A $4.4 billion money-laundering probe linked to state-run Petroleo Brasileiro SA is spreading to financial institutions as prosecutors investigate whether they met compliance requirements.
Court documents cite units of banks including New York-based Citigroup Inc., Madrid-based Banco Santander SA and London-based HSBC Holdings Plc, as well as Sao Paulo-based Itau Unibanco Holding SA and Osasco, Brazil-based Banco Bradesco SA as holding accounts or executing operations linked to the alleged laundering of 10 billion reais. Banks either declined to comment or said they meet compliance requirements.
Prosecutors are reviewing bank documents provided by police and the central bank, said Prosecutor Carlos Fernando Lima, the spokesman for a group of six prosecutors assigned to the case. He declined to name the banks because the group hasn’t started a formal prosecution and it’s not yet clear if any wrongdoing occurred.
“Institutions have a civil responsibility for all of their clients,” Lima said in an interview in Curitiba where the case is before a judge. “My experience is there’s usually no big money laundering operation without someone behind it from a financial institution. It’s too much to go unnoticed.”
The refining division at Petrobras, as the biggest producer in ultra-deep waters is known, is already under investigation by a congressional committee for runaway spending including alleged inflated contracts to suppliers, and is cited as one of the possible sources of cash being laundered in the case dubbed “Car Wash” by police.
Petrobras didn’t respond to e-mailed requests for comment on the case. The stock fell 2.3 percent to 19.67 reais in Sao Paulo.
Banks including units of Citigroup, Santander, HSBC, Bradesco and Itau, as well as brokerages, either created accounts, transferred money or both for alleged front companies cited in the investigation, according to court documents that compile the results of a police investigation, banking records, wire taps and initial conclusions from the prosecutors assigned to the case. The documents cite specific branches in Brazil and abroad, and specific account numbers.
The prosecution is “facing some difficulties” gaining cooperation from banks, Lima said. “They are not providing the data with the required speed and detail.”
The court has lifted privacy protections for banking information related to the case and the prosecution has repeatedly sought cooperation from banks and brokerages, he said.
The $4.4 billion of alleged laundering includes cash from Brazilians seeking to evade tax authorities, revenue from drug trafficking and money allegedly embezzled from Petrobras contracts, according to police press releases and court documents.
Informal foreign exchange traders known as doleiros normally receive money from clients in Brazil and then make deposits abroad from seemingly unrelated accounts for a fee, allowing clients to export cash without alerting the tax authorities. In the Car Wash scheme, doleiros or their associates allegedly set up front import and export companies to move larger volumes of cash, according to court documents.
Citigroup declined to comment in an e-mailed response. Itau said it meets appropriate compliance requirements and will collaborate with investigations. HSBC said it follows the highest compliance standards and collaborates with authorities whenever asked. Bradesco said it reports any suspicious operations to authorities in a timely way. Santander said it always collaborates with authorities in Brazil. All the banks said privacy rules prevent them from releasing information to the public on specific clients.
Those institutions are among the top 10 biggest non-government owned banks in Brazil by assets, according to the central bank website as of March 2014. They represent 38 percent of total assets in Brazil’s financial system.
Pioneer Corretora de Cambio, one of the largest brokerages in Brazil, said all of its transactions cited in the case followed central bank regulations.
Prosecutors are looking to identify bank staff who could have assisted in the alleged scheme and will seek collaboration from countries where the money was sent, Lima said.
Investigators have identified three groups of financial institutions allegedly involved: Brazilian banks holding accounts for doleiros, brokerages and banks executing foreign exchange operations allegedly based on fake import transactions, and international banks holding accounts overseas allegedly for front export companies.
In June, Swiss authorities voluntarily blocked $28 million in accounts in the names of former Petrobras director Paulo Roberto Costa or his alleged associates. He is accused of being a link between Petrobras and an alleged laundering organization led by Alberto Youssef who is jailed in Curitiba.
Youssef’s defense has entered a request to have him released while the case is in progress and denies the accusations, his lawyer Antonio Augusto Figueiredo Basto said in a phone interview from Curitiba. Youssef hasn’t been able to enter a plea yet because the case “is in a preliminary phase,” Basto said.
Costa’s lawyer, Nelio Machado didn’t respond to e-mails and phone calls requesting comment. Machado has repeatedly denied accusations against his client and said he will enter a plea in comments published by local media.
Youssef and his group allegedly diverted at least $445 million from June 2011 to March 2014 through 3,649 operations that included funds from Petrobras’s Abreu e Lima refinery, according to a criminal case dated April 22 that prosecutors submitted to the court. Youssef is providing testimony to the court while under arrest, Basto said.
The police first announced the investigation in March after seizing assets including 6 million reais in cash, three hotels and 25 luxury cars, including a Land Rover that Youssef bought for Costa, according to press releases from the police. Costa told investigators the car was a payment for consulting services and that he has done nothing wrong.
More than 40 people have been indicted in 10 separate prosecutions since then. Youssef is included in five of them and Costa in two. The court is still gathering testimony from witnesses before reaching any conclusions on convictions or acquittals, the court’s press office said in e-mailed responses.
Brazil loses between 1.4 percent and 2.3 percent of annual gross domestic product to corruption, according to a 2010 study from Sao Paulo state’s Industry Federation, Fiesp. Latin America’s largest economy ranks 133rd in diversion of public funds due to corruption among 148 countries in the World Economic Forum’s Global Competitiveness Report.
Brokerage Pioneer appears in court documents on hundreds of foreign exchange transactions, for what investigators allege are front companies in the laundering scheme. Pioneer director Joao Medeiros denied irregularities and said in a telephone interview that there is no evidence of fraud from Pioneer’s clients.
Banks and financial institutions that fail to notify authorities about suspicious activities may be subject to administrative penalties and fines, Pierpaolo Bottini, a Brazilian lawyer and author of a book on money laundering, said in a telephone interview. If staff not only suspected but knew about actual illegal activities and didn’t notify authorities, the employees and the financial institutions could be sued for participating in financial crimes, he said.
Criminal procedures against Youssef and Costa dated from April cite evidence of alleged money laundering and remittances abroad without required notification to authorities.
Costa, who led the refining unit from 2004 through 2012, assisted Youssef’s alleged money laundry organization by leveraging his position to obtain fraudulent contracts from Petrobras even after he had been dismissed as part of a wider management shakeup, prosecutors allege in a recommendation for criminal action that was delivered to a federal judge.
Judge Sergio Moro has requested testimony and further investigative work. Prosecutors said they have identified evidence of embezzlement at Petrobras from 2009 to 2014.
One of the documents where prosecutors recommend criminal action cites “overpriced contracts to companies that provide services, directly or indirectly to Petrobras, with collaboration and intermediation from Paulo Roberto Costa.”
Youssef was sentenced to seven years in jail in 2004 for participating in a money-laundering scandal at Banestado. Court documents say Youssef returned to the informal financial market, where money moves in and out of Brazil without formal notification to authorities, with increased activity after an early release for cooperating with investigators and promising to steer clear of illegal financial activities.
Three of the six prosecutors working on the Car Wash case also took part in the Banestado investigation, including Lima. Dozens of people besides Youssef were convicted, including bank managers responsible for foreign exchange operations.