Odebrecht's trail of bribes in LatAm

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Thursday, December 22, 2016

By Ángeles Rodríguez and Sebastián Pérez-Ferreiro

Brazilian construction giant Odebrecht and its petrochemical subsidiary Braskem paid about US$788mn in bribes to secure around 100 projects in a dozen countries over the last decade and half, reaping US$12bn in benefits, according to US law enforcement officials.

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In a plea deal, both companies agreed to pay at least US$3.5bn in fines to settle charges filed by the US, Brazil and Switzerland, in what the US Justice Department on Wednesday called the largest-ever resolution under a 1977 law that makes it illegal to bribe foreign government officials for business.

"Odebrecht and Braskem used a hidden but fully functioning Odebrecht business unit – a 'Department of Bribery,' so to speak – that systematically paid hundreds of millions of dollars to corrupt government officials in countries on three continents," said US Deputy Assistant Attorney General Sung-Hee Suh.

Some of the offshore entities used to disburse the bribes were owned or operated by people in the US, and some meetings surrounding the kickbacks were held in Miami, US prosecutors said.  The companies have agreed to cooperate with the investigations.

Dozens of Odebrecht executives signed plea bargains with Brazilian prosecutors and as many as 200 politicians might be implicated in the corruption scandal, the Associated Press reported. Odebrecht has fired 51 employees and disciplined another 26, according to the Justice Department.

ARGENTINA

Odebrecht admitted paying US$35mn in bribes to Argentine officials in 2007-14 to secure public works contracts. Almost immediately, Argentine lawmaker Margarita Stolbizer asked the attorney general's ministry to launch an investigation.

During the seven-year period, Odebrecht was awarded the project to expand the pipeline capacity of gas distributor TGS, a water treatment plant for AySA, and a catalytic reforming plant for a refinery owned by national oil company YPF, contracts that were overseen by then planning minister Julio De Vido and public works head José López, according to a Clarín newspaper report. Both officials currently face charges for what is believed to be a widespread kickback scheme involving public works contracts during the administration of former president Cristina Fernández de Kirchner (2007-15).

Odebrecht also carried out two rail projects: the burying of the Sarmiento line, where it was initially part of the winning consortium but later took over the US$3bn project by providing critical financing from Brazilian development bank BNDES; and a rail line for a potassium mine operated in Mendoza province by Brazilian miner Vale.

PERU

Odebrecht also admitted bribing Peruvian officials with US$29mn from 2005 to 2014. The government of President Pedro Pablo Kuczynski will work to channel US Department of Justice documents to the Peruvian public prosecutor's office in order to investigate the bribes, which may have spanned three straight administrations, cabinet chief Fernando Zavala said.

ECUADOR AND VENEZUELA

Between 2007 and 2016, "Odebrecht made and caused to be made more than US$33.5mn in corrupt payments to government officials in Ecuador," according to the US Justice Department. "Odebrecht realized benefits of more than US$116mn as a result of these corrupt payments."

In 2008, Odebrecht secured four contracts in Ecuador: the Baba multipurpose project to significantly improve hydropower generation, irrigation, agriculture, flood control and tourism in Ecuador's Los Rios province; the Toachi-Pilatón hydro plant; the Carrizal-Chone irrigation project, and the Tena airport in Napo province.

In 2013, it won a contract to build the 217km Pascuales-Cuenca multipurpose pipeline from port city Guayaquil to Cuenca for state-run oil company Petroecuador, and another one to build an aqueduct from the La Esperanza dam in Bolívar canton to the Pacífico refinery.

Odebrecht is also carrying out phases I and II of the Quito metro system's line No. 1 project.

In Venezuela, the Brazilian construction giant admitted to paying US$98mn in bribes to government officials and intermediaries to obtain and retain public works contracts.

DOMINICAN REPUBLIC

Obebrecht paid over US$92mn in bribes to government officials and intermediaries working on their behalf between 2001 and 2014.

The Justice Department report cites payments Odebrecht made to an unnamed intermediary in exchange for influencing the Dominican government's budget and financing approval for certain projects.

Odebrecht started operations in the Dominican Republic in 2002 and was in charge of the implementation of waterworks projects such as the US$51.3mn Hermanas Mirabal aqueduct (built from 2010-2015) and the US$115mn Samaná aqueduct (2006-2010).

 The company was also awarded the contract to modernize and expand the Corredor Víal del Este – a highway network which comprises the Circunvalación La Romana, the San Pedro de Macorís- La Romana, Autopista del Coral, Boulevard Turístico del Este and Carretera Miches highways – which was completed in 2013 at a cost of US$151mn and is said the to be most important road infrastructure project in the country in recent years.

Odebrecht also won the contract to build the US$2bn Punta Catalina thermoelectric plant, which is currently under construction. Earlier this year, El Nuevo Herald reported that the Brazilian company had received inside information related to the plant's tender.

GUATEMALA

Odebrecht paid around US$18mn in bribes to Guatemalan government officials from 2013-2015 in order to secure public work contracts, obtaining benefits amounting to US$34mn.

In 2012, the company won the highway CA-2 west expansion project to connect the cities of Tecún Umán and Cocales. Construction works began the following year, but were suspended in mid-2016. Local magazine Contrapoder says Odebrecht spent 70% of the project budget and completed less than 30% of the works.

The International Commission against Impunity in Guatemala has reportedly been investigating bribes to public officials from several foreign companies, including Odebrecht. The investigation involves former president Otto Pérez Molina and his cabinet members.

MEXICO

Odebrecht paid around US$10.5mn in bribes to corrupt government officials in Mexico in exchange for public works contracts from 2010-2014. In return, the Brazilian company obtained over US$39mn in benefits.

Odebrecht's plea deal documents mention the US$6mn payment that the Brazilian company made between 2013 and 2014 to a high-level public official of a state-owned company in exchange for assistance in winning a project.

In 2014, national oil company Pemex awarded the Brazilian company the US$935mn contract to build the Los Ramones II Norte natural gas pipeline.

In 2015, Pemex signed an agreement with Odebrecht for the development of a residuals utilization project for the Miguel Hidalgo refinery in Tula, Hidalgo state. The project's estimated investment is US$1.2bn and the works are supposed to be completed by 2Q18.

In 2012, Odebrecht's petrochemical subsidiary Braskem, as part of a consortium including Mexican group Idesa, began building Etileno XXI. This project involves the construction of a petrochemical complex that will produce ethylene and polyethylene. A pipeline to transport Pemex's oil supply is also part of the project's specifications.

Odebrecht has also been involved in waterworks, particularly in the state of Veracruz.  In 2011, it signed an agreement with the local government to build a US$450mn dam located in state capital Xalapa. The dam, to be built near the Pescados river, is designed to supply potable water to the city and its surrounding areas. Construction of the project has not been completed due to local opposition.

The Brazilian company also reportedly won a 30-year concession to manage potable water services in Veracruz and Medellín municipalities in Veracruz state.

PANAMA

Odebrecht paid over US$59mn in bribes to Panamanian government officials and intermediaries from 2010-2014 in order to secure public works contracts. In return, the company made over US$175mn in benefits.

The documents describe the case of two relatives of a high-level Panamanian government official connected to public infrastructure projects. The relatives received US$6mn in exchange for the official helping Odebrecht obtain certain contracts. The company paid the bribes through offshore entities.

In 2010, the company won the contract to build the US$160mn Corredor Colón highway, which was completed in 2014.

That same year, a consortium formed by Odebrecht, Construcción Internacional and FCC was awarded the contract to build line No. 1 of Panama City's metro system. The project was completed in 2014 at a cost of US$1.8bn. A year later, Panamanian authorities carried out an audit on the project due to alleged irregularities in the award of the contract.

Odebrecht also built a tunnel and a wastewater treatment plant as part of the Panama Bay sanitation program. Works were completed in 2013.

Odebrecht is currently executing the following projects in the country: extension of the Tocumen international airport; construction of a highway that connects Santiago to Vigui; construction of line No.2 of Panama City's metro system; construction of the country's third electric transmission line; as well as developing several housing projects and participating in the rehabilitation of historic buildings in Panama City's old quarter. 

POLITICAL IMPLICATIONS IN BRAZIL

In plea bargain testimony from former Odebrecht director Claudio Melo Filho obtained by the AP, Brazil's President Michel Temer is mentioned 44 times, including accusations the he illegally financed his campaign in 2014. If the accusations are confirmed by the nation's top electoral court next year, the president would be removed and congress would pick a successor. Former president Dilma Rousseff was impeached and removed from office in August for breaking fiscal rules.