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Powerful Brazilian CEO Arrested in Petrobras Graft Probe

  • Reuters

Federal police cars are parked in front of Odebrecht headquarters in Sao Paulo, Brazil, June 19, 2015.

Federal police cars are parked in front of Odebrecht headquarters in Sao Paulo, Brazil, June 19, 2015.

Brazilian police on Friday arrested Marcelo Odebrecht, the head of Latin America's largest engineering and construction company, Odebrecht SA, and accused his family-run conglomerate of spearheading a $2.1 billion bribery scheme at state-run oil firm Petrobras.

In pre-dawn raids that netted 12 arrests in four states, police also apprehended Otavio Marques Azevedo, head of Andrade Gutierrez, the second-largest Brazilian construction firm.

A lead prosecutor, Carlos Fernando dos Santos Lima, said he
had "no doubt" Odebrecht and Andrade Gutierrez led what he
called a "cartel" that overcharged Petrobras for work and passed
on the excess funds to executives and politicians.

The arrest of Odebrecht, 46, who has personal ties to former President Luiz Inacio Lula de Silva, could bring the scandal closer to the political heart of the ruling Workers' Party, already weakened by Brazil's largest corruption investigation, known as "Operation Car Wash."

"There is a larger connection between Lula and Odebrecht, and we see [Odebrecht's] possible indictment as a big risk," said Cameron Combs, Latin American researcher with Eurasia Group.

President Dilma Rousseff, who was chairwoman of the Petrobras board during Lula's presidency, has denied knowledge of the corruption scandal dating to at least 2004 and urged a thorough investigation. Neither she nor Lula has been implicated.

Last month, federal prosecutors opened a separate investigation into whether Lula improperly used his connections to benefit Odebrecht, saying he had frequently traveled abroad at Odebrecht's expense since 2011.

Lula's institute, the Instituto Lula, denied wrongdoing at the time and declined to comment Friday.

Odebrecht is the third-generation leader of the privately held company and has been instrumental in its expansion throughout Latin America and in Africa and the United States. It has recently executed big projects in Miami and Cuba.

A lawyer for Marcelo Odebrecht did not return calls seeking comment.

Odebrecht SA said in a statement that the arrests were "unnecessary" because it was collaborating with investigators.

Odebrecht bond prices fell Friday, and shares of Braskem SA, a petrochemical producer Odebrecht controls, slumped 7 percent.

Andrade Gutierrez said it was also cooperating with the investigation but had no connection to the alleged corruption at Petrobras.

'Sophisticated Way'

Neither Azevedo nor Odebrecht has been formally charged, and it was not clear how long they would be detained. Arrests of other top Brazilian executives resulted in months-long pre-trial incarceration.

The "Lava Jato" probe, centered on Petroleo Brasileiro SA, as the oil major is formally known, has led to the indictments of more than 100 people and implicated dozens of lawmakers, most of them from Rousseff's Workers' Party.

The treasurer of the Workers' Party is currently in jail, awaiting trial on corruption charges, though the party denies campaign donations it received were bribes.

Federal Judge Sergio Moro said until now, the probe had lacked proof that executives from Brazil's largest contractors engaged in corruption. Now, investigators have evidence that the company Odebrecht paid bribes "in a more sophisticated way" than the other contractors, Moro wrote in his arrest order.

The scandal has blocked the construction firms, including Odebrecht and Andrade Gutierrez, from doing business with Petrobras, and economists say the subsequent paralysis contributed to Brazil's descent into recession.

While the arrests were somewhat expected, they nevertheless raised hopes among Brazilians that the investigation would not spare the elite in a country where the wealthy have enjoyed relative impunity.

"The objective of the operation is to bring a clear message that the law applies to everyone, no matter the size of the company, its place in society or its economic power," federal police agent Igor Romario de Paula said at a news conference in Curitiba.