Wednesday, March 23, 2016

Brazil, Like a Thicket Unraveling

In the early spring I’ve dedicating my gardening time to ripping out the thickets of raspberry and rose bushes that grew up over the last four years while I was distracted by cleanup from a timber project. Taking apart a thicket is an experience I wish everyone could have. When I first approach a thicket, it is effectively impenetrable. Branches crisscross and intertwine while thorns threaten any animal that dares to come close. All I can do is snip away pieces around the edges. I proceed in this fashion for hours and the work seems to have no effect. I can cut away literally half of the plants that make up the thicket without seeming to reduce it in any meaningful way. But this impression that nothing is happening is illusory. If I keep cutting away pieces, eventually there is a tipping point at which I see the first hints that the thicket is getting thinner. After a few more minutes of work the thicket is starting to unravel. When it starts to fall apart, it is amazing how fast it goes. It takes only a few more minutes to cut away the remaining plants one by one, and then it is hard to find any sign that the thicket was ever there.

I am getting some of the same feeling this month as I study the news reports from Brazil. The story there has been described as the largest scale of corruption ever uncovered in a democratic country. The stunning thing about the recent revelations is that they tie in to so many of the biggest debacles in Brazil’s recent history.

The investigation started two years ago looking into irregularities at Petrobras, the effectively bankrupt but too-big-to-fail state-owned oil company. This is not a good time to be in the oil business, but the troubles with oil in Brazil go back well before the latest decline in oil prices, with stories of bribes, phony suppliers, and Swiss bank accounts. The week started with Petrobras reporting the largest quarterly loss in its history of $10 billion. The same day on the other side of the Atlantic Ocean, a bribery suspect in the Petrobras case was taken into custody by Portuguese police.

The troubles at Petrobras are enormous by themselves, but there is much more going on than that. The chairwoman of the board at Petrobras until 2010 is now president of the country. That is a conflict of interest that, on the one hand, shocks the conscience, and on the other hand, is a familiar scenario for anyone who followed U.S. politics a decade ago. The president faces an apparently unrelated impeachment complaint. The complaint on the surface looks petty and politically motivated, yet one has to ask whether, after an executive has presided over such a shocking level of business corruption, it is safe to leave her in the presidency where she appears to be working to impede the investigation of her former employer. Adding to the intrigue, the president just appointed the former president as chief of staff in order to protect him from prosecution, a move that failed when courts struck down the appointment and the constitutional court took charge of the investigation of the former president.

Yesterday prosecutors described in detail an automated system for money laundering that was operating under the auspices of the country’s largest engineering firm, a firm tied not just to Petrobras but also to many of the bizarrely defective World Cup construction projects. Brazil’s decision to host the World Cup turned into a tragedy with construction problems killing construction workers and bystanders alike. Fortunately, the badly built stadiums stood up during the games themselves. The World Cup project was met with protests as soon as it was announced and proceeded so badly that the voting public saw it, at least until recently, as a bigger national embarrassment than Petrobras. The connecting link between the World Cup and Petrobras, revealed yesterday, was the secret shadow bank, hidden inside an engineering firm, that delivered bribes for both. As described by prosecutors, the money laundering system would route simultaneous payments through 20 or more separate companies so that bribes could avoid detection. The system seemingly was set up to deliver the engineering company’s own bribes but subsequently came to be used to deliver bribes from a wide range of private sources. This whole story has to be met with a degree of skepticism — to my knowledge, nothing of the kind has previously been documented anywhere in banking. Yet the prosecutors who described it seemed to have an intricate understanding of its operations and capabilities with details that would surely be impossible for investigators to imagine or make up. If the money laundering technology can be corroborated, it is a measure of a thoroughly entrenched system of corruption. I try to imagine a system in which bribes have become so commonplace that they need their own secret automated clearinghouse. Surely this is not what the world has come to.

The story is nowhere near as clean and simple as this quick summary makes it sound. If the president is to be impeached, this will have to be decided by a legislature that has more than its own share of legal troubles. Protestors have been objecting to government waste, corruption, and indifference all along, yet some of the protest groups are quietly funded by foreign fossil-fuel interests. Key decisions will have to go through courts that are not as impartial as their role would seem to require. FIFA, the sponsor of the World Cup, has corruption problems of its own that are every bit as serious, so there is a chance that a corruption probe in Brazil might bump into corrupt practices there. A government that is barely functioning will have to, in the very near future, find a way to cope with the dangerous Zika virus outbreak, then host the Summer Olympics. Did I mention that the Olympics also have a similar culture of corruption going back decades?

Putting it all together, it is shocking and frightening to see how much of the government and corporate economy in Brazil are tied in to a single network of corruption. It is hard to imagine either holding together for much longer, yet also hard to guess the sequence of events by which this whole corrupt system will come apart.