In Land of White Collar Wrist-Slapping, A Milestone Ruling

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In a milestone day for Brazil’s biggest-ever corruption investigation, a judge handed down the first punishments to former executives at a building company and a top CEO was indicted.

Judge Sergio Moro sentenced Camargo Correa SA’s ex-President Dalton Avancini along with Eduardo Leite, the conglomerate’s former vice president, to 15 years and 10 months for corruption, money laundering and organized criminal activity. Both had previously turned state’s witness, and will serve part of their sentences under house arrest. Federal police also indicted Marcelo Odebrecht, head of Odebrecht SA holding company that owns Latin America’s largest builder, and other company executives.

In a nation where white-collar criminals are rarely punished, the sentences and indictments mark a new phase in the investigation of inflated contracts at state-run oil giant Petroleo Brasileiro SA that began last year. The probe has hobbled the economy by slowing infrastructure works and created political turmoil as state witnesses accuse lawmakers of allegedly benefiting from the kickback scheme.

“The 20th of July may be remembered as an important day where a lot of things sort of slammed together,” David Fleischer, an emeritus professor of political science at the University of Brasilia, said by phone. “This is the first time in the history of the republic that you have these very powerful business people –- Odebrecht is one of the largest private firms in Brazil –- being arrested, put in prison for over a month, and then indicted. That’s a really big first.”

Camargo Correa paid 50 million reais ($16 million) in kickbacks for two contracts to executives in Petrobras’s supply division including former director Paulo Roberto Costa, according to Moro’s decision. Moro also sentenced Joao Ricardo Auler, a former chairman, to nine years and six months for the same offenses as Avancini and Leite.

Since it first learned of the investigations, Camargo Correa has worked to identify and clear up irregularities, and reinforced its corporate governance and control systems, the company said in an e-mail in response to questions about the sentences. Petrobras’s press office declined to comment.

‘Solid Basis’

On Monday, federal police indicted Marcelo Odebrecht, who remains under preventive arrest. Other company executives were also indicted.

Brazilian federal police official Eduardo Mauat da Silva said in a document published by Estado de S. Paulo that Marcelo Odebrecht and seven others are suspected of crimes of corruption, laundering, bidding fraud and crimes against economic order. Prosecutors have not accused the suspects of any crimes.

Mauat said Odebrecht allegedly had knowledge of crimes being committed and tried blocking the investigations. Federal Police’s press office verified the authenticity of the document.

“Although without solid basis, the indictment was expected,” Odebrecht SA said in an emailed response to questions. Marcelo Odebrecht and other executives “will await the opportunity to plainly exercise their contradicting arguments and their right to defend themselves.”

The indictment came just one day after federal police indicted Otavio Marques de Azevedo, president of Brazil’s second-largest builder Andrade Gutierrez SA, along with other company executives for crimes including money laundering and corruption.

The indictment’s “expected content does not change in any respect the certainty the company has in the innocence of the accused executives,” Andrade Gutierrez said in a note on its website. The company also said there is no basis or proof to justify prison nor indictment of its current and former executives.

‘Shake Belief’

The investigation into executives is running parallel to another being conducted by lawmakers in Brasilia that has cast a pall over the capital.

Lower house President Eduardo Cunha last week urged his party, the biggest in the country, to abandon the ruling coalition and identified himself as a member of the opposition following allegations he received kickbacks in exchange for a Petrobras contract. He denied wrongdoing.

Senate President Renan Calheiros said in an address Sunday that Congress would not agree with a macroeconomic adjustment he deemed “the asphyxia of society.” Brazil’s economy will shrink 1.7 percent this year, according to the central bank’s weekly survey of economists published Monday, down from a prior forecast of a 1.5 percent contraction.

“In truth, a little political crisis does exist, due to the opposition of Eduardo Cunha,” Vice President Michel Temer, a member of the coalition PMDB party along with Cunha and Calheiros, told reporters in New York on Monday. “These incidents that occur once in a while should not shake belief in the country.”

The cost to insure Brazil’s debt against default for five years surged Monday, reaching its highest level since March. In the past month, five-year credit-default swaps have jumped 41 basis points, more than double all other investment-grade nations in Latin America. Brazil’s business confidence, as measured by the National Industry Confederation, fell in July to its lowest level on record.

The developments regarding Andrade Gutierrez and Odebrecht “could reinforce the sense of legal uncertainty and make it more difficult to overcome low confidence that’s helping to hold back investments,” Rafael Cortez, political analyst at Tendencias Consultoria, said in telephone interview.

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