One Brazil Crime Ring Is Cracked. But What About the Other 19?

  • So many graft investigations, none likely to match Carwash
  • ‘A lot of people die before they ever run out of appeals’

Prosecutor Frederico Paiva recalled how badly he was sweating, his shirt soaked even though the air conditioner in the chambers was going full bore. He and his partner, Marlon Cajado, were pleading with a judge to extend wiretaps that had helped the duo uncover a scheme they determined had robbed Brazil of as much as $10 billion in dodged taxes.

No luck. Paiva emerged hardly able to take it in. Operation Zealots, the case he’d bet his career on, was going sideways. Cajado, a federal police officer, tried to console him, in a way. “Look, it’s no use,” Paiva recalled him saying. In Brazil, “things don’t change.”

The setback in 2014 marked the start of a typical limp to the finish for a graft investigation in the country, where Zealots is one of at least 19 major inquiries unfolding this year in the shadow of the celebrated Operation Carwash. Most have more colorful names -- Operation Sea of Mud, Operation False Address, Operation Periodic Table -- but if history’s a guide, none will come close to matching the probe that has snared members of the elite, including a former president and the onetime head of Latin America’s largest independent investment bank.

That massive case, focused on a kickback scheme tied to the state-run oil giant Petroleo Brasileiro SA, has been hailed at home and abroad, held up as proof Brazil is serious about cracking down on profiteering by tycoons and politicians and about shattering a culture of impunity. The reality, though, may be in the status quo of operations like Zealots.

Carwash “is a meaningful shift, but this isn’t a watershed moment,” said Christopher Garman, managing director at Eurasia Group in Washington. Paiva is resigned to that. His partner Cajado was right, the prosecutor said from his office in Brasilia.

“In Brazil, corruption isn’t the exception. It’s the rule.”

No Bail Required

Operation Zealots has grabbed headlines of its own, with charges against the likes of billionaire Joseph Safra, Brazil’s second-richest person, and banker Luiz Carlos Trabuco Cappi, both of whom have denied wrongdoing. But Zealots has sharply scaled back its scope as Carwash has barreled ahead, with more than 200 charged and 23 convicted so far.

Luiz Carlos Trabuco Cappi

Photographer: Paulo Fridman/Bloomberg

Paiva, a bookish 39-year-old in wire-rim glasses, said he had to refocus his investigation and drop potential targets because of a lack of resources and the common plagues of inefficiencies and infighting. Carwash is led by a judge unencumbered by other responsibilities and supported by a task force of more than 70, including about a dozen prosecutors. Zealots has two and a rotating cast of jurists with thousands of cases on their dockets.

Cajado was reassigned in May, and no full-time replacement has been named. The wiretaps never resumed. The judge who stopped them accused Paiva of slander after the prosecutor complained he was obstructing the probe. Nine people were convicted but are appealing in freedom -- no bail required.

‘Conducive To Corruption’

That’s par for the course in Brazil, where convoluted procedures allow cases to drag on to the grave. “A lot of people die before they ever run out of appeals,” said David Fleischer, professor emeritus of politics at the University of Brasilia. “If you’re rich and can hire a hot-shot lawyer, you can put off going to jail for 20 to 25 years.”

Joseph Safra

Photographer: Lionel Cironneau/AP Photo

One problem, he said, is that there’s no judicial precedent: One court’s decision isn’t a foundation for others, making way for endless arguments on the same technical points. Most jurists are simply overwhelmed.

“The way the system works is very conducive to corruption,” Fleischer said.

A former civil prosecutor and one-time local judge who ruled on street crimes, Paiva joined the federal prosecutor’s office in early 2014. Part of the job was sorting through the tips, two or three a week, alleging wrongdoing by public officials or businesses. Most went nowhere. Then, a few months in, a letter arrived, signed with a fake name and address.

It claimed bribes were changing hands at the Administrative Council of Tax Appeals, a board known as Carf, where companies go to have tax payments slashed or shelved. The details were almost unbelievable. It was obvious, Paiva said, that “this case deserved special attention.”

Glacial Pace

He and Cajado got to work. The judge assigned to Operation Zealots granted permission to tap the phone lines of about 50 people, including Carf board members. Cajado said what they heard was jaw-dropping. The participants haggled over payola “as if it was totally normal, laughing and joking. It was shocking -- these are public servants.”

For 90 days, the two listened in, going back to the judge every 15 days, as required by law. Then that judge left for a year to fill a rotating post on Brazil’s top court, and his replacement, Ricardo Leite, called a halt to the wiretaps in November 2014. Leite declined to comment for this story.

“It made no sense,” Paiva said. “People were actively negotiating bribes on the phones and he says, ‘Stop.’ Why? I have no idea.”

The investigation continued, but Paiva grew frustrated with what he saw as the glacial pace, as evidence from raids got stuck in backlogs and rulings took months. He filed a request with the Federal Regional Tribunal in June 2015 to have Leite removed for allegedly impeding the probe; the tribunal never issued a decision. Leite filed the slander complaint, which was thrown out.

‘Perfect Crime’

Operation Carwash was an outlier from the start. Based in Curitiba, about 850 miles south of Brasilia, it’s headed by a judge, Sergio Moro, who leads a team of prosecutors and police officers with whom he’s been fighting crime in the state of Parana for more than a decade. It’s a tight-knit group that has grabbed resources and elbowed its way around blockades that have stalled other investigations.

While Paiva may be disillusioned, he said he doesn’t regret the past two years. The tax-appeals board rulings since Operation Zealots began have undoubtedly been fairer, he said. Before the probe called attention to the matter, the Finance Ministry relied on Carf board members to declare themselves unfit to rule on a company’s case if there was a conflict of interest. Zelotes pointed out instances where there were in fact conflicts, and the ministry said in a statement that it has rewritten the policy so it is “even clearer and more rigorous with respect to restrictions.”

At this point, Paiva expects to recover as much as 5 billion reais ($1.5 billion) in taxes. Besides eight cases against 36 individuals that have been launched, he said he has “strong evidence” to bring charges in eight more. Some 10 members of Carf have been implicated by the federal police. But the prosecutor originally had 70 companies in his sights -- and now figures he’ll be lucky if he can go after 16.

“Sometimes,” he said, “there is such a thing as the perfect crime. Not because the crime really was perfect, but because the investigation wasn’t.”

— With assistance by Andressa Lelli, and Mario Sergio Lima

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