Understanding Brazil’s “Sistema S”

On Tuesday morning, Robson Andrade, president of the Brazilian Confederation of Industries (CNI), was arrested as part of a Federal Police investigation into corruption allegations connected to the “Sistema S” — a group of non-profit organizations run by the private sector, which promote educational and cultural activities across the country.

Mr. Andrade, along with other business owners, is accused of having overpriced contracts for the “Dolls of the World” cultural festival, organized by the Industry Social Service (SESI) in the northeastern city of Recife.

SESI is run by industry employers’ unions (such as the CNI) and promotes cultural and sporting activities, as well as health initiatives. It is one of nine such organizations which make up the Sistema S. Though administered by the private sector, the Sistema S is publicly funded, receiving a yearly transfer of over BRL 17 billion from the state — half of the entire budget destined for the Bolsa Familia welfare cash transfer program.

Besides SESI, the Sistema S is made up of the following organizations:

• Commerce Social Service (SESC): similar to SESI, but run by commerce unions, promoting activities related to culture, health and sport, as well as concerts;
• Transport Social...