- Crimes against the Amazon can also be perpetrated from government offices. In the case of Brazil, a sophisticated mechanism allowed in the late 1990s the embezzlement of millions of dollars and contributed to deforestation in the Brazilian Amazon.
- Phantom companies, technical assistance for theft, fictitious loans and fraudulent reports supported the legality of the operations and consultancies of those agricultural or plantation ‘ventures’ in the Amazon Rainforest.
- The investigation, focused on activities carried out between 1997 and 1999, identified more than 150 high-value, fictitious investments. Civil lawsuits were filed against involved businessmen, public officials and legal entities, demanding compensation for damages to the public treasury.
The Superintendência de Desenvolvimento da Amazônia (SUDAM) was created to foster the development of private enterprises in the eight states of the Legal Amazon. Its policies in the first four decades of its existence were controversial because they catalyzed a deforestation boom; however, the administration of SUDAM was also associated with accusations of graft and political influence. The scope and scale of the corruption shocked the country in 2000 when a personal feud between two powerful Senators (Jader Barbalho and Antonio Carlos Magalhães) led to the revelation of a mafia-like conspiracy that had embezzled more than R$4 billion (~US$ 500 million) from the public treasury. It was, at the time, the costliest corruption scandal in Brazilian history.
The perpetrators created an audacious assembly-line process where loans and tax credits were siphoned into the personal accounts of owners of fake businesses, agency staff and influential politicians. Consulting companies operated by former agency executives acted as intermediaries by offering their services in the design of ‘projects’ that met SUDAM’s technical conditions. Offering a full-service package, the consultants arranged for meetings with key decision-makers to ensure projects were approved by the loan committee and, ostensibly, technical assistance for the implementation of the proposed investments.
Criminal activity was compounded by fictional project implementation reports and fraudulent accounting services that ensured false invoices and contracts were accepted by auditors. Each step, document, plan or meeting had a fee or commission that ensured that between thirty and fifty per cent of the total loan went to the consulting firm, which then distributed the funds back to functionaries inside SUDAM. The scheme was based almost entirely on phantom companies that were created for the specific purpose of stealing money: embezzlement pure and simple.
The most egregious examples of malfeasance were revealed by Senator Antônio Carlos Magalhães, who testified in Congress about twenty projects in the Municipality of Altamira, each with a nominal value of between R$ 4.5 million and R$ 9 million for a total of R$ 106 million. Most were for agricultural or plantation ventures organized by people closely associated with Senator Jader Barbalho, including his second wife (Simone Maria Morgado Ferreira), who was a co-owner of a bogus frog-leg production facility (Ranário Touro), and his son Helder, who was listed as a co-owner of a food company (Tropical Indústria de Alimentos) that apparently never sold any food.
The investigation, which focused on activities between 1997 and 1999, identified 151 fake investments valued at R$547 million. The crimes committed included embezzlement, misrepresentation, use of false documents and money laundering. In related cases, Jader Barbalho was accused of accepting R$40 million to facilitate a R$200 million loan to an agro-industrial company specializing in certified rice seed, while an automobile parts factory valued at US$654 million in São Luis de Maranhão was linked to Roseana Sarney.
These revelations span only two years of SUDAM’s operations and presumably represent only a fraction of the fraud perpetrated by its functionaries and political patrons between 1966 and 2003. The Ministerio Público Federal (MPF) filed criminal charges against 143 individuals, only one of whom was found guilty. Simultaneously, the MPF filed 24 civil lawsuits against thirty businesspeople, 27 public servants and 29 legal entities, seeking R$ 323 million in compensation for damages to the public treasury, but it apparently recovered only R$28 million.
The scandal was an enormous embarrassment to President Cardoso, who had cultivated an image of probity and fiscal responsibility. This motivated him to liquidate SUDAM and relaunch it as the Agência de Desarrolho da Amazônia (ADA). A court in Tocantins ordered the apparent mastermind of the scheme, Jader Barbalho, to return R$ 2.27 million to SUDAM, but he appealed that ruling and there is no public record of any payment. The scandal forced his resignation from the Senate in 2001, but he was elected to the lower house of the national Congress in 2003, which effectively removed his case from the criminal justice system and returned it to the jurisdiction of the Supremo Tribunal Federal. Jader Barbalho returned to the Senate in 2011, and his case was dismissed by that court in 2014. The SUDAM scandal is a near-perfect example of the brazenness of political corruption and the impunity enjoyed by its practitioners.
Petro theft: an Andean bad habit
There are numerous examples of alleged fraud associated with the oil and gas industry, though considering the revenues the sector generates, they may be only a fraction of bribes and kickbacks in this sector. Following are a few examples of misconduct that have been reported by the press.
In Bolivia, the architect of President Evo Morales’ strategy to nationalize the oil and gas sector, Santos Ramírez Valverde, was convicted in 2009 for extorting a bribe from a businessman contracted to build a strategically important gas-liquid separation plant. The contract, which was rescinded due to the scandal, was priced at US $498 million, in stark contrast to the one negotiated by his successor for US$190 million. The graft perpetrated by Ramírez was not caught by an audit or anti-corruption investigation but by fallout from the murder of the businessman, who was in the process of paying him a US$450,000 cash bribe – presumably an installment of a much larger sum. In a second scandal related to the same refinery, the construction manager was arrested in 2014 for accepting a US$ 480,000 bribe when he was arrested for drunk driving and was unable to explain why he was in possession of US$90,000 in cash.
In Ecuador, several international oil trading companies (Gunvor, Vitol, Trafigura and Global Asphalt) have been implicated in diverting US$ 70 million to Panamanian intermediaries on behalf of a dozen senior executives at Petroecuador. The bribes were paid to secure contracts for the transport and delivery of crude oil as stipulated by Ecuador’s debt payment programme with China. The scheme was discovered thanks to the 2016 publication of the Panama Papers, which revealed questionable money flows to Ecuadorian politicians and their families. Ironically, the contract was priced as a fee of one dollar per barrel – exactly the same amount paid as royalties into the Fondo Amazónico, Ecuador’s financial vehicle for funding sustainable development in its Amazonian provinces.
Surprisingly, there are no mega-scale corruption scandals in the Peruvian oil sector, presumably because that country relies on private-sector operators to explore, produce and commercialise hydrocarbon resources. Nonetheless, state-owned companies have been involved in at least two moderately large scandals. In 2008, Perupetro was rocked by the so-called Petro Audios, which revealed payments of bribes during a bidding process for control of oil and gas blocks in Madre de Dios. A small Norwegian company admitted to paying US$ 120,000 to consulting companies controlled by two key cabinet ministers, although executives testified the payments were for legal services rather than bribes. The scandal destabilised the government of President Alan García and led to a nine-year legal process that, unsurprisingly, ended without a conviction.
A separate and ongoing scandal revolves around the recurrent oil leaks on the Oleoducto Nor Peruano (ONP) and more than US$ 141 million in contracts awarded by Petroperú for mitigation and remediation. The contracts were expedited by an emergency decree that did not require a competitive bidding process and were soon followed by accusations of cronyism and incompetence. Even more serious are accusations that the pipeline was sabotaged in order to generate clean-up work for contractors or local subcontractors. That a bribe might actually lead to significant and long-lasting environmental damage is a graphic example of the harm caused by corruption.
Banner image: Deforestation in the Pillcopata, Cusco, Peru. Image by Rhett A. Butler.
“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0).
To read earlier chapters of the book, find Chapter One here, Chapter Two here, Chapter Three here, Chapter Four here and Chapter Five here.
Chapter 6. Culture and demographic defines the present
Credits
