Operation Car Wash and the Odebrecht Scandal

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Date: 2018
Publisher: Gale, a Cengage Company
Document Type: Topic overview
Length: 1,360 words
Content Level: (Level 5)
Lexile Measure: 1310L

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Marcelo Odebrecht (1968–), the former head of the largest construction company in Latin America, was sentenced to nineteen years in prison by a Brazilian judge on 18 March 2016. Odebrecht, the grandson of the company's founder, was found guilty of bribing government officials, laundering money, and taking part in a criminal enterprise. However, Odebrecht's sentencing was neither the beginning nor the end of a massive corruption scandal that has crippled one Latin American government and has sent shockwaves through a dozen others.

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Key Figures

  • Marcelo Odebrecht, CEO of Odebrecht (2008–2015)
  • Norberto Odebrecht (1920–2014), founder and head of Odebrecht (1944–1991)
  • Dilma Rousseff (1947–), President of Brazil (2011–2016)
  • Luiz Inácio Lula da Silva (1961–), President of Brazil (2003–2011)
  • Michel Temer (1940–), President of Brazil (2016–)
  • Jorge Glas (1969–), Vice President of Ecuador (2013–2017)

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Key Events

  • 1944: Norberto Odebrecht creates a privately-owned construction firm
  • 2014: Brazilian prosecutors launch "Operation Car Wash," which leads to massive corruption scandal
  • 2015: Odebrecht CEO Marcelo Odebrecht is arrested on corruption charges
  • 2016 (March): Marcelo Odebrecht is sentenced to nineteen years in prison on corruption charges
  • 2016 (August): Brazilian President Dilma Rousseff is impeached, largely due to outrage over ongoing corruption scandal
  • 2016 (December): The Odebrecht Organization settles international bribery case for fines totaling at least $3.5 billion
  • 2017 (July): Former President Inácio Lula da Silva, popularly known as Lula, is convicted on corruption charges and sentenced to nearly ten years in prison
  • 2018 (April): Lula surrenders to police to begin serving his sentence

Background

The Odebrecht Organization was founded in 1944 in Brazil by Norberto Odebrecht. Over the next seven decades, the Odebrecht Organization grew to become the most important engineering and construction company in Latin America, with revenue greater than $40 billion annually. While business in Brazil was always key to the company's success, international revenue eventually grew to constitute the majority of Odebrecht's business. Odebrecht even became the first Brazilian company to land a construction contract in the United States, and went on to complete over a dozen major U.S. contracts, mainly in Florida.

Odebrecht completed its first project for the Brazilian state-owned oil company, Petrobras, in the 1950s. This was the start of a long and profitable relationship. However, it was this close relationship with Petrobras that ultimately led to shocking revelations about Odebrecht's business practices.

In 2014, Brazilian federal police launched an investigation known as "Operation Car Wash." The investigation originally focused on money laundering by "black market bankers" called doleiros. However, investigators soon discovered a connection between the doleiros and executives at Petrobras. At the time, news of corruption among Brazilian government officials was not surprising; like many Latin American countries, Brazil was dogged by a long history of government leaders enriching themselves at the expense of the public, with few repercussions.

When Workers' Party candidate Dilma Rousseff became president in 2011, she inherited a government plagued by scandal under her predecessor, fellow Workers' Party member Luiz Inácio Lula da Silva (better known simply as Lula). By 2013, public outrage over perceived corruption in Brazil's government led to widespread protests. Rousseff vowed to clean up the government by enacting a number of anti-corruption measures. One of these measures allowed plea bargains for the first time in Brazil's history. This allowed low-level criminals to reduce their own punishment by providing information on higher-level suspects, upending the power dynamic in criminal operations where all but the lowest level participants were considered untouchable.

Brazilian prosecutors made liberal use of the plea bargain tool to work their way up the chain in the money-laundering enterprise. This was combined with compulsory detention, in which wealthy suspects were not allowed to bail themselves out of jail. Investigators found that the difficult prison conditions were often enough to compel wealthy suspects into cooperating.

Operation Car Wash led directly to executives at Petrobras, who had been laundering illicit funds obtained through bribes. Essentially, Petrobras officials accepted artificially inflated contract bids from building and engineering companies; in return, the Petrobras officials received a cut of the inflated amount. Although a number of construction companies were implicated in the bribery scheme, the largest was Odebrecht. Prosecutors alleged that Odebrecht essentially led a cartel of construction companies that all colluded to rig construction bids for Petrobras. The head of the company, Marcelo Odebrecht, was arrested in June 2015; he chose not to participate in a plea deal. He was sentenced to nineteen years in prison in March 2016.

As the tentacles of scandal reached higher into the Brazilian government, the ruling Workers' Party found itself shouldering most of the public outrage. Indeed, the party had held power since 2003, during the time that most of the alleged bribes had taken place. In addition, both Lula and Rousseff had served on the board of directors for Petrobras during that time. Marcelo Odebrecht also admitted that some of the reported $48 million in donations he made to Rousseff and her running mate, Michel Temer, for her presidential campaign had been illegal.

Although Rousseff had been instrumental in passing reforms that allowed Operation Car Wash to succeed, and was not directly implicated in any wrongdoing at Petrobras, outrage among the public and lawmakers (some of whom were also implicated in the scandal) led to Rousseff's impeachment and removal from office in August 2016. Rousseff's successor, Michel Temer, faced even more serious allegations of corruption, including the personal acceptance of bribes. In July 2017, Rousseff's predecessor, Lula, was sentenced to nine and a half years in prison for corruption and money laundering related to several construction firms, including Odebrecht. Lula was allowed to remain free as he appealed the ruling, and even stated that he would run for president in an upcoming election. However, in April 2018, he had exhausted all his appeals, and was ordered to surrender to police to begin serving his sentence.

Important Developments

While the Odebrecht Organization's role in the Petrobras scandal has drawn the most attention, Operation Car Wash was only the beginning of the revelations regarding Odebrecht. Odebrecht executives caught up in the scandal also admitted to making donations to leading Brazilian opposition politicians, including many who led the charge against Rousseff—suggesting that corruption was hardly confined to the Workers' Party.

After its former CEO was jailed and other executives faced charges, the Odebrecht Organization made efforts to "come clean" regarding its past actions. The company admitted to paying nearly $800 million to government officials across Latin America and Africa to secure construction contracts between 2001 and 2015. In December 2016, Odebrecht struck a deal with authorities in Brazil, the United States, and Switzerland to pay at least $3.5 billion in fines related to its illegal conduct—the largest bribery settlement of its kind in history.

Odebrecht's admission of wide-scale bribery led to investigations across Latin America. In the Dominican Republic, where officials received $92 million in bribes for various construction projects, twelve people were arrested, including a trade minister and a former public works minister. In September 2017, two former ministers were also arrested in Panama, where Odebrecht had reportedly paid out $59 million in bribes. In October 2017, Ecuador's vice president, Jorge Glas, was arrested in connection with Odebrecht bribes.

The fallout for Odebrecht continued for years. In 2016, the company's revenues were nearly cut in half, and the number of employees working for the conglomerate were reduced by more than half. Governments around the world ceased work on current Odebrecht projects and vowed to never again strike deals with the construction giant. For its part, the company announced plans to regain its strength once more—but only through ethical means.

Pablo Kuczynski (1938–), president of Peru, nearly became another casualty of the Odebrecht scandal when Congress voted on whether to removed him from office for "moral unfitness" on 21 December 2017. Kuczynski was accused of hiding payments from Odebrecht to two of his consulting businesses between 2004 and 2006, while he was serving as finance minister and prime minister. He denied all allegations against him. A two-thirds majority vote was needed to oust Kuczynski, and he survived by a narrow margin. However, he did not remain in office for long. Bowing to mounting public pressure and facing another impeachment vote, Kuczynski resigned on 21 March 2018.

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Gale Document Number: GALE|SEEEMC117049207