Three cheers for justice?

Photographer: Mario Tama/Getty Images

Petrobras Fallout Says One Good Thing About Brazil

Mac Margolis writes about Latin America for Bloomberg View. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”
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The stink from Brazil's multi-billion dollar Petrobras scandal is worsening by the week, dragging down the economy and with it, President Dilma Rousseff's political fortunes. On Feb. 24, for instance, Moody's Investor Services knocked the state-controlled oil giant's debt two notches into junk status, stoking worries that Brazil's sovereign bonds could follow.

Not surprisingly, Rousseff's loyalists have rallied in the streets and on the Internet. Former president Luiz Inacio Lula da Silva hit the pavement, exhorting the companheiros to rally for Petrobras and for his mentee Rousseff to "keep her head high." Rousseff's administration has not been idle, either, exploring novel legal strategies to keep company executives and crooked pols out of the dock.

But here's the good news: The dogged course of the investigation, and the frantic measures that its targets are taking to evade it, are actually signs that Brazil is getting better at bringing the bent to justice.

For the past 11 months, under plea-bargaining arrangements, Petrobras officials and executives of Brazil's top building firms have told prosecutors of fraudulent contracts, kickbacks and overbidding allegedly designed to pump hundreds of millions of petrodollars to political allies of the Rousseff government.

More lurid headlines loom when chief prosecutor Rodrigo Janot finally hands the Supreme Court a list of politicians implicated in the massive money-laundering scheme known as "Car Wash," created to scrub at least $1.5 billion looted from the state oil major. Government critics have already launched a drive for Rousseff's ouster, with a nationwide  impeachment march called for March 15.

Although contractors caught in the scandal must answer to the criminal courts, Brazilian politicians and bureaucrats may be tried only in the high court. Several dozen lawmakers connected to Rousseff's governing coalition are expected to be formally investigated and perhaps indicted.

Faced with that prospect, government attorneys have mounted a rearguard, whipping up a strategy for the implicated companies to come clean to the federal auditor and avoid being blacklisted from public tenders. If companies strike a deal with the executive branch, they may be less inclined to tell all to prosecutors in the rigorous Car Wash probe, shielding politicians in the process.

The so-called leniency clause that the attorneys hope to use is a key provision written into a sweeping Anti-Corruption Law, designed to root out fraud and bribery from government contracts without crippling the companies. But Rousseff has yet to sign the bill, and the law must still be regulated, leaving a legal vacuum.

The public prosecutor's office has filed a motion to block the initiative on fears that cherry-picking the leniency clause from the unsigned bill could undermine the ongoing criminal case against Petrobras.

But the prosecutors' case may not ultimately be harmed. "Since the anti-corruption law has yet to be regulated, any number of interpretations are possible," Joaquim Falcao, dean of the law school at the Getulio Vargas Foundation, told me. Executives of companies counting on a lighter punishment by cooperating with government could still find themselves dragged before judge and jury once the law is regulated, Falcao said.

And once they are, the odds are increasingly against their getting off lightly. The turning point in Brazilian jurisprudence was the mensalao, the cash-for-votes scheme that saw two dozen top-tier moguls and politicians convicted by the Supreme Court in 2013, shattering the certainty that a white collar was a get-out-of-jail-free card. That example has facilitated the Car Wash investigation, driving confessed criminals to turn state witnesses lest they and their families go to prison. "That fear is decisive for Brazil," said Falcao.

So what changed? Faced with the enormity of the mensalao scandal, the courts stopped deciding cases on doctrinal hairsplitting and started looking instead at the evidence. "What society wanted to know was whether crimes were committed or not," said Falcao. "Facts became more important than theories." And in the weeks and months of testimony to come, the facts of the Petrobras scandal promise to speak for themselves.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net