The Odebrecht Case Marks a Historic Step Forward in Global FCPA Enforcement
Photo Credit: Wikipedia via https://en.wikipedia.org/wiki/File:Flags_south_america.png
What makes the Odebrecht case so special? In December 2016, Brazil’s biggest construction company Odebrecht and its petrochemical subsidiary Braskem agreed to pay at least $3.5 billion to Brazilian, US, and Swiss authorities in a multi-country Foreign Corrupt Practices Act (FCPA) settlement. Aside from this record-breaking settlement, the Odebrecht case demonstrates an unprecedented level of international cooperation in investigations and prosecutions of transnational bribery. The case marks a historic step forward for many Latin American countries not previously known for their aggressive prosecution of FCPA violators. The coordinated enforcement action by Brazilian, US and Swiss authorities generated a snowball effect across Latin America, prompting Argentina, Colombia, the Dominican Republic, Ecuador, Guatemala, Mexico, Panama, and Peru to open investigations into Odebrecht.
One can hardly overestimate the importance of this case for global FCPA enforcement. Andy Spalding, a renowned anti-corruption expert and Professor at the University of Richmond, calls Odebrecht “a new chapter in the global fight against corruption.” According to Spalding, “anti-bribery enforcement at the highest levels is no longer solely the province of the developed world.” Global settlement agreements and huge penalties imposed by law enforcement agencies in developing countries are becoming a real nightmare for international and local companies involved in bribery. Coordinated enforcement actions against Odebrecht and its subsidiary pursued simultaneously in North America, South America, and Europe send a clear message to businesses across the world about the increasing importance of anti-corruption compliance and ever-expanding risks of FCPA violations. In the 2016 statement titled “Odebrecht Apologizes for its Mistakes,” the company announced that all businesses in its chain, without any exception, will implement and practice the Commitment to Act with Ethics, Integrity and Transparency.
Since 2001, Odebrecht paid approximately $788 million in bribes to government officials in 12 countries, mostly in Latin America, as the DOJ states. Law enforcement investigations in many Latin American countries resulted in freezing contracts with Odebrecht and prohibiting it from participation in future public biddings. Panama’s Public Prosecutor Kenia Porcell called Odebrecht the most important case investigated by national law enforcement in 2016. Panama created the Special Anti-Corruption Prosecutor’s Office focused exclusively on the Odebrecht case. In January 2017, Odebrecht agreed to pay at least $59 million to Panama’s authorities in an anti-corruption settlement. In addition, the company agreed to pay $32 million to the government of Colombia, $8.9 million to the Peruvian treasury, and $184 million to the Dominican Republic’s authorities to settle bribery charges. Other Latin American countries are negotiating similar anti-corruption settlements with Odebrecht.
The Odebrecht case stemmed from Operation Carwash that began in 2014 when Brazilian authorities discovered suspicious money-laundering transactions made through cash-intensive businesses, such as car washes. Very quickly, the Carwash Operation transformed into a series of corruption cases against the state-run oil corporation Petrobras, and a number of other Brazilian companies, including Odebrecht and Braskem. International cooperation in collecting evidence against these companies allowed law enforcement authorities to uncover their massive bribery and bid-rigging schemes at home and abroad.
Such cooperation was essential, given the complexity of Odebrecht’s scheme. For example, Odebrecht created the Division of Structured Operations, a hidden business unit unofficially known as “the Department of Bribery,” dedicated exclusively to bribing national and foreign public officials. Odebrecht used sophisticated bribery schemes, including the banking systems in the US and other countries, multiple shell companies in the world’s tax havens, individual currency dealers in international markets, and suitcases stuffed with cash delivered by money mules. All shadow operations were authorized by the highest executives of Odebrecht. In 2016, the former head of the company, Marcelo Odebrecht was sentenced to 19 years in prison, while 72 other top executives were negotiating plea bargains on corruption charges in early 2017.
The Carwash Operation had a serious impact on Brazilian politics. The epic scope of bribery sparked a wave of public outcry in the country. In March 2015, former President Luiz Inácio Lula da Silva was arrested on charges of corruption. Although his successor President Dilma Rousseff denied any involvement in the Carwash case, she was the chairwoman on the Petrobras Board between 2003 and 2010. In 2015 and 2016, millions of Brazilians took to the streets demanding the resignation of President Rousseff. In August 2016, the Senate voted for her impeachment finding her guilty of breaking budgetary laws. Brazil’s presidential crisis is still going on, with new accusations of corruption against current President Michel Temer. Brazilian Supreme Court Judge Teori Zavascki played a central role in the investigation into these accusations based on the testimony of Odebrecht executives. This testimony implicated a record number of high-ranking officials in bribery. No wonder it was nicknamed “The End of the World.” Zavascki’s death in a plane crash in January 2017 precluded the announcement of his final decision on this case. As the constitutional lawyer Ives Gandra Martins commented, “Zavascki was ready to resolve Car Wash promptly and take decisions that would clear up who could stay in government or Congress and who had to go.”
Just one month before Zavascki’s death, Brazil’s Congress adopted a new weakened version of the anti-corruption law that excluded some critical elements of whistleblower protection and allowed for the prosecution of judges for liability offences. This bill was criticized by anti-corruption experts and the general public. In December 2016, receiving their Annual Transparency International Anti-Corruption Award, 13 prosecutors from the Carwash Task Force announced that they would quit in the case of the President’s approval of this anti-corruption law. As the coordinator of the Carwash Task Force Deltan Dallagnol said: “We will be defeated if Brazilians and the international community do not take a strong stance through democratic and pacific channels that may awake Congress to the fact that no one – not even Congress – is above the rule of law.” The Carwash Operation and Odebrecht case clearly demonstrate the importance of international cooperation in the face of enormous resistance that anti-corruption efforts encounter from politicians and businesses involved in bribery.
Yulia Krylova is a doctoral candidate at George Mason University