(Mt) – MGT422 SEU Business Ethics Worksheet

What began as an investigation into money laundering quickly turned into something much greater, uncovering a vast and intricate web of political and corporate racketeering. By Jonathan Watts by Jonathan Watts on 14 January 2015, police agent Newton Ishii was waiting in Rio de Janeiro s Gale o airport to meet the midnight flight from London. His mission was simple. A former executive of Brazil s national oil company, Petrobras, was on the plane. Ishii was to arrest him as soon as he set foot in Brazil and take him for questioning by detectives. No big deal, the veteran cop thought as he ticked off the hours in the shabby Terminal One lounge. This was just one of many anti-bribery operations he had worked on. Usually they made a few headlines, then faded away, leaving the perpetrators to carry on as if nothing had happened. There was a popular expression for this: acabou em pizza (to end up with pizza), which suggested that there was no political row that could not be settled over a meal and a few beers. When the plane finally landed, Ishii s target was easy to identify among the passengers in the arrivals hall. Nestor Cerver has a strikingly asymmetrical face, with his left eye set lower than the right. He couldn t believe it. He said I had made a mistake, Ishii recalled later. I told him I was just doing my job and that he could take up his complaints with the judge. Cerver called his brother and a lawyer. He expected to be free before morning. Ishii, too, had few illusions that his suspect would be locked up for long. Decades on the force had taught him how quickly the rich and powerful could wriggle off the hook. There was little reason to think this case would be any different. As it turned out, both men were wrong. The investigation that led to Cerver s arrest codenamed Lava Jato (Car Wash) was about to uncover an unprecedented web of corruption. At first, the press described it as the biggest corruption scandal in the history of Brazil; then, as other countries and foreign firms were dragged in, the world. The case would go on to discover illegal payments of more than $5bn to company executives and political parties, put billionaires in jail, drag a president into court and cause irreparable damage to the finances and reputations of some of the world s biggest companies. It would also expose a culture of systemic graft in Brazilian politics, and provoke a backlash from the establishment fierce enough to bring down one government and leave another on the brink of collapse. Launched in March 2014, the operation had initially focused on agents known as doleiros (black market money dealers), who used small businesses, such as petrol stations and car washes, to launder the profits of crime. But police soon realised they were on to something bigger when they discovered that the doleiros were working on behalf of an executive at Petrobras, Paulo Roberto Costa, the director of refining and supply. This link led prosecutors to uncover a vast and extraordinarily intricate web of corruption. Under questioning, Costa described how he, Cerver and other Petrobras directors had been deliberately overpaying on contracts with various companies for office construction, drilling rigs, refineries and exploration vessels. The contractors they were paying had formed an agreement to ensure they were guaranteed business on excessively lucrative terms if they agreed to channel a share of between 1% and 5% of every deal into secret slush funds. After diverting millions of dollars into those funds, Petrobras directors then used them to funnel money to the politicians who had appointed them in the first place, and to the political parties they represented. The main objective of the racket which fleeced taxpayers and shareholders out of billions of dollars was to fund election campaigns to keep the governing coalition in power. But it wasn t just politicians who benefited. Everyone connected to the deals received a bribe, in cash, or sometimes in the form of luxury cars, expensive art works, Rolex watches, $3,000 bottles of wine, yachts and helicopters. Huge sums were deposited in Swiss bank accounts, or laundered via overseas property deals or smaller companies. The means of transfer were deliberately complicated, in order to hide the money s origins, or lowtech, to keep it off the books. Prosecutors discovered that elderly mules were flying from city to city with shrink-wrapped bricks of cash strapped to their bodies. Petrobras was no ordinary company. As well as having the highest market valuation (and the largest debts) of any corporation in Latin America, it was a flagship for an emerging economy that was trying to tap the biggest oil discovery of the 21st century huge new oil fields in deep waters off the coast of Rio de Janeiro. Petrobras accounted for more than an eighth of all investments in Brazil, providing hundreds of thousands of jobs in construction firms, shipyards and refineries, and forming business ties with international suppliers including Rolls-Royce and Samsung Heavy Industries. Petrobras was also at the centre of Brazil s politics. During the 2003-2010 presidency of the Workers Party leader Luiz In cio Lula da Silva (known as Lula), executive posts in Petrobras were offered to Lula s political allies, to help build support in Congress. Petrobras s commercial and strategic importance was such that the US National Security Agency made it a target for surveillance. As the Car Wash investigation was to prove, if you could unravel the secrets of this company, you would unravel the secrets of the state. First, though, investigators had to get executives to talk. Until very recently, that would have been unthinkable. A culture of impunity had long reigned in Brazil. But times were changing, as Petrobras executive Nestor Cerver was about to find out. When he saw the state of the mattress in the airport detention centre, he threw a tantrum. How am I going to lie on this? he said. It s either that or sleep standing up, Ishii replied. Within an hour, Cerver had dozed off, only to be shaken out of his slumber at 6am. Where s my breakfast? he demanded. You re not getting one, Ishii answered. I m taking you to Curitiba. curitiba, the heart of the Car Wash investigation, is the capital of the southern state of Paran . By Brazilian standards, at 845km it is not far from Rio, but culturally, they are worlds apart. Curitiba is known as the London of Brazil because its people are considered more inclined to be sticklers for the rules than residents of the bigger cities in the north. In recent years, it has won international praise for its pioneering public transport system, environmental policies and hipster scene. Thanks to Operation Car Wash, however, it is now best known for its judges, prosecutors and police. Without one simple reform, however, the investigation might never have taken off. Dilma Rousseff took over from Lula as leader of the Workers Party and became president of a coalition government after the 2010 election. In the wake of nationwide anti-corruption demonstrations in 2013, Rousseff had tried to placate an angry public by fast-tracking laws aimed at rooting out systemic fraud. New measures included, for the first time in Brazil, plea bargaining: prosecutors could now make deals with suspects, reducing their sentences in return for information that could lead to the arrest of more important figures. Overseeing the case in Curitiba was S rgio Moro, an ambitious young judge who helped prosecutors put pressure on suspects by approving lengthy preventive detentions . In the overwhelming majority of cases, Brazilian prisoners remanded in custody before trial are poor. Moro took the unusual step of also denying bail to the rich. Ostensibly, he did so to stop them using economic or political influence to escape any charges against them. However, the pressure was on them: make a deal or stay in jail. Cerver was not the first to face this choice. He joined a parade of VIP Car Wash suspects corporate executives, wealthy entrepreneurs and, later, even one or two powerful politicians who spent months inside the Curitiba detention centre. They had to be kept separate from other inmates for their own safety, which meant their side of the jail quickly became overcrowded. Having lived in luxury, these super-rich prisoners were squeezed three to a one-man cell. Their new circumstances came as a shock. One guy did not know how to shave because he had always had it done for him, said a guard, who asked to remain anonymous. Cerver apparently had serious problems adapting. His cellmates complained that he urinated on them in the night and washed his backside in the sink. If inmates refused to cooperate with the prosecution, privileges such as TV and exercise were withdrawn. Many suspects made deals after a visit from their loved ones, said the guard. I think it was because they smelled the perfume and soap of the lives they had left behind. Some resisted for months, others just days. But almost all of them broke in the end. Defence lawyers complained, with some justification, that these tactics were legally dubious and unethical, because defendants would say or do anything to get out of jail. But polls indicated the public was delighted that the age-old problem of corruption was finally being exposed in a major nationwide operation. Almost every day, details of a dawn raid by police or another shocking allegation were splashed across the front pages: more than $2bn siphoned off Petrobras in bribes and secret payments for contract work, $3.3bn paid in bribes by the construction firm Odebrecht, more than 1,000 politicians on the take from the meat-packing firm JBS, 16 companies implicated, at least 50 congressmen accused, four former presidents under investigation. As the staggering scale of the skulduggery emerged, many Brazilians focused their fury on politicians initially Lula, Rousseff and others in the Workers Party. The newspapers trumpeted the message that the dirty socialists in Brasilia were wholly responsible for the problem. The reality was considerably less clear-cut. Just about every major party was involved in multiple, interconnected trails of corruption going back to earlier governments. And it was the Workers Party that had put in place the judicial reforms that allowed the investigation to go ahead. There would have been no Car Wash if the government had not appointed, in September 2013, an independent attorney general. Newspaper columnists contrasted the dirty world of politics with the highminded work of the judiciary in the Republic of Curitiba . When Judge Moro walked into a restaurant, people would stand up and applaud. Graffiti on walls and banners draped from apartment balconies declared God save Moro . Protesters in the streets held up placards declaring Moro for president . The federal police also won praise. Ishii became the public face of the investigation: as the officer charged with taking suspects from the airport to the detention centre and the courthouse, he was in almost every picture and video related to the case. On social networks and in headlines, he was nicknamed Japones Bonzinho (the Good Japanese). At carnival, he was honoured with a six-metre-high doll and a samba tribute song, with lyrics imagining a suspect who wakes to find he is the latest target of Operation Car Wash: Oh my God, I am politically dead! Knocking at my door is the Japanese fed. In person, Ishii is circumspect and austere. When I visited him at his modest apartment in Curitiba, he was careful to downplay his role. He explained that his celebrity had reached the point where he felt trapped. At one public event, he was mobbed by adoring members of the public and had to be escorted out by security guards. A traffic cop pulled him over to ask for his autograph. Bizarrely, even the relatives of the Car Wash prisoners would ask him to share selfies and say how much they admired his work. Ishii said he realised Car Wash was something special when he saw wealthy businessmen not just go to jail, but stay there. That s when the penny dropped. I began to think, hey, I m in a country where there is an expression, Only the poor get arrested but here are these millionaires getting thrown in prison. More was to come. From corporate executives, Car Wash investigators turned their attention to politicians. Dishonest and venal senators and congressmen had long been protected by the immunity of office. But a window for prosecution was opening. The judiciary was in the ascendant, the electorate was mad as hell, and old loyalties were starting to crack. All the prosecutors needed was a little leverage. to lure one of Brazil s most powerful politicians out into the open, prosecutors planned a sting operation, using Petrobras s Nestor Cerver as bait. Senator Delc dio do Amaral, the Workers Party leader in the upper house, was an old associate of Cerver . They had worked together at Petrobras between 2000 and 2001. After that, Cerver had become Amaral s faithful servant, raising illegal contributions for whichever party the fickle senator was aligned with. After Cerver s arrest, Amaral knew he was at risk of exposure. Desperate to find a way to discourage him from talking, Amaral arranged to meet Cerver s son, Bernardo, in Brasilia. On 4 November 2015, Amaral met with Bernardo Cerver at the Royal Tulip Hotel. Unaware that Bernardo was secretly recording the conversation, the senator made a number of incriminating statements, which were later leaked to the press. Amaral offered to pay $1m upfront, plus a further $13,000 a month, in exchange for Nestor Cerver s silence. When this was rebuffed, he said he could arrange Bernardo s father s escape from prison. How? Bernardo asked. First, Amaral explained, he would use his influence on a particular judge to arrange for Cerver to be moved from his prison cell and placed under house arrest. Then, he described in detail how the prisoner s electronic tag could be deactivated, so he could flee undetected. Cerver could then charter a private plane to neighbouring Paraguay. Amaral would arrange the whole thing. As soon as the judges heard the recording, they ordered the senator to be detained on charges of conspiracy to obstruct justice. It was a momentous decision. No sitting senator had been arrested in 30 years. Amaral was taken into custody on the morning of 26 November 2015. He immediately agreed to co-operate with investigators and tell them everything he knew about the illegal activities of his fellow politicians, including the then president Rousseff, who he accused of conspiring to obstruct justice. He singled out former president Lula as the mastermind of the Petrobras corruption scheme. The senator claimed it was Lula who had organised the payoffs and urged him to get Cerver out of the country, because he wanted to protect a close friend who had been involved in negotiations between politicians and oil company officials. Lula and Rousseff denied the allegations and accused Amaral of lying to save himself. I never imagined he was such a scrotum, Jaques Wagner, Rousseff s former chief of staff, told Lula in a phone call recorded by police. But while his critics accused him of spectacular betrayal, Amaral painted his testimony in a heroic light, saying he was doing the nation a favour by exposing the powerful to justice. Because I was someone who was talking to the government, talking to parliament, talking with leading Brazilian businessmen, talking to Petrobras, with Eletrobras, with all the state, I had no doubt that my collaboration would be a watershed in the investigation, Amaral told me in an interview last summer. Thanks to his cooperation, Amaral was living under house arrest in his brother s luxurious mansion in one of S o Paulo s swankiest neighbourhoods. When I arrived to meet him, a maid answered the door and led me past a pool and an outdoor jacuzzi to a private bar decorated with neon signs for Coors and Miller beer, a Wurlitzer jukebox and celebrity memorabilia: Ayrton Senna s F1 racing helmet, Mike Tyson s boxing glove, Buzz Aldrin s framed autograph and Eric Clapton s guitar. Amaral left open the possibility that he would make a return to politics. The system needed to change, he argued, because corruption had become ingrained from long before the Workers Party took power. Brazil s political scene is highly vulnerable to corruption. With dozens of parties and elections at three levels (federal, state and city) across one of the world s largest countries, campaigns are extremely expensive and it is almost impossible for any single political group to secure a majority. Gaining power involves winning elections and paying other parties to form coalitions, both of which require huge sums of money. As a result, one of the greatest prizes in Brazilian politics has long been the power to appoint senior executives at state-run companies, because each executive could expect to receive millions in kickbacks from contractors, much of which could be siphoned off into campaign coffers. The Workers Party was supposed to be different. It had been elected on a promise to clean up corruption, but it soon got sucked in. After winning the presidency on his fourth attempt, in 2002, Lula had been stuck with a minority in Congress. His chief of staff bought the support of minor parties by arranging monthly payments, known as mensal o, mostly paid by construction firms in exchange for building contracts. Although illegal, this allowed the Workers Party to get things done. Lula s first term delivered impressive progress on alleviating poverty, social spending and environmental controls. None of the subsequent three Workers Party administrations came close to achieving as much. Unfortunately, because Lula s reforms had only got through parliament with the aid of bribery, those achievements were built on ethical quicksand. When the mensal o scandal was revealed in 2004, the Workers Party had no choice but to stop paying its coalition partners, and Lula was again stuck with a minority in Congress. Worse, he now faced the danger of being impeached. To prevent this, he reached out to one of his party s biggest rivals: the Brazilian Democratic Movement Party (PMDB), led by Michel Temer. This marriage of convenience was doomed from the start. The PMDB is Brazil s biggest political party, but has never taken an ideological stance or a leadership role, preferring to do deals to shore up governments. It is a mishmash of factions, ranging from conservative rural landowners and urban social democrats to evangelical nationalists and former guerrillas, whose only common ground is a desire to secure the patronage, prestige and bribes that come with government posts. The party has been involved in every corruption scandal in modern Brazilian history. But Lula was desperate, so he struck a deal. In return for support in Congress, the Workers Party gave Temer s PMDB control of the international division of Petrobras and the funds that flowed from it. Cerver , then the director of that division, was required to deliver payoffs to different masters. It was a gruelling task. In 2008, Cerver failed to deliver sufficient funds and he was forced to stand down. Temer has been named countless times in Car Wash testimonies. Julio Camargo, a consultant for the Toyo Setal construction and engineering company, said money was channelled from Petrobras to a lobbyist representing senior PMDB figures, including Temer. One industrialist testified that Temer had arranged illicit payments into the party s campaign coff

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