In Brazil, Graft and Fraud Are Just the Cost of Doing Business

Brazilian project

President Luiz Inácio Lula da Silva returns home from his six-day five-nation
trip that began Sunday August 5 and took him to Mexico, Honduras, Nicaragua,
Jamaica and Panama. Stressing his favorite subject, sources of energy-and in
particular the sale of Brazilian ethanol (along with the topic of bio-fuels and
alternative forms of power), Lula’s trip was a triumph for Brazilian diplomacy
and his compelling personality and persuasive charm.

However, it will only briefly mask the shameful state of Brazil’s public life as well as Lula’s treasonous acts against his own professed system of values.

After Lula was elected in 2002 by a commanding victory, Brazilians soon discovered the Faustian nature of the deal that they had unknowingly signed with their new leader. In exchange for orthodox economics as well as the rhetoric of leftist policies but not their realities, and bear hugs for such leftist Alexandrian figures like Venezuela’s Hugo Chávez, they would get the makings of a full dinner pail.

What they weren’t told was that every morning they would wake up to a new, increasingly tawdry scandal, which would brush by Lula ever so lightly, but never precisely enough to firmly embrace him. Brazilians soon came to live with the fact that under Lula, they were living under one of the most corrupt political systems in Latin America, even though they couldn’t bring themselves to believe that their beloved leader had double-crossed them, it almost seemed that this hardly mattered.

This was because Lula had put some well-liked anti-poverty and social justice programs into place, jobs could be acquired, and they found his anti-imperial, Forest Gump-like persona good enough to win their plaudits.

But if Brazilians were prepared to have their hearts broken by facing up to the ugly facts besieging them – Lula, and the appallingly venal political system in which Lula had become such an ebullient player – then they were bought out for peanuts.

Instead of providing leadership, Lula charmed his followers and made them love him with the same kind of calculated, irresistible style of a rock star or a cinematic hero who were more faithfully relying on a stock formula than a midnight conversion.

Instead of struggling to do it the hard, but just, way of building permanent institutions that incorporated a democratic ethos, Lula wasted his talents on constructing a Potemkin village that was as false as it was deceiving.

A Betrayed Brazil Begins to Speak Out

His current trip has given Lula somewhat of a respite from the dispiriting crisis dogging his administration since the July 17 crash of TAM Linhas Aéreas SA jetliner in São Paulo, along with a demonstration in Brazil’s capital last Saturday in which participants denounced Lula’s government as corrupt, heartless and cheating (which went back months before the scandals began to mount). Police estimate that approximately 3,000 demonstrators participated in the march as they sang the country’s national anthem and carried posters demanding Lula’s ouster.

Although the demonstrators were relatively few in number, the fact that a protest movement was even mounted was an indication that Lula’s magic is faltering. Despite the mounting crises at home, Lula’s trip has to be considered a success, particularly the agreement of cooperation signed last Monday with Mexican President Felipe Calderón.

It included measures for the production of bio-fuels, exactly the kind of economic stride that manages to keep Lula’s approval rating high, even though explosive revelations of corruption are slamming away at the basics of his administration.

Brazil’s Scandals are as Notable as They are Plentiful

Since Brazilian President Luiz Inácio Lula da Silva took office in 2003, scandals galore, with names such as Hurricane, Anaconda and Vampire, publicly have invoked the names of judges, police commanders, members of Congress (including four da Silva cabinet members) and most recently, the President’s own brother, all who have been scarred by the corrosiveness of corruption.

These woeful events have given the appearance that Lula’s presidency has become a rout, having invoked the expectation that some kind of scandal would occur every day, with the reverberation of some reaching the highest levels of Brazil’s institutional existence.

Although President Lula took office with a much heralded vow to distance his administration from Brazil’s habitually dirty politics, under his rule, corruption, in fact has been maintained as a shrine to his personal deity: Saint Teflon. The best that his administration has been able to do is to unleash the relatively clean federal police to herd and corral the nation’s tainted national, state and local police who usually only answer to the country’s corporative and co-opted political system.

The scheme of the malefactors has been to protect tainted government officials, as well as guarantee judicial rulings which could be counted on to be habitually accommodating of white collar corruption. However, despite the surge of scandals that have come ever closer to tarnishing President Lula himself, amazingly enough, nothing yet has touched him personally and, not surprisingly, (due to the public’s cynicism on such matters), he is still enjoying high approval ratings as minimal inflation, a soaring stock market and mainly cosmetic environmental adjustments have kept a lid on unrest.

Slot Machine Scams

A major scandal during President Lula’s first term occurred in 2004 and involved his trusted assistant and former Chief of Staff José Dirceu, who was caught on videotape negotiating campaign donations from a crooked banker involved in extorting payoffs for candidates of Lula’s Partido dos Trabalhadores (PT).

Although the government at the time was able to avoid a congressional investigation into the case, Lula’s ruling PT Party’s image as an ethical and honest party was gravely damaged. Moreover, despite the popularity of gambling in Brazil, Lula, together with the majority of the country’s elite, remains opposed to its formal legalization, even though this position ignores the huge potential revenue which legalization could bring.

Perhaps, this is because bankers who engaged in illegal gambling practices predictably have provided clandestine funding for electoral campaigns in the past; offering financing that the campaigns would not have ever seen if gambling were to become a legal activity. The federal police believe that this illegal gambling ring was worth US$ 130,000 daily, according to some sources.

From Judges to Ministries: No Branch is Bypassed

Another scandal linking illegal gambling to a number of judges erupted earlier this past April. Among those involved was Supreme Court judge Pablo Medina, who was accused of receiving bribes to allow 900 slot machines, that earlier had been seized by customs, to be recovered by their importers, despite the fact that these types of machines had been outlawed in Brazil in 1946.

However, Medina was never arrested because his judicial status grants him “special rights” which only provides for common investigations of suspected embezzlers if these are sanctioned by the Supreme Court. His case will most likely be dismissed and he is sure to not see any time in prison. In fact, Medina is currently negotiating his retirement which, most likely, will be on a full pension.

Additionally, Mines and Energy Minister Silas Rondeau resigned in May over accusations that he received kickbacks for government contracts. His resignation marked the fourth time in recent years that a member of Lula’s cabinet has been forced out of office over corruption allegations.

Rondeau allegedly accepted a $50,000 bribe from a construction firm that was hired to provide electricity to rural areas in Lula’s “Lights for Everyone” initiative. In a broader plan dubbed “Operation Razor,” police arrested close to 50 people, including a number of politicians, on suspicion of involvement with the siphoning off of federal funds from infrastructural and social projects in six Brazilian states (including in two of Brazil’s poorest regions).

Authorities say officials received cash and gifts to steer contracts toward projects that were either overcharged or never built. Although there was strong evidence of their involvement, Brazil’s courts failed to order the arrest of the three men because of their elevated political status.

These bureaucratic scandals, like the others that have beleaguered Brazilian politics for decades, rapidly come and go, making it difficult to separate one from another, but one can usually be certain that they will occur with absolute regularity.

Corruption in the Family

This June, another gambling incident has risen to the surface; this time the culprit is President Lula’s brother, Genival Inácio da Silva, otherwise known as Vavá. Given the previous gambling scandal involving Dirceu, this new act of dereliction has to be supremely embarrassing for Lula, who recently was forced to defend his brother’s alleged involvement with an illegal gambling ring.

Lula began to speak out on the subject with public remarks that praised the federal police for an “extraordinary job” in dismantling another illegal gambling ring. However, outside of this setting, Lula adamantly privately defended his brother, assuring all who will listen that Vavá “… has no involvement.”

Representatives of the president’s brother deny any wrongdoing, lamely insisting that Vavá was seeking a “loan” from the alleged gambling boss, not a bribe. Interestingly, the federal police have a recorded telephone conversation between Vavá and a suspected gambling kingpin, in which the former is demanding cash.

Telephone intercepts, that are part of a federal police operation known as “Checkmate,” have led to the arrest of dozens of lofty names involved in this gambling scam. “Checkmate” is just the latest in a series of theatrically-titled scandals that have come to dominate the headlines of Brazilian dailies, which have gone a long way in clouding Lula’s reputation, which previously was based on his “Teflonic” reputation for effortlessly being able to shake off scandals.

Juicy Scandals

Many of the scandals in Brazil involve enticing details that news sources lunge at, as they compete for the most lurid headline. One such case involves a close ally of the president, Senate President Renan Calheiros.

In May, a major Brazilian newsweekly reported that Calheiros accepted payoffs from a leading construction company  –  which now has stretched the corruption scandal into the innards of Lula’s administration. The newsweekly Veja reported that a construction company paid rent on an apartment for Calheiros as well as a nearly US$ 6,000 regular stipend for his three-year-old daughter.

Meanwhile, the Senate has failed to adopt any indictment accusing him of being involved in the crimes, with Calheiros vehemently denying the accusations of bribery as well as refusing to take a leave of absence in order to respond to the formal accusations. His defense team is questioning the legality of any possible police investigation, citing his parliamentary immunity.

Additionally, the “Party House” scandal involved corrupt lawyers purportedly consorting with call girls. The powerful Finance Minister Antonio Palocci resigned in April 2006 after it was confirmed that he was among the merry-makers. Nor has the nation forgotten last year’s “Big Monthly,” which consisted of monthly cash-for-votes bribes and which involved a political aide who was detained at an airport with $200,000 stuffed in his pants and luggage.

Then there was the “Bloodsuckers” affair where members of Congress were implicated in kickbacks linked to the purchase of purposely overpriced ambulances. With no shortage of details, such high profile acts of venality have dominated Brazil’s front pages for the past few years, to the shame of many Brazilians, but not all.

Immunity Laws

Unfortunately, in the face of these rampant scandals, lawlessness in Brazil undermines the hard work of some elements of the federal police because it benefits a category of corrupt government officials to the detriment of the entire nation.

The fact that congressmen, government officials and judges possess parliamentary immunity is one of the main reasons corruption remains so tempting, and operates at such a high level, despite efforts by the Brazilian federal police, and the use of new transparency tools to uncover corruption scandals.

Since 2003, the federal police have turned up numerous corruption schemes on the way to arresting over 5,000 people, none of whom were high-level serving politicians at the time. The main legal privilege granted to serving politicians is that they can only be adjudicated by the Supreme Court. Appeals can be made which clog up the court docket and in many instances will prevent judges from reaching a final verdict.

Brazil’s self-protective judiciary also ensures that only a small percentage of the over 1,000 civil servants and judges arrested in recent months by the federal police were ever actually investigated after being picked up.

According to Latin News, “in over 40 years no case of impropriety against politicians being judged by the Supreme Court has resulted in a sentence.” Thus far, in most of the scandals, the serpent in the grass has been government funds being siphoned off by means of overpriced contracts with private contractors.

These projects are usually granted without a proper tendering process in exchange for illicit pay offs. Although Brazilian authorities promise an overall reform of this policy of “privileged” treatment every time a corruption scandal breaks out anew, these putative reforms never end up materializing.

Brazilian Politics: A Quagmire of Corruption

The present epidemic of scandals in Brazil is partly due to institutional shortcomings such as widespread patronage, lack of accountability and oversight, and federal dominance of the less sovereign components of the political process.

Even if scandal-scarred politicians lose office because of their complicity in illegal practices – as many have – an inefficient judicial system ensures that most of those thought to be culpable of such crimes are able to easily evade prison.

Brazilian prosecutor Mário Lúcio Avelar explained: “To stay in jail in Brazil, you must rape, murder, confess – and have a bad lawyer.”

However, Lula has an alternative explanation. He argues that the onslaught of official misdeeds reflects enhanced police detection, not more frequent transgressions. Even amongst the muck and mire surrounding Lula, a new poll last week indicated that 48 percent of people still believe the government is doing a good or a very good job.

Hopeless as this appears, approval is still high in spite of a welter of corruption allegations against Lula’s friends, associates and allies, with the economy as well not exactly being a bastion of public rectitude.

According to an opinion poll published by the National Transparent Confederation, Brazilians are pleased with the country’s strong economic performance, improved wages and social welfare programs. Additionally, there is a belief among men in the street that many of the dirty deals affected by officials close to the administration would not have been examined at all if it had not been for Lula’s expansion of the two agencies that have uncovered most of the scandals.

Even after such a tortured explanation of Lula’s motives, corruption still could end up undermining Lula’s second term ambitions. The unavoidable discrediting of his political cronies threatens to enfeeble the president’s already fragile governing alliance.

Furthermore, public works fraud alone could undercut his grandiose infrastructure –  including regional projects that involve the energy sector that impact oil, gas, ethanol, biofuels and electricity projects. He also wants to develop the transportation industry which includes automotive, railway, maritime and aerial transport categories.

However, the allocated funds do not seem to be filtering into these development projects; rather, with predictability, they is more often than not being “re-routed” in the form of bribes and “loans,” as well as directly into the pockets of politicians.

Although parts of the federal budgeting process have become more transparent and the staffs of both the auditor general’s office and the federal police have grown by 50% since Lula took office – both happy signs – it is still almost impossible to gauge whether the increasing number of investigations is reducing levels of corruption.

World Bank surveys like the Governance 2007 Report show that most people perceive there is more corruption in the government now than was the case 10 years ago. Furthermore, the attempts at reform have been increasingly hampered due to Brazil’s intensely politicized executive branch that directly distributes government posts to the party faithful, as well as within publicly-owned companies.

This system of corruption is engrained in Brazil’s administrative make-up and costs taxpayers billions of dollars annually in bid-rigging and other crooked practices. It has been suggested that corruption costs Brazil as much as US$ 21 billion yearly due to doctored contracts granted through a “fixed” system including rigged bidding.

One study has estimated that about 10 percent of federal money destined for municipalities has disappeared due to graft. According to the NGO Transparência Brasil, “Corruption is calculated, and corruptors take advantage of the state’s bureaucratic disarray to profit.”

Is there an Alternative?

Although there are political alternatives to Lula’s PT, such as Partido do Movimento Democrático Brasileiro and Partido da Social Democracia Brasileira, corruption in Brazil is not a practice associated with any one particular party, but rather can be seen as endemic to the political system as an integrated entity.

The Brazilian Magistrates Association maintains that “immunity means impunity” for politicians and says that this is the reason anti-corruption controls in Brazil are almost irrelevant.

Without an effective regimen of punishment to hinder corruption, a system of rigged bids and fixes will only continue increasing in the near future, further debilitating clean and effective government in the process.

This analysis was prepared by COHA Research Associate Jenna Schaeffer. The Council on Hemispheric Affairs (COHA) – – is a think tank established in 1975 to discuss and promote inter-American relationship. Email:


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