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  December 23, 2016

'A Marriage Made in Hell': Construction Companies and the Brazilian State


Brazilian construction giant Odebrecht was recently fined $4.5 billion by the U.S. Department of Justice. The case shows the role played by nefarious infrastructure deals in Brazil's economic growth over the last 40 years, says Professor Rafael Ioris.
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'A Marriage Made in Hell': Construction Companies and the Brazilian StateGREGORY WILPERT: Welcome to The Real News Network. I'm Gregory Wilpert, coming to you from Quito, Ecuador.

Latin America's largest construction company, Odebrecht, agreed with the U.S. Justice Department to pay a fine of up to $4.5 billion on Wednesday for having engaged in widespread bribery of government officials around the world. The agreement is the largest penalty in U.S. history under the Foreign Corrupt Practices Act of 1977. According to court documents, Odebrecht, which is based in Brazil and its subsidiary Braskem, the petrochemical products company, paid almost $800 million in bribes to government officials in 12 countries including Brazil, Mexico, Colombia, Peru, Dominican Republic, Venezuela, Angola and Mozambique.

After the U.S. Justice Department made the announcement, governments that were affected by the revelation issued statements that they will investigate who received these bribes. For example, Peru's President, Pietro Pablo Kuczyinski had the following to say:

PEDRO PABLO KUCZYNSKI: (Spanish)

GREGORY WILPERT: Joining us to take a closer look at this newest corruption scandal is Rafael Ioris. He is Associate Professor of Latin American History and Politics at the University of Denver. Also, he is the author of Transforming Brazil; A History of National Development in the Post-War Era. Thanks for being with us today, Rafael.

RAFAEL IORIS: Sure. Thank you for having me.

GREGORY WILPERT: Let's start with the reaction that this announcement had in Brazil. Already, investigations into Odebrecht's promotion of corruption in Brazil have resulted in the conviction of the company's CEO. Marcelo Odebrecht, who's now serving a 19-year prison sentence. Also, many other politicians have been indicted or are under investigation in connection with Odebrecht bribes. So, how is Brazil's political class now reacting to this latest development, as far as you can tell?

RAFAEL IORIS: Well, first, we need to really make the point that Odebrecht really is a huge corporation, that plays a major role in Brazilian economy and certainly, as well, in the Brazilian political system, and that that has been true for many, many years.

So, investigations in Brazil have really been unfolding in the last two years, at least, during this, so-called, "Car Wash Operation" from the Public Ministry, the prosecutors in Brazil. As you mentioned, the president... the former president of the company, Marcelo Odebrecht, the heir of... the scion of the family has been in prison now for several months. Has been condemned in repeated charges and that has been, sort of, in the core of the of the political debate and much of the economic crisis going on in Brazil today.

The Car Wash Operation has really been a turning point in the political system, amounting to a lot of concern and uncertainty -- throughout the political system, throughout most important political parties, and certainly is somewhat also involved in the current political crisis leading to the impeachment of Dilma Rousseff, the former President of Brazil, that was impeached, August of this year.

GREGORY WILPERT: And, yeah, as you mentioned, it's a major corporation, Odebrecht, and certainly has a long history in Brazil since it was founded in 1944, I believe. Now it's one of the largest construction companies in the world. Can you tell us a little bit about its history and particularly its involvement and influence on Brazilian politics?

RAFAEL IORIS: The company has been around for many years and really was a local construction company in the '40s and '50s and it really grew and expanded to become a major, a giant corporation. And it's a giant corporation tied mostly to contracts with the governments -- especially the federal government but through all levels of government. So it's not a construction company that has really focused on building housing or private deals, it's mostly governmental deals. It really became a giant during the dictatorship in Brazil, which ruled the country from '64 to '85. And especially the 1970s, when the economy was growing very rapidly, largely through the disbursement of major sums of money from the federal government, including from foreign borrowing.

So Odebrecht, along with several other major construction companies -- Odebrecht and Andrade Gutierrez, Mendes Junior -- they really expanded activities, depending on those major contracts from the government to build infrastructure, public works throughout the country. So, they really had much of their history being tied and dependent on the government. It's really hard to imagine economic growth in Brazil, and really Brazil capitalism over the last years, without making sense of this nefarious connection, this marriage made in hell, really, between the federal government and these major construction companies that, in the last 15 years, have really expanded overseas. Already, starting in the '70s, '80s with major, but especially over the last 15, 10 years -- now with operations in over 20 countries in the world.

So, this relationship is really... it speaks to the core of how politics and the functioning of the economy, and much of the economic growth when it has taken place in this last 40 years -- dependent on expenditures from the federal government and much of that has been tied to major infrastructure works, public works throughout the country -- with this major, sort of, cartel of four or five major construction companies.

GREGORY WILPERT: You referred to this as a kind of a nefarious connection or a marriage in hell -- I'm wondering why you put it that way. I mean, has it always been involved in corruption? Has there always been, like, some level of kickbacks, also during the dictatorship, and is this kind of the way that Odebrecht really became such a powerful corporation in Brazil?

RAFAEL IORIS: Yeah, we have a lot more data in terms of specific deals including with this plea bargain now with the Justice Department here in the United States, especially for the last 15 years. But it's known, and some new publications and studies have been produced in the last few years about these connections already -- especially during the dictatorship. As you can imagine, dictatorship in Brazil, you know, as dictatorships in most places at least, are veiled in censorship and it's hard to really figure out what was going on. And that's a little bit of old history. You know, hindsight makes sense of what was happening.

But it's very much of a certain thing that the expansion of these major construction companies -- now really corporate giants in Brazil and now overseas even, tied to this contract with the government -- always have involved some level of bribes and kickbacks and overcharges and contracts that have always been produced by a lot of political influence from these executives and key politicians in the political system throughout the political system involving most political parties, and during the dictatorship, but especially since the re-democratization that has taken place in the mid-'80s.

GREGORY WILPERT: So, as I mentioned in the introduction, the case involves hundreds of millions of dollars to the government officials in most of Latin America -- and you also have already mentioned that it really expanded throughout the world. What do you think that this case says about the role of private corporations and Latin American politics and the persistence of corruption in the region?

RAFAEL IORIS: First thing, it's interesting and somewhat ironic, if not even tragic, that on the one hand it would be a good thing. Most Latin American countries, including Brazil, have way more strict laws for donations to political parties and campaigns, than the United States. And with allotments of public funding and allotment of time for the campaigns, public time on the airways and TV. But that has not, unfortunately, been enough to curb donations -- especially from huge corporations such as these constructions, as well as banks -- the two sort of main elements of the economy, key major actors in the economy, two political parties and political companies.

So, which is to say that they have, and they continue to play, this nefarious role in the political system. Despite attempts to curb this, this is an ongoing debate in Brazil for the last several years. Should they go full bore with only public money to fund campaigns or not, there's no agreement. Especially now with the conservative backlash in the political system in Brazil. It's very hard to imagine something along those lines. The government has really been tarnished. The idea of government, the idea of the public sector running things have really been tarnished in terms of, you know, should they give a larger role to the government in running elections. Should we just kind of go full bore with a system that allows even more free money to flow around? So, it has been around for awhile and it continues to play a role despite attempts to curb, to regulate, to address this. That is certainly true for all the Latin American countries.

And in addition to corrupting and bribing executives or officials in the executive branch, it also, I think, it plays a role that the fragmented nature of politics, congressional politics in most Latin American (audio difficulties) ...then it certainly would be advisable and certainly way more parties than the two-party system in the United States. And that leads to the fact that most ruling coalitions in the executive depend on the support from Congress -- they're all presidential systems -- to approve legislation by ad hoc disbursement of funds to specific key political leaders, especially by means of construction operations, public works in their own constituencies. And, therefore, it enhances the interest of the construction companies to be given money, to fund the campaigns of these legislators who then will only provide support in Congress to the (audio difficulties) construction is built in their, you know, states of origin. And, in that sense, also be construction tied to the companies that have supported, that basically paid for their campaigns. So, it becomes this circle that involves the private sector, the executive branch and the legislative branch.

GREGORY WILPERT: And I just wanted to turn quickly at the end towards the question of what this means for the relations between the U.S. and Latin America. That is, in a way it's unusual case because it's the largest fine to be paid under the U.S. Foreign Corrupt Practices Act, but doesn't involve very many U.S. entities themselves, it seems. So, what do you think the settlement says about the role of the United States, actually, in Latin America and U.S. Latin American relations?

RAFEL IORIS: Sure. The police state that this is a sort of an operation that has involved corporations from prosecutors in Brazil, Switzerland and United States. But, of course, it's really produced largely by actions of the justice system in the United States. But they state that they're cooperating with Brazilian and Swiss authority and that some of the fines will, actually most of it, will be reversed back to the Brazilian government as a way to restitute all of this corrupt money. I think, on the one hand, we first have to remember a little bit of the irony of this. The U.S. federal government, and the US foreign policies towards especially Latin America, historically, has been one of at least condescending paternalism -- or at worst, much more nefarious things and interventions -- was certainly supporting authoritarian, corrupt governments for much of the Cold War, at least.

So, it's a little bit ironic now that the U.S. system is trying to clean its act and to play this more constructive role. But, on the other hand, it potentially is a good thing that it will help address these investigations and support the investigations and hopefully curb some of the corrupt deals that are very, very present in Brazilian and Latin American political systems. So perhaps, you know, one hopes that it will help to redress a little bit of that legacy.

But then it's also somewhat another irony is involved. The United States is, in a way, playing a little bit still with this overstretch of authority over the region in trying to really, you know, teach Latin America



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