Odebrecht turns over new leaf with leniency deal

. Jul 10, 2018
Odebrecht corruption leniency deal Odebrecht signed a BRL 2.7bn leniency deal
Odebrecht corruption leniency deal

Odebrecht signed a BRL 2.7bn leniency deal

For decades, corruption has been an integral part of the corporate culture at Odebrecht. So much so that Brazil’s largest construction firm has an entire department exclusively dedicated to the payment of bribes to public officials. Ambiguously named the “Structured Operations division,” until 2015 it had five staff members and a separate office at Odebrecht headquarters.

This division boosted the company’s growth and international presence. Annual revenues reached BRL 97 billion in 2013. But after the launch of Operation Car Wash, the largest anti-corruption investigation in Brazilian history, prosecutors managed to prove that the company paid over BRL 12 billion in kickbacks to at least 400 politicians between 2006 and 2014 alone. Cornered by investigators, 77 former executives detailed the ins and outs of Odebrecht’s schemes.

The company’s former CEO, Marcelo Odebrecht, spent two and a half years in prison and is now under house arrest. His father, also convicted of corruption, announced at the end of last year that the family, which owns approximately 80 percent of the company’s stock, would no longer hold seats at the board. During his speech, Mr. Odebrecht Sr. promised that the group, once one of Latin America’s biggest, would emerge from the ashes.

</span></p> <hr /> <p><img loading="lazy" class="alignnone size-large wp-image-5744" src="" alt="odebrecht latin america bribes" width="1024" height="677" srcset=" 1024w, 300w, 768w, 610w, 1180w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <p><span style="font-weight: 400;">One important step towards the uncertain rehabilitation was struck this week when Odebrecht signed a leniency agreement with the offices of Brazil&#8217;s Controller General and Solicitor General. The firm will help investigators (by giving statements and turning in evidence) and pay BRL 2.72 billion over 22 years to compensate the federal government. </span></p> <p><span style="font-weight: 400;">In financial terms, the deal is actually not that big. That&#8217;s because Odebrecht already signed a BRL 3.8 billion deal with the Federal Prosecution Office in the past. This previous deal encompassed corruption at municipal, state and federal levels &#8211; thus already including the amount concerned by the new leniency agreement.</span></p> <p><span style="font-weight: 400;">However, the deal is huge in what it represents. Thanks to it, Petrobras will lift restrictions on doing business with Odebrecht &#8211; a company that, let&#8217;s not forget, was instrumental to misappropriating </span><a href=""><span style="font-weight: 400;">at least</span></a><span style="font-weight: 400;"> BRL 7 billion, according to Petrobras&#8217;s own predictions. Brazil&#8217;s state-owned oil &amp; gas company said the agreement was only possible because Odebrecht adopted &#8220;measures to prevent, detect, and remediate acts of corruption and fraud.&#8221;</span></p> <hr /> <h3><img loading="lazy" class="alignnone size-large wp-image-5743" src="" alt="odebrecht profits" width="1024" height="503" srcset=" 1024w, 300w, 768w, 610w, 1180w" sizes="(max-width: 1024px) 100vw, 1024px" /></h3> <hr /> <h3>Odebrecht and Brazil&#8217;s political system</h3> <p><span style="font-weight: 400;">For decades, bribery and <a href="">corruption</a> were pillars of Odebrecht&#8217;s business model. Money in exchange for colossal deals with public administrations. As a matter of fact, Swiss prosecutors stated in December 2016 that, for every USD 1 million the company injected into the pockets of dirty politicians, it made USD 4 million in profits.  </span></p> <p><span style="font-weight: 400;">The firm has &#8220;purchased&#8221; at least 12 tax laws since 2005. As a matter of fact, if Odebrecht were a party, it would have one of Congress&#8217; largest caucuses. And probably the most loyal one. Odebrecht&#8217;s method was simple: financial cooptation. By buying out congressmen, the company gathered much more than simple partners. It had accomplices.</span></p> <hr /> <p><span style="font-weight: 400;"><img loading="lazy" class="alignnone size-large wp-image-5742" src="" alt="odebrecht financial report" width="1024" height="590" srcset=" 1024w, 300w, 768w, 610w, 1180w" sizes="(max-width: 1024px) 100vw, 1024px" /></span></p> <hr /> <p><span style="font-weight: 400;">And while many people like to point the finger at former President Luiz Inácio Lula da Silva and his Workers&#8217; Party, the reality is that every major Brazilian political party got a piece of the action. A total of 26 parties have had their names dragged through the mud. Executives say that politicians forced them to give them dirty money. Meanwhile, politicians say that raising campaign funds illegally was unavoidable, owing to how expensive campaigns have become.</span></p> <p><span style="font-weight: 400;">While contracts at the federal level were enormous, Odebrecht also made a lot of money at the state level. The reason is simple: less oversight and politicians who are easier to control. &#8220;Our executives paid a lot of attention to elections in states where we had businesses,&#8221; said former CEO Marcelo Odebrecht. </span></p> <h3>Rebranding and divestments</h3> <p><span style="font-weight: 400;">Trying to put this recent past behind it, Odebrecht is now reshaping its group. The construction firm that gave the Odebrecht name its strength will remain, but other businesses have already started to be sold away. Swamped in debt &#8211; and <a href="">banned from countries such as Peru</a> &#8211; the group is getting rid of many parts of the empire.</span></p> <hr /> <p><span style="font-weight: 400;"><img loading="lazy" class="alignnone size-large wp-image-5739" src="" alt="odebrecht operation car wash" width="1024" height="590" srcset=" 1024w, 300w, 768w, 610w, 1180w" sizes="(max-width: 1024px) 100vw, 1024px" /></span></p> <hr /> <p><span style="font-weight: 400;">One of them is Odebrecht Ambiental, a sanitation company, which was snatched by Canada&#8217;s Brookfield investment group for BRL 2.9 billion. In Peru, the Chaglla hydropower plant was sold to China&#8217;s Three Gorges Corp. for USD 1.4 billion, but the deal has been blocked by authorities while a penalty on the Brazilian construction firm is calculated. The goal for divestments is BRL 12 billion.</span></p> <p><span style="font-weight: 400;">A big chunk of that money could come from selling Odebrecht&#8217;s stock at Braskem, a petrochemical company owned in partnership with Petrobras. Since last month, the Brazilian construction firm is in exclusive talks with the Netherlands&#8217; LyondellBasell, which earns USD 34 billion worldwide and owns a plastic plant in São Paulo&#8217;s countryside.</span></p> <p><span style="font-weight: 400;">According to </span><a href=""><i><span style="font-weight: 400;">Valor</span></i></a><span style="font-weight: 400;">, a deal should be signed by mid-October, as the Dutch company has already started its due diligence on Braskem. The deal, however, needs the approval of Brazil&#8217;s antitrust watchdog to be final &#8211; which could take approximately a year. Braskem&#8217;s value is estimated at BRL 55 billion &#8211; BRL 22 billion of which would belong to Odebrecht.</span></p> <hr /> <p><span style="font-weight: 400;"><img loading="lazy" class="alignnone size-large wp-image-5745" src="" alt="odebrecht latin america debt" width="1024" height="503" srcset=" 1024w, 300w, 768w, 610w, 1180w" sizes="(max-width: 1024px) 100vw, 1024px" /></span></p> <hr /> <p><span style="font-weight: 400;">The company is also desperate to get rid of its duties as the administrator of the Maracanã Stadium (which hosted two <a href="">World Cup</a> finals and the 2016 Rio Olympics opening ceremony). Since the company reformed the stadium in 2014, in a highly overpriced project, the Maracanã has only been a source of losses.</span></p> <p><span style="font-weight: 400;">By focusing almost exclusively on the construction sector, Odebrecht hopes to snatch up to USD 18 billion in new contracts both in Brazil and abroad. The company is well-positioned to win a bid on Tanzania&#8217;s Stiegler&#8217;s Gorge hydropower plant, a USD 3 billion contract. </span></p> <p><span style="font-weight: 400;">To help the group&#8217;s expansion, and financial recovery, its marketing team is trying to change the group&#8217;s name altogether &#8211; something that would be unimaginable a few years ago. As a matter of fact, the company&#8217;s executives got a press advisor fired in 2012 after he suggested just that. Now, as the Odebrecht family name has become toxic, pride is not in the way of a rebranding.

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