The Odebrecht Contagion

Then there are the aftershocks that, I believe, will likely spell more trouble for Odebrecht. As of this writing, there seems to be no end in sight to the legal, economic, and political challenges that await anyone that can be connected to the matter. Former and current presidents, governors, members of Congress, mayors, and other political figures in various nations are under investigation; under some sort of media or public scrutiny by political foes, or in some cases, are already in prison. Furthermore, as if this case needed any more intrigue, on 19 January 2017, the Brazilian legal team in charge of the ongoing corruption probe was killed in a plane crash, setting off a new and unwelcome thread of stories about a case that most Brazilians would prefer would simply go away.

Close to one-third of the cabinet of Brazil’s current president is under investigation, as are many members of the Brazilian Congress. In the Dominican Republic, opposition leaders are stressing that the system must be cleaned up, while citizens state protests in front of Odebrecht corporate offices. Meanwhile, in Argentina, the head of intelligence services is under investigation [again], and the relatively new center-right president is reportedly considering canceling all Odebrecht contracts. As discussed herein, similar stories are unfolding in other nations touched by this corruption contagion. Companies that do business with the public sector in these countries will have to contend with this political uncertainty that, in turn, should empower legal and compliance departments of companies that engage in the region. 

What began as a money-laundering investigation by the Brazilian state police in the autumn of 2014, two years later became a four-continent, 12-nation global corruption investigation that, to this day, continues to generate legal and political aftershocks throughout Latin America and the Caribbean. It was one of the largest corruption scandals in Brazilian history, and indeed, most of Latin America and the world. The primary targets of the probes — the Brazilian construction giant Odebrecht and Brazil’s state-run energy company, Petrobras — have a long road ahead. In addition to the massive debt restructuring needed to save Odebrecht, there are years of legal and compliance issues that need to be sorted out.

Bear in mind that these were not insignificant sums of money or, as we say in America, chump change. Close to $3.5 billion in bribes is a significant amount of cash in these cash-strapped nations, and much of it was taken from taxpayers. This was a line item, and off-book budget of approximately $750 million per year in bribes intended to sway politicians to award very lucrative contracts to Odebrecht. It was not a one-off event that voters will soon forget. Public confidence in governments in the region was low before this happened and, unless the clean-up is undertaken properly and transparently, additional political instability is possible. This, in turn, will likely result in increased scrutiny on companies in other sectors. In Brazil, this is already happening.

 “The Odebrecht Contagion,” as published in The Trade Security Journal, can be found below.

Odebrecht Contagion by Jason I. Poblete on Scribd

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