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For months the Brazilian company Odebrecht involved in a huge corruption scandal spanning throughout Latin America makes the daily headlines in Peru. But who is Odebrecht? What’s going on? And how does this affect Peru?
The Odebrecht company
Odebrecht, founded in 1944 as construction company in Brazil, developed thanks to the economic boom of the past 25 years in many South American countries, not only into the largest construction company in Latin America, but also into a multi-industry corporation with a complex network of sub-companies, subsidiaries and contractors in the areas of construction, engineering, real estate, chemicals and petrochemicals. Today Odebrecht operates in South America, Central America, North America, the Caribbean, Africa, Europe and the Middle East.
The family-run company is known for having realized the largest construction and engineering projects in the region during the last 20 years, including for example building major roads such as the Trans-oceanic highway connecting Peru (the Pacific Ocean) with Brazil (the Atlantic Ocean), public transport services in numerous major cities, water, oil and gas pipelines, airports, water treatment and power plants. But for years it is also not unknown that the Odebrecht family and the company’s executives have very close ties to the elites across Latin America.
Odebrecht under investigation in Brazil
Odebrecht first became the focus of the Brazilian Federal Police when the investigation of a money laundering operation revealed not only four large criminal rings in Brazil, but soon a huge corruption ring involving Odebrecht and the state oil company Petrobras. Over 200 persons including high ranking Brazilian executives and politicians and 16 companies have been investigated or still are under investigation on suspicion of inflated contracts with Petrobras and using part of the overcharged money to pay for bribes and electoral campaigns. Today nearly 100 of them are convicted including Odebrecht CEO Marcelo Odebrecht, the grandson of the founder, who was sentenced to 19 years in prison for his role in the company’s bribery.
The corruption and bribery scheme of Odebrecht in Latin America
Further investigations first by the US Department of Justice, later by authorities in other countries as well and the publication of the Panama Papers soon revealed that the Odebrecht corruption, bribery and exertion of influence scheme wasn’t limited to Brazil, but reached across the continent.
It turned out that Odebrecht won tenders throughout Latin America by making low bids and then renegotiated or / and added further documents to the original contracts containing other terms and information, so called addenda, which resulted in a huge increase of the costs and more profit for Odebrecht; and all this under the watchful eye of the bribed ones involved, including high ranking politicians and executives. This method was especially popular with contracts concerning public-private partnerships (PPPs), which are often used in Latin America to realize large, complex infrastructure projects in all areas.
The confessions of dozens of Odebrecht executives and other involved smaller to medium fry only substantiated the already known and confirmed further suspicions. Due to the overwhelming evidence in the end Odebrecht could only admit to have paid nearly US$ 800 million in bribes to secure contracts for more than 100 construction and engineering projects in numerous countries including Angola, Argentina, Brazil, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Panama, Venezuela and as well Peru. The company as well agreed to pay more than US$ 3.5 billion to US, Brazilian and Swiss prosecutors.
Odebrecht corruption scandal in Peru
In Peru Odebrecht had a strong presence and was involved in the construction work for numerous major projects including a part of the Trans-oceanic highway connecting Peru (the Pacific Ocean) with Brazil (the Atlantic Ocean), section 2 of the Metro line in Lima, the Chaglla Hydroelectric Power Plant, the Olmos and Chavimochic irrigation projects, the Vía de Evitamiento road project in Cusco, the port in Matarani, and lots of other bigger and smaller projects.
So, no wonder that Odebrecht’s confession to having paid more or less US$ 29 million to officials in Peru between 2005 and 2014 during the presidency of Alejandro Toledo (2001-2006), Alan Garcia (2006-2011) and Ollanta Humala (2011-2016) to secure several construction and engineering projects has shaken Peru’s political establishment quite badly; especially as the new Peruvian government under Pedro Pablo Kuczynski seems to take a hard line and rigorously fights corruption.
Peruvian anti-corruption prosecutors already stated, that the country lost hundreds of millions of dollars on inflated public work contracts and will thoroughly investigate the corruption scandal. They also confirmed that everyone involved, without consideration of status and influence in the country, will be hold accountable and further announced to call the three former presidents and more than 20 former ministers and regional presidents including current Peruvian President Pedro Pablo Kuczynski, who served as economy minister and later as prime minister during Toledo’s presidency, to testify. It can be assumed that several other high-ranking Peruvian executives and officials have to join the party.
The first heads already roll in Peru. In January of this year arrest warrants were issued for Edwin Luyo, an official who served on the government’s bidding commission, and Jorge Cuba, former vice minister of transport and communication. They are the first ones to face corruption charges for their until now alleged involvement in the Odebrecht corruption scandal.
Former president Alejandro Toledo’s involvement in the corruption scandal
But anti-corruption prosecutors reach higher. Just last week Peruvian authorities issued an international arrest warrant for former Peruvian president Alejandro Toledo (2001-2006), even offering a S/ 100,000 (about US $30,000) reward for information leading to his arrest. Prosecutors accuse him of having accepted US$ 20 million in bribes from Odebrecht in exchange for infrastructure projects in Peru including the construction of the famous Trans-oceanic highway connecting Peru and Brazil. The initially envisaged costs for the highway rose from US$ 800 million to US$ 2.3billion; all made possible through 22 addenda that were added to the original contract.
Peruvian prosecutors believe they have already found a shell company, owned by a close adviser of the former president, used for funneling bribe money from a Brazilian firm linked to Odebrecht to Toledo.
While authorities claim Toledo fled the country, other sources including Toledo himself state that he is living permanently in the US and even working as a guest professor at the University of Stanford. Through his Twitter account he announced that he left the country after the Christmas holidays to return to his life abroad and denied any wrongdoing. He describes himself as the victim of a witch hunt.
Either way, if Alejandro Toledo is arrested and extradited to Peru, he most probably will first only be put under house arrest due to his age and ordered to stand trial.
Former president Alan Garcia’s involvement in the Odebrecht scandal
During the second presidency of Alan Garcia (2006-2011) Odebrecht won the contract to build the section 2 of the Metro in Lima. Already in the 1980s during his first presidency the urban train system was planned and the first route started to build. But due to the economic collapse of the country, works were paralyzed with only 9.2 km and seven stations finished. The project lay idle for years until Alan Garcia returned to power in 2006 for a second term.
Odebrecht already admitted to having paid over US$ 7 million in bribes in 2009 to secure the Metro contract. Reportedly the Brazilian company named officials who have been involved; but until now no names came to light. If Alan Garcia is involved can neither be denied nor confirmed. He himself of course rejects any such accusations.
Nevertheless, Odebrecht's donation of US$ 800,000 to erect the Cristo del Pacifico in Chorrillos, Lima, a 37 meter high statue of Jesus inspired by the Christ the Redeemer statue in Rio de Janeiro, described as a gift to Lima and as a parting gift to the nation on occasion of Garcia’s leaving office in 2011 leaves a bitter taste.
Ollanta Humala’s connections to Odebrecht
And it seems that former president Ollanta Humala (2011-2016) might be involved in the scandal as well. In 2014 a consortium led by Odebrecht won the bid to build and operate the Gasoducto Sur, a more than 1,000 km long natural gas pipeline extending from the Peruvian jungle to the Pacific coast, which represents the largest investment in infrastructure in Peru's history. Already in February 2016 in the midst of the Peruvian presidential campaign reports from the Brazilian Federal Police implied that Humala received bribes from Odebrecht in exchange for this project and other public work contracts.
And former president Humala has a lot on his plate already. For two years now the Peruvian prosecuting attorney’s office investigates a huge, but unrelated money laundering and corruption scandal involving his wife, former First Lady Nadine Heredia. In October of last year he was officially included in the investigations and charged with money laundering, accepting illegal election campaign donations and bribery including the allegedly receipt of contributions from illegal miners. The banking and tax secrecy of the former presidential couple was lifted and a judge ordered that he and his wife can’t leave Peru without permission
How the current Peruvian governemnt handles the Odebrecht scandal
As already mentioned the new Peruvian government under Pedro Pablo Kuczynski seems to be 100 percent committed to fight corruption and nepotism in the country. Just recently the Peruvian government announced that the fight against corruption is more important for them than economic growth.
Next to fiercely prosecuting everyone involved in the Odebrecht scandal, the government implemented several new laws and regulations aiding the fight against corruption.
In January of this year for example the Peruvian Penal Code was modified making bribery a criminal offence. Those convicted of bribery will face imprisonment of 4 to 12 years. Additionally, the president announced that companies and civil servants found guilty of corruption, bribery and exertion of influence can’t ever work for the Peruvian state again; not for the central government, nor for regional governments or municipalities. Furthermore, all public contracts will contain a special anti-corruption clause in the future; a special anti-corruption entity is founded and people reporting corruption will be protected by law.
Right now, all of Odebrecht's assest in Peru are frozen, the biggest infrastructure project in Peru, the construction of the Southern Gas Pipeline is on hold, the contract with Odebrecht canceled and other investors are needed. Other projects are still investigated. Additionally, new laws will make renegotiating contracts and adding addenda to existing contracts, the method Odebrecht used to increase cost and profits after winning with low cost bids, much more difficult.
The Odebrecht corruption scandal will keep Peruvian investigators busy for quite some time. We will have to wait and see, if really all involved will have to take responsibility for their actions or if only a few are sacrificed as pawns.
