happy hour” or dinners at hotels in Copacabana. He alleged the Workers’ Party received up to $200m in bribes in the decade ending 2013.

What was new was the size of the corruption. Before Petrobras’s discovery of huge offshore oilfields in 2007, the engineering division budget was $3bn a year. By the time he left in 2011, it was investing $3bn a month. The bribes rose in proportion. “It’s just mathematics,” he said.

Copyright The Financial Times Limited 2015.

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