Swiss Banks Probed Over Brazil’s ‘Carwash’ Bribery Scandalby , , and
Swiss AG, cooperating with Brazil, is reviewing money flows
AG froze $400 million from banks with suspected ties in 2015
The Swiss attorney general’s office is shifting its focus to banks operating in the country as it continues to investigate Brazil’s bribery scandal. Plea deals with individual executives have provided fresh insights into how the illicit funds flowed through the financial system.
Attorney General Michael Lauber said in an interview that he’s reviewing how Swiss banks were used to funnel bribes to officials at the state-owned oil producer Petroleo Brasileiro SA, known as Petrobras, and looking at whether those banks were criminally negligent. In the interview last week in Bern, Lauber declined to name any banks under investigation or provide a time frame for any action other than to say “the sooner the better.”
“We have a responsibility to follow the Swiss financial institutions, and this will be for sure one, I would say, of a stream of investigations which will be more in force,” Lauber said.
Lauber has said he is working closely with his Brazilian and U.S. counterparts who are looking into a sprawling graft scheme in Brazil, in an investigation known as Operation Carwash. More than a dozen people at Petrobras and its contractors have admitted to Brazilian authorities that they paid or took bribes, and hundreds of millions of dollars in illicitly transferred funds have been returned to state oil company.
More than 60 executives from the Brazilian construction firm Odebrecht SA and an affiliate were preparing last week to sign plea agreements with authorities in the U.S. and Brazil, admitting to charges involving the U.S. Foreign Corrupt Practices Act, people familiar with the matter have said. Odebrecht, which built refineries and other facilities for Petrobras, acknowledged that it participated in “inappropriate practices” and that it “won’t allow it to happen again.”
Switzerland’s investigation, which comes after years of U.S. crackdowns on Swiss bank secrecy, shows how the country’s authorities are taking a more aggressive stance on potential wrongdoing by its own banks. Swiss prosecutors are also looking into suspected bank misconduct related to the Malaysian wealth fund known as 1MDB.
Various banks were used as conduits for bribes from Odebrecht to Petrobras, Brazilian prosecutors have said based on interviews with executives. Brazil hasn’t charged any banks. While Lauber declined to comment in more detail on his investigation, Swiss authorities may want to know whether institutions with operations in the country had inadequate anti-money laundering controls in place.
Switzerland hasn’t accused specific financial institutions of wrongdoing. Last year, Brazilian prosecutors said the Swiss units of HSBC Holdings Plc, Royal Bank of Canada and Deutsche Bank AG had been used to conduct a money-laundering operation by Bernardo Freiburghaus, a Brazilian-Swiss dual citizen who allegedly set up the scheme. And Lombard Odier, the Geneva-based private bank and asset manager, has been described as a conduit for bribes in testimony by the former Petrobras executive Paulo Roberto Costa who was convicted of accepting bribes and began cooperating with Brazilian prosecutors in 2014.
Officials at the Swiss units of HSBC, Deutsche Bank and Lombard Odier declined to comment. A spokesman for Banque Syz, which bought RBC’s Swiss unit in 2015, said that Syz wasn’t under investigation and that it was cooperating with authorities. A spokeswoman for Royal Bank of Canada’s wealth management unit, which oversaw the bank’s Swiss business, said no allegations have been made against it.
Fernanda Telles, a lawyer for Freiburghaus, didn’t respond to requests for comment. Last year she said her client never facilitated bribe payments and was “not an operator of anything, or of anybody.”
Swiss prosecutors have roughly 60 criminal proceedings underway linked to bribery and money laundering at Petrobras. Fifty-six of those proceedings are against individuals whom the authorities haven’t named; the other four are against companies including Odebrecht, according to a spokesman for the attorney general. It’s unclear how many of the individuals, if any, are among those who were poised to plead guilty in the U.S. and Brazil.
The attorney general last year froze $400 million in assets from more than 30 banks in Switzerland for their suspected ties to the Petrobras scandal, without naming the banks. The Swiss Financial Market Supervisory Authority, the regulator known as Finma, has opened enforcement proceedings against four Swiss banks, which it also declined to name.
Lugano-based PKB Privatbank SA, indirectly controlled by the Trabaldo Togna family of Italian textile merchants and tailors, is one of those subject to Finma proceedings, according to a person familiar with the matter. A spokeswoman for PKB declined to comment.
The number of requests for legal assistance from Brazilian authorities to their Swiss counterparts, concerning a range of cases, grew to 25 in the first 10 months of 2016 from 21 in all of 2015, according to Switzerland’s Federal Office of Justice, which coordinates those appeals under the countries’ mutual legal assistance treaty, or MLAT. Over the same period, the Swiss attorney general’s office submitted 18 requests to Brazil, compared with 10 filed in 2015.
The stepped-up cooperation underscores how Swiss prosecutors are playing dual roles in the Petrobras case, Lauber said. One is to help Brazilian prosecutors untangle the Swiss financial structure behind specific transactions, and the other now gathering steam is to collect the evidence for its own potential case against Swiss banks, he said.
“When we have established the predicate offense elsewhere, we have to use this as a basis to follow Swiss financial institutions in their wrongdoing,” said Lauber, who is also leading an investigation into soccer’s governing body, FIFA.
Operation Carwash, Brazil’s biggest-ever corruption case, originated as a money-laundering probe. Some of the money paid to Petrobras eventually went into funding the country’s political parties, prosecutors have alleged. Insiders at Petrobras and a cartel of contractors allegedly siphoned large sums from inflated construction and service contracts. Prosecutors at one point detained former President Luiz Inacio Lula da Silva of Brazil for questioning, setting off several days of street protests last spring.
Petrobras has repeatedly said it was a victim in the corruption scheme and that it’s working to recover money lost to graft.