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Scam du Jour

Scam du Jour

Brazilian politicians love the scandalous get-rich-quick
schemes. It seems that they will not get their kicks before they are caught
red handed transferring public money into their own pockets and those of
their friends. There is no other explanation. Or how can you explain that
several governors and mayors from around the country were using the same
illegal plot to get money in the latest racket in the country? Read fast.
Today this might be old news. We are sure now that there is already a new
scandal in the making.
By Alessandra Dalevi

What else is new? As predictable as getting a busy signal when trying
to use the telephone in Rio, generation after generation, administration
after administration, season after season, the scandals, bribery scams
and embezzlement schemes are one of the few sure things in Brazil’s public
life. The latest racket is called CPI dos precatórios (a
congressional inquiry into a multi-million bond scandal — with a cost now
up to 1.2 billion). But it is not very different from other recent dirty
tricks: os anões do orçamento (the 1993 budget dwarfs
— cost: $100 million); a máfia da Previdência (the
1991 Social Security Mafia — cost: $550 million); o rombo do Banco Nacional
(the 1996 Banco Nacional imbroglio — cost: 5.4 billion); and the 1992
esquema PC-Collor (the PC-Collor scheme — cost: $350 million or up
to $1 billion according to other estimates).

Since the beginning of the latest scandal, the Central bank has already
closed down more than a dozen financial institutions. By tradition, however,
all of the swindling has the same ending: the public money privately pocketed
never reappears. The latest Brazilian racketeering feat, like a good suspense
movie is still provoking ahs and chills almost every minute while an Inquiry
Parliamentary Commission (CPI) investigates and interviews witnesses and
big shots involved in the sometimes convoluted plot.

Other scandals have been circumscribed to a relatively small Mafia.
The precatórios scam, however, has dozens of people from
all around the country involved. And everything happened, it has been shown,
due to the dereliction from the entities that should be watching the coop:
the Central Bank and the Senate, both of which approved beforehand the
tricky deals. The Central Bank, for example, advised against authorizing
Alagoas and Santa Catarina to issue bonds, due to their debts, but the
Senate approved the operations anyway.

Nobody knows where this so-costly soap opera is going to end because
the script has been rewritten every day. Lately, Fábio Barreto Nahoun,
the owner of Banco Vetor, a brokerage house from Rio, has been in the spotlight.
After weeks of hearings, the congressional committee seemed sure that Nahoun
was the head of the operation that put some money in the hands of cities
strapped for money and millions into the pockets of a few unscrupulous
helpers.

Preca what?

Everybody has been talking about precatórios these days
in Brazil. Just a few weeks ago, however, the immense majority of the population
had never heard of such a word. Among those few in the knowing were the
people who should have benefited by these papers, but who usually have
to wait for years in line to get them. Precatórios are money
certificates issued by the states and municipalities to pay for cases they
lost in court. So, for example, when the owner of a property is expropriated,
goes to Court asking for bigger compensation and wins his case, he gets
a precatório, a document saying that he is owed that money
by the government.

To pay for these judicial papers, state and municipalities are allowed
to issue bonds. That’s where the precatórios scheme enters
in the picture. Governments started to issue bonds for fictitious precatórios
so they could use the money for other projects. Much of this money ended
up in a few greedy mouths.

The precatório has called attention to two sides of a
scandal: in one, people inventing precatórios that don’t
exist to make some fast cash and on the other, generally poor, old, and
invalid folks waiting for justice to be done.

A famous case of precatório that seems close to an end
is the one involving Teresa Fiel, the widow of workman Manuel Fiel Filho
who was tortured and assassinated by the military in 1976. It has been
almost 20 years now that she was awarded punitive damages in the amount
of $281,000. Soon after becoming President, two years ago, Fernando Henrique
Cardoso showed personal interest in the case and promised a quick solution.
Teresa is still waiting.

Another famous case, which became a joke in the country, is the money
received by Carioca (from Rio) teacher Marieta de Sena Pinto. In
December 1988, an Army jeep crossed a red line and totaled her Fiat. She
won her case against the military and has just received the total amount
of her damages: 42 cents, that’s true, less than two quarters. In protest,
she decided to spend $700 to go to Brasília and present her payment
(a precatório)as a gift to the senators from the CPI.

A Large Network

The size of the embezzlement and the network of corrupted hands involved
are only now being discovered, but the Inquiry Committee on the scam was
created on November 26, 1996, after Santa Catarina state senator Vitor
Kleinübing announced that there were irregularities with bonds issued
by his state. The Senate action has had at least the virtue of avoiding
the issuance of another $3 billion in new municipal and state bonds, all
being prepared by the same gang.

The more the senators dig, the more they find unanticipated connections.
At the end of March, Senator Roberto Requião, the CPI’s reporter,
announced that the investigations would be broadened to also probe contractors
and suppliers who had been left out of the congressional grilling. Some
states and municipalities that were not included in the first phase of
the investigation now should also be reviewed.

Initially the inquiry concentrated on the states of Santa Catarina,
Alagoas, Pernambuco, São Paulo and Rio Grande do Sul, besides the
municipalities of São Paulo, Guarulhos, Osasco, Campinas (all in
São Paulo state) and Goiânia, the capital of Goiás.
Parallel to the senate investigation, the Central Bank has been examining
other problematic issuances of bonds in the states of Rio de Janeiro, Goiás,
Paraíba, Sergipe and Mato Grosso.

The Alagoas imbroglio is a good example of what this whole precatório
mess involves. To raise $301 million, the Divaldo Suruagy administration
created inexistent debts, paid astronomical commissions and even falsified
the signature of impeached President Fernando Collor de Mello, who was
governor of Alagoas. The money supposedly intended for paying judicial
fines ended up lining the pockets of friendly contractors and sugar mill
owners. The same state that for seven months didn’t pay its teachers and
doctors used $31 million to reward the company that built years ago the
concrete stand in which pope John Paul II celebrated mass.

The CPI is looking for two kinds of frauds: municipalities and states
that illegally issued bonds that weren’t allowed and banks and brokerage
firms that had exorbitant profits selling these certificates in the financial
market. The brokerage houses acquired the bonds in auction (the only way
these papers can be sold), but in some cases the bid was done in a way
that nobody else besides the company that bought them knew they were available.

To hide the fact that they were having obscene profits, the brokers
funneled all this money to several front companies, which received from
0.2% to 0.3% to perform this role. Nobody knows, however, where the money
is. It probably went to some foreign fiscal paradises including the United
States through the services of dollar dealers and it will be back in Brazil
when the weather gets better.

Orange Juice

While the Collor de Mello CPI was crowded with fantasmas (ghosts),
people who signed checks and made tons of money, but didn’t exist, the
precatórios CPI has been flooded with laranjas (literally
oranges, the term also means naïve and front). Laranjas are
real men or women who rent their own names or companies to other people
or businesses. Close to 100 of those façade firms have been discovered,
all of them under the supervision of a laranja.

The first laranja to confess his role in the scandal was Ibrahim
Borges Filho, a salesman for Mon Amour Cosméticos and whose IBF
Factoring company was only a façade to launder the money obtained
via precatório bonds. Registered with a capital of $10,000,
IBF had an incredible $100 million net profit last year. "I needed
the money," said Borges Filho, after being threatened with prison
and after crying for half an hour at the CPI. "I did research to know
what money laundering was and found out that this is not really a crime."
Before the end of his deposition, he would also admit that at least 30
doleiros (dollar dealers) participated in the scheme sending money
overseas and, in come cases, bringing it back already washed.

One of the mentors of the scheme, Wagner Baptista Ramos, São
Paulo City Hall’s coordinator of Public Debt, was the man responsible for
an operation that issued $947 million in bonds during the Paulo Salim Maluf
administration, São Paulo’s mayor until the end of 1996. This same
operation seems now to have defrauded the city’s coffers of $10 million.

From the close to $1 billion raised by the city of São Paulo,
only $147 million were used for what the money was intended: paying precatórios.
There is only $80 million left over, with the rest of the money having
been used to pay salaries and other expenses. Despite the less-than-kosher
scheme, some governors and mayors took notice of the successful program
and contacted Ramos to do something similar for them.

Big Fish

For Celso Pitta, the just-inaugurated mayor of São Paulo, the
situation has been getting more complicated every day. He denies any involvement
in the scandal, but the facts seem to conspire against him. Most of the
scams were done with the help of Pitta’s aides during the time he was Finance
Secretary for Maluf. Pitta immediately fired Wagner Baptista Ramos when
it was discovered that he was one of the mentors of the national bond scam.

Pitta defends himself: "I want to testify before the CPI. I did
nothing wrong and have nothing to hide, but every day now I have to explain
myself." Pitta guarantees that he had no contact with Fábio
Nahoun and Ronald Ganon, the owner of Banco Vetor, which got the lion’s
share of the easy money. Banco Vetor, however, paid for 18 trips that Pitta’s
aides made to other states to teach them how to issue fraudulent bonds.
To complicate things, the CPI has found that the bank in March of last
year paid for two weeks for a car with a chauffeur who took Nicéa
Pitta wherever she wanted. The bill was $6,000. Nicéa is the mayor’s
wife.

The precatórios scandal has exposed to the public an old
practice in the financial market that brokers and others privy to the scheme
would prefer that people would never know: the healthy profits they get
dealing with municipal and state bonds. It is estimated that there are
right now $10.4 billion of these government certificates in the market
all linked to precatórios. During the period being investigated
alone (1995-1996), they amounted to $6 billion. They are a gold mine because
they are initially placed on the market at a much lower than face-value
price, giving a much heftier return rate than any federal paper.

The CPI show being beamed across the country by TV Senado became a hit.
More than 900,000 Brazilians have been tuning in daily. Some people are
so hooked on the hearings that they stay up watching and listening to the
witnesses up to 3 in the morning. Via an 800 number (0800 61-2211) people
are encouraged to participate, ask questions, and make suggestions. An
average of 100 people has been calling everyday.

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