How foreign companies took part in corruption schemes in Brazil

. Jul 12, 2018
corruption ge brazil GE Latin America's CEO accused of corruption
corruption ge brazil

GE Latin America’s CEO accused of corruption

For the past four years, Operation Car Wash has revealed how some of Brazil’s biggest companies have bribed elected officials in order to win contracts from the public administration. Now, we are beginning to find out how international companies have used the same methods to prosper in Latin America’s biggest economy.

Last week, the operation’s branch in the state of Rio de Janeiro targeted giants of the health sector, such as Philips and Johnson & Johnson. Both companies are suspected of being part of a major fraudulent scheme to siphon money from the state’s trauma institute. They overcharged for prosthetics and other equipment, with part of the proceeds going to the pockets of dirty politicians.

</span></p> <p><span style="font-weight: 400;">The &#8220;international bidding group,&#8221; as the association of foreign companies to defraud Rio&#8217;s </span><a href=""><span style="font-weight: 400;">public healthcare system</span></a><span style="font-weight: 400;"> became known, gave hefty stipends to high-ranked officials in the state&#8217;s administration, including the former state health secretary and the former governor &#8211; both of whom have been arrested for corruption. Not even the Rio&#8217;s financial crisis got in the way of the scheme, which continued thriving even after Operation Car Wash began spreading to Rio de Janeiro.</span></p> <p><span style="font-weight: 400;">Between 2015 and 2017, the state healthcare system was in collapse. Many hospitals were closed down or transferred to municipal administrations, outsourced workers were no longer being paid (and stopped working during part of the week). As </span><i><span style="font-weight: 400;">El Pais</span></i><span style="font-weight: 400;"> reported in December 2015, units that offered emergency care started to admit only patients in a </span><a href=""><span style="font-weight: 400;">near-death state</span></a><span style="font-weight: 400;">, due to a sheer lack of resources.</span></p> <p><span style="font-weight: 400;">While today&#8217;s crisis in Rio de Janeiro seems acuter in the public security department, the state healthcare system continues to struggle. In 2017, the sector suffered a BRL 1.4 billion budget cut &#8211; which led entire wings of some state hospitals to be shut down. </span></p> <h3>How international companies defrauded the system</h3> <div id="attachment_5851" style="width: 1034px" class="wp-caption alignnone"><img aria-describedby="caption-attachment-5851" loading="lazy" class="size-large wp-image-5851" src="" alt="corruption scheme rio de janeiro" width="1024" height="629" srcset=" 1024w, 300w, 768w, 610w, 1960w" sizes="(max-width: 1024px) 100vw, 1024px" /><p id="caption-attachment-5851" class="wp-caption-text">The corruption scheme. Source: Prosecutors</p></div> <p><span style="font-weight: 400;">According to the Federal Accounts Court (an audit tribunal that monitors public spending), Rio&#8217;s trauma institute alone paid over BRL 1.5 billion to contractors between 2006 and 2017.</span></p> <p><span style="font-weight: 400;">Last week, a federal court authorized the arrest of 22 people for taking part in corruption schemes within Rio&#8217;s healthcare system. Forty-three search warrants were carried out, including in foreign companies&#8217; headquarters in Brazil, and BRL 1.2 billion in assets were frozen.</span></p> <p><span style="font-weight: 400;">The list of arrested suspects includes the </span><a href=""><span style="font-weight: 400;">CEO of General Electric</span></a><span style="font-weight: 400;"> in Latin America, Daurio Speranzini, Jr. His arrest is related to his time as the CEO of Philips Healthcare Brazil, although prosecutors say &#8220;he continued the same spurious </span><i><span style="font-weight: 400;">modus operandi</span></i><span style="font-weight: 400;">&#8221; after taking over GE. Notwithstanding, the American company doesn&#8217;t figure among the 37 groups under formal investigation. GE, Philips, and Johnson &amp; Johnson have released statements denying any wrongdoing.</span></p> <p><span style="font-weight: 400;">The operation that arrested Mr. Speranzini was a spin-off of an April 2017 operation that investigated crimes of fraud, corruption, money laundering, and criminal association. At the center of the investigation was former Rio governor Sérgio Cabral (who has accumulated six criminal convictions amounting to 123 years of prison) and former Secretary of Health Sérgio Côrtes.</span></p> <p><span style="font-weight: 400;">Mr. Cabral received monthly stipends ranging from BRL 400,000 to 500,000, according to defendants who are collaborating with the investigation. </span></p> <p><span style="font-weight: 400;">The leader of the &#8220;international bidding group&#8221; was a businessman called Miguel Iskin, who commanded the cartel of international companies that defrauded the healthcare system. Mr. Iskin was the connection between public officials and the companies. He coordinated the scheme in which companies mapped public bidding processes and chose who would win them &#8211; mafia style.</span></p> <p><span style="font-weight: 400;">To have the privilege of choosing the winners of the bidding processes, companies paid &#8220;commissions&#8221; in offshore tax havens that amounted to up to 40 percent of the contracts, or paid bribes in Brazil that amounted to 10 to 13 percent of the value of the contracts. Companies chipped in to a single &#8220;bribery fund&#8221; administered by Mr. Iskin. According to prosecutors, bribes paid by only one of the international companies, Maquet (a German group), amounted to BRL 300 million. </span></p> <p><span style="font-weight: 400;">Engulfed in debt and </span><a href=""><span style="font-weight: 400;">financial crisis</span></a><span style="font-weight: 400;">, the state of Rio de Janeiro could certainly use that money now.

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