HomeNewsAnalysisHow Odebrecht Profited From Corrupting LatAm Political Elites

How Odebrecht Profited From Corrupting LatAm Political Elites


On December 21, 2016, the US Department of Justice and Brazilian construction conglomerate Odebrecht reached a record-setting anti-corruption settlement that revealed Odebrecht spent hundreds of millions of dollars in bribes to secure public works contracts in twelve different countries across three continents. Half a year later, InSight Crime takes a deep dive into the nature of Odebrecht's corrupt activities in Latin America, the extent of its illicit practices, the state of the various ongoing investigations into the company and its projects, and the web of corruption that continues to engulf some of the region's most powerful political elites. 

Beginning in 2014, Odebrecht, then Latin America's largest transnational construction company, began facing accusations of engaging in illicit activities with Brazil's state-owned oil giant, Petrobas, related to the investigation known as "Operation Car Wash" ("Operação Lava Jato"). What originated as a local money laundering investigation, soon mushroomed into an international corruption scandal as Brazilian authorities discovered evidence suggesting Odebrecht had paid bribes to political elites in both Peru and Argentina. 

In reality, the scheme stretched back to at least 2001. But it wasn't until late 2016 that the extent of the company's bribery network was exposed more fully following a joint investigation by US, Brazilian and Swiss authorities that resulted in Odebrecht and its affiliate Braskem pleading guilty to criminal charges and agreeing to pay a combined $3.5 billion in fines. Specifically, Odebrecht admitted it had paid at least $788 million in bribes to government officials and political parties in exhcange for help securing public works contracts. Of that amount, approximately $735 million pertained to bribes made over the course of more than a decade in 10 Latin American countries.

Using these figures, it is possible to calculate the approximate "return on investment" that Odebrecht recieved for the bribes it paid. The company made the largest return on its investment in graft in Argentina, where $1 spent on bribes bought the company a little less than $8 in business. Odebrecht saw its worst returns in the Dominican Republic, where $1 of bribes only bought the company about $1.80 in business. (See InSight Crime's graphic below)

But in fact, the amount of bribes Odebrecht paid might be even higher than those reported by the US Justice Department, according to officials involved in the Odebrecht investigations in several countries in the region. 

In Colombia, for example, authorities have said that the true value of bribes paid might be nearly double what Odebrecht admitted; estimates have ranged from $22 million to $27 million. In Guatemala, authorities believe there may be up to $4 million worth of bribery not counted in the plea agreement. And in Ecuador, according to the investigative organization MilHojas, the true value of bribes paid could be as much as $300 million, almost nine times the US Justice Department estimate.

There are many threads left to unravel, as ongoing and future investigations will surely reveal. And the full scope of all the bribery Odebrecht engaged in may never be known. But what has become clear is that the company orchestrated a massive and highly sophisticated criminal enterprise that operated in the shadows at some of the top echelons of government and industry for years.

Odebrecht's Modus Operandi

The success of Odebrecht's expansive bribery and money laundering scheme depended on a complex, multi-tiered system that included the use of bank accounts registered in the name of offshore companies and other accounting tricks designed to hide illicit financial flows. But at its most basic level, the company earned its illegal profits through the use of three simple mechanisms: bribes, delays and surcharges.

According to detailed independent research carried out by InSight Crime, during the 15-year timeframe laid out in the above-mentioned plea agreement, Odebrecht was responsible for over 155 construction projects, at least 45 of which were in Brazil and another 110 of which were spread out across the region. 

These projects were similar in the sense that many revolved around construction: roads, ports, aqueducts, energy systems and the like -- and many were obtained through bribery. But a closer look at the contracts reveals how delays and surcharges contributed to the padded profits Odebrecht earned on its crooked deals.

In no country is the striking degree of delays associated with Odebrecht projects more apparent than in Venezuela, where Odebrecht has left to this day approximately 23 of its 32 multimillion dollar projects either unfinished or stalled, some of which were supposed to have been in construction since the early to mid-2000s.

Odebrecht has blamed the state of its Venezuelan projects on the government, claiming that they never received funding for the projects. But this statement has been contradicted by former Venezuelan Attorney General Luisa Ortega, who recently stated that at least 11 of those still unfinished projects received approximately $30 billion in government funds. The Venezuelan Attorney General's Office had been investigating corruption related to Odebrecht before Ortega's controversial ouster in early August 2017.

SEE ALSO: Coverage of Money Laundering

Another example of delays affecting Odebrecht projects is the burying of the Sarmiento railway project in Argentina, which only advanced by three percent in a period of eight years and which Odebrecht has now abandoned. There is also the Salamanca oil refinery project in Mexico, which was supposed to conclude in 2015 but has only advanced by 23 percent and is also now temporarily suspended.  

These delays were, in turn, regularly associated with surcharges that were often a product of contract modifications. At least $6.26 billion in surcharges have been confirmed to be associated with Odebrecht projects, according to a tally by investigative journalism outlet Convoca.

The cases of the Pinalito hydroelectric plant in the Dominican Republic and Odebrecht's only Guatemalan project, the CA2-Western Highway, both provide a stark view of the surcharge-via-contract modifications pattern.

In the case of the Dominican Republic's hydroelectric plant, Odebrecht made six contract modifications over a period of five years, which increased the cost of the project by a whopping $230.2 million, nearly tripling the original cost of the project.

Similarly, contract modifications made by Odebrecht pushed up the cost per kilometer of Guatemala's CA2-Western Highway from $2.8 million to $8.3 million, meaning that only 48 kilometers of the originally-planned 140 kilometers could be built under the original price.   

Shielded by Graft

While the massive reach of Odebrecht's criminal network is only beginning to be unveiled by Operation Car Wash and other investigations, the company has for years been involved in multiple controversies across several Latin American countries that suggest it was able to buy not only business, but also political protection through its corrupt activities.

One of the largest scandals involving Odebrecht in the years preceding Lava Jato occured in 2008 in Ecuador when the government expelled Odebrecht from the country because of serious flaws in the San Francisco hydroelectric plant project. The ban lasted for almost three years until Brazilian President Luiz Inacio Lula da Silva negotiated Odebrecht's return to the country, after which the company continued to engage in corruption.

The punishment Odebrecht faced in Ecuador was brief, but in the rest of Latin America it was practically nonexistent.

As early as 2009 in Colombia, Anti-Corruption Czar Óscar Ortiz was made aware of potential bribes Odebrecht paid to acquire the Bogotá River sewage interceptor and asked for the contract to be suspended, but the deal went through anyway. Years later the government was forced to pay Odebrecht 12 billion pesos (roughly $4 million) during a legal dispute for this project, which Odebrecht left incomplete. There have been four such legal disputes in the country between Odebrecht and its contractees, each of which has been arbitrated in favor of the company. 

Odebrecht has for years been involved in multiple controversies across Latin America that suggest the company was able to buy not only business, but also political protection through its corrupt activities.

A similar situation arose in Mexico involving a project that federal auditors in 2010 described as having several contract overvaluations and other irregularities. In 19 conciliation hearings, Mexico's state-owned oil company Pemex always ruled in favor of Odebrecht. Officials in both countries who are part of the Odebrecht investigations now believe that Odebrecht may have bribed individuals to rule in its favor as a means of increasing its profit margins.

In the Dominican Republic, the Dominican Alliance Against Corruption (Alianza Dominicana Contra la Corrupcion - ADOCCO) found excessive costs in 2012 in Odebrecht's completion of the Coral Freeway and asked for the project to be audited and investigated. But once again, the case went nowhere. Two years later, Odebrecht was back in the national spotlight when the government was accused by other public works contractors of favoritism after awarding the contract for the constrcution of a coal-fired power plant to Odebrecht even though the company had the lowest technical qualifications and offered the highest price for the project, one which was even above the price ceiling set by congress.

These examples illustrate how Odebrecht used graft not only as a method of obtaining lucrative contracts, but also as a means of maintaining a potentially unfair competitive advantage over its business rivals in the region.

An Offer 'None' Could Resist

How many politicians turned down Odebrecht's overtures?

"None," said Rodrigo Tacla Durán, the former head of Odebrecht's "Bribery Department," according to an account in Panama's La Estrella newspaper.

Indeed, a large number of current and former high-level Latin American officials from every side of the political spectrum have been linked to Odebrecht bribes. At the same time, relatively few officials have actually been detained or prosecuted, and in several countries the Odebrecht investigations have become politicized.

This is perhaps best exemplified in Mexico and Venezuela. In the former country, two major political parties have reportedly agreed to avoid speaking about the case, and the attorney general has refused to reveal details about the state of the investigation, citing confidentiality restrictions. In the latter, crisis-wracked nation, the country's attorney general was prohibited from charging individuals in relation to the Odebrecht case without first getting the approval of the government. She has since been ousted.

Even in countries like the Dominican Republic, where 14 individuals were implicated in Odebrecht-related graft and are set to face trial, prosecutors have faced charges of favoritism to the ruling political party. The Odebrecht case has even generated massive public demonstrations demanding that company be expelled from the country and that the president be investigated.

SEE AlSO: Coverage of Elites and Organized Crime 

At least two countries have so far produced significant, tangible results in terms of prosecuting high-level corruption linked to Odebrecht: Brazil, where former President Lula was sentenced to jail, and Peru, where the attorney general ordered the arrest of former President Alejandro Toledo and the pretrial detention of former President Humala. Other investigations in various countries around the region are ongoing, but in many cases progress is likely to be slow.

Odebrecht's reputation has been trashed by the revelation of the scandal, and the once-mighty construction company's business has been hit so hard that the fallout contributed to the worst economic crisis in Brazil's modern history. Perhaps this experience will stand as a warning to other corporations considering engaging in similar behavior in the future. But prosecutions of politicians who fell into Odebrecht's web of graft will also be necessary to discourage public officials from providing the political cover that for so long sustained the company's wide-ranging criminal operation.

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