When Sergio Moro ordered the detention of two prominent top executives last week, the Brazilian federal judge said he was acting to protect the world’s seventh-largest economy.
Moro said he was trying to stop the spread of an alleged bribe-fueled cartel scheme organized by the companies controlled by some of the country’s richest and most powerful families. His choice: suspend the public contracts of the businesses allegedly involved or jail the top executives running them.
“These companies, given the dimension of billions in net worth, have a relevant role in the Brazilian economy,” Moro said last week. “It’s even reasonable to debate leniency measures so the companies can survive, to preserve the economy and jobs.”
The need to halt corruption while keeping the big contractors intact has become a kind of mantra among officials in the country, including President Dilma Rousseff, who said in a January speech that “people found guilty should be punished, not the companies.”
A ban, Moro said in the arrest order released June 19, would cause “harmful collateral damage” in an economy already facing the worst contraction in a quarter-century.
The probe has ensnared companies controlled by six of Brazil’s richest families -- the Odebrechts, Andrades, Gutierrezs, Camargos, Queiroz Galvaos and Mata Pires -- who together control fortunes valued at more than $17 billion combined, according to the Bloomberg Billionaires Index. None of the family members have been accused of any crimes.
The family-owned companies are some of Brazil’s biggest employers, top campaign donors, and biggest recipients of subsidized loans from state banks.
They’ve led the way in the 20th-century acceleration of Brazil’s development, from the megadams that keep the lights on to subways, highways and World Cup stadiums. The Olympic Park for the 2016 Summer Olympics in Rio is being built by a consortium including Odebrecht and Andrade Gutierrez.
“The contractors today are a very important piece –- perhaps the decisive one -- in the functioning of Brazil’s economy and politics,” said Pedro Campos, a history professor at the Federal Rural University of Rio de Janeiro.
Government ministers reinforced the desire to protect the businesses. Justice Minister Jose Cardozo told journalists the day after the detainments that Moro’s decision does not affect government plans to open up infrastructure concessions for a $64 billion investment plan.
Failing to protect Brazil’s biggest engineering firms like Odebrecht while carefully pruning out corruption would amount to “throwing out the baby with the bath water,” defense minister Jacques Wagner said in Globo newspaper on Feb. 24. He made the comments while visiting a naval base where Odebrecht and a French partner are building Brazil’s first nuclear submarine.
“There is a political eco-system here that depends on the companies and their continued access to the contracts,” said Kathryn Hochstetler, political science professor at University of Waterloo.
The builders being investigated in the Petrobras scandal legally contributed about 350 million reais to political parties in 2014, an election year. The share of Odebrecht and its subsidiaries was 88 million reais, while the share of Andrade companies was 92 million reais, according to the electoral tribunal’s website.
Police placed Marcelo Odebrecht and Otavio Azevedo of Odebrecht SA and Andrade Gutierrez SA, respectively, in preventative detention June 19 as part of a coordinated federal operation involving 220 police officers in four states. The move allowed officials to hold the executives without charging them in the interest of stopping criminal activity from continuing, Moro said.
The detentions are the culmination of months of digging by investigators. A scheme involving insiders at state-owned oil company Petrobras and contractors to rake-off vast sums from inflated construction and service contracts had to have the blessings of corporate higher-ups, they said.
Moro, who denied a request by prosecutors for arrest of Odebrecht executives in November, said there has since been an accumulation of evidence that shows both CEOs were aware of the decade-long scheme involving hundreds of millions in bribes. He cited an e-mail sent to executives including Marcelo Odebrecht about overpricing of contracts, and a phone call between Azevedo and alleged bribe broker Fernando Soares.
Soares has denied any wrongdoing. A spokeswoman for Andrade Gutierrez said that the only business that Azevedo has had with Soares was a boat transaction that was reported to the appropriate authorities.
A spokeswoman for Odebrecht said in an e-mailed statement that the subject of the e-mail was a legal business deal for construction and operations of drill ships and had nothing to do with any irregularities.
Odebrecht and Andrade have denied participating in any cartel. Odebrecht said in a statement that the executive’s detention was unfair, and Andrade said it has been collaborating with authorities in the investigation. The companies declined to provide additional comment.
The detainments are part of a growing corruption crackdown that led to Petrobras suspending more than 20 companies from bidding on new contracts with the oil company in December.
Federal prosecutors have also opened a preliminary inquiry into whether ex-President Luiz Inacio Lula da Silva used his influence to persuade the state development bank to finance Odebrecht projects overseas. Odebrecht projects received most of the bank’s $11.9 billion in loans overseas since 2007.
Lula, the bank and Odebrecht have denied wrongdoing. Odebrecht’s interests include shared control with Petrobras of Braskem, Latin America’s biggest petrochemical maker. The Odebrecht family has a fortune worth about $3 billion, split between more than a dozen family members, including CEO Marcelo.
Salvador-based Odebrecht employs more than 168,000 workers globally, with 106,000 of the jobs in Brazil, according to an e-mailed response from a company spokeswoman. Andrade Gutierrez said the group creates more than 250,000 jobs in 40 countries, mostly in Brazil.
Debt linking the companies to the financial sector also raises the stakes of the investigation, said Lourdes Casanova, director of the emerging markets institute at the Johnson School of Business at Cornell University. Odebrecht SA reported net debt of 63.3 billion reais ($20.2 billion) last year, a 21 percent increase from the year before. About 25 percent is owed to local Brazilian lenders and 13 percent to foreign banks, according to the company.
In his arrest order, Moro said the cycle of corruption was described in testimonies as spreading from the Petrobras contractors to an oil rig supplier and to the building of the world’s third-largest dam in the Amazon.
The Camargo family’s $7 billion fortune -- the biggest of the contractors cited in the central probe -- is split between three sister heiresses. They’ve led the way among the contractors of diversifying away from the construction sector, and now hold investments in publicly traded toll-road operator CCR, power company CPFL, cement maker Cimpor, and Alpargatas, manufacturer of Havaianas flip-flops.
Camargo Correa SA, the Sao Paulo-based holding company for the family, was cited as a member of the cartel by prosecutors. None of the sisters have been accused of any wrongdoing.
Sergio Andrade, who owns a one-third stake in Andrade Gutierrez, is also a billionaire. The company owns Brazil’s second-biggest construction company, and holds stakes in CCR, telecom provider Oi, telemarketer Contax, power company Cemig and water supplier Sanepar. The patriarch’s fortune is valued at $1.7 billion. Otavio Azevedo, who was detained on June 19, was the billionaire’s right-hand man.
Sergio Andrade has not been accused of any wrongdoing.