Brazil delays leniency deals in graft probe, calls for rigor

SAO PAULO/BRASILIA (Reuters) - Brazil’s new interim government is suspending negotiations with construction companies caught up in a massive corruption investigation in order to make leniency deals more rigorous and prove its anti-graft credentials.

A sign of the Odebrecht SA construction conglomerate is pictured in Rio de Janeiro, Brazil, February 26, 2016. REUTERS/Ricardo Moraes

Fabiano Silveira, Minister of Transparency and Oversight, said on Tuesday prosecutors and the federal audit court should be part of the negotiations of leniency deals, a change that would require legislative approval from Congress.

The deals, expected last year, would allow construction firms blacklisted for corruption to bid for new state contracts if they admit wrongdoing, collaborate with investigators and pay a fine.

They were previously negotiated by the CGU comptroller general’s office, which interim President Michel Temer folded into a new Transparency and Oversight ministry.

A legislative change would delay the signing of leniency agreements - which some regard as a key ingredient to kick-starting Brazil’s stalled economy - but would give companies that do sign more security against legal challenges.

“The more legitimate actors that participate in this process, the better,” Silveira told Globo News television in an interview.

Thirty-one contractors, including Brazil’s largest builders, have been banned from signing new contracts with state-run Petroleos Brasileiros (Petrobras) since late 2014 due to accusations they colluded to overcharge the oil company and used the extra funds to bribe politicians.

About half of those were known to be negotiating leniency agreements with the federal government, a measure permitted under Brazil’s 2013 anti-corruption law.

Suspended President Dilma Rousseff, whom the Senate last week voted to put on trial on charges of breaking budget laws, proposed a measure last year to speed up the leniency deals in a bid to revive the economy.

But federal prosecutors who discovered the graft scheme at Petrobras criticized Rousseff’s approach. They argued that without their participation, the government let companies off too easily and gave them no incentive to avoid crimes.

Since taking power, Temer - who was Rousseff’s vice president - has tried to quell concerns that his government may try to sweep Brazil’s largest-ever corruption investigation under the rug.

The new ministry’s creation will give anti-corruption efforts a higher profile and strengthen tools for uprooting corrupt practices in Brazil, the government and independent compliance experts say.

The uncovering of a multi-billion-dollar graft scheme at Petrobras in 2014 sent shockwaves through Brazil’s political establishment, providing fodder for Rousseff’s impeachment and paralyzing Petrobras, which halted payments to blacklisted companies.

That left hundreds of suppliers on the verge of bankruptcy and led to the layoff of tens of thousands of workers.

Companies that do not strike leniency deals risk the same fate as Mendes Junior Engenharia, which was banned on April 28 from public tenders for at least two years, the first builder to be punished by the government.

Alessandra Gonsales, a compliance expert at Brazilian law firm WFaria, said including the federal audit court (TCU) in negotiations would give companies assurance their agreements would not be questioned in the future.

“The biggest challenge in relationship to the leniency agreements is judicial security for the companies,” she said.


The move could centralize negotiations for companies, which were previously in talks with federal prosecutors and anti-trust regulator CADE as well as Brazil’s comptroller.

Federal prosecutors have separately signed five leniency deals for companies and dozens of individual plea bargains. They have warned the window for settling with them may be closing as it will be harder to bring new information.

Prosecutors expect the investigation focused on Petrobras to wrap up in December, not counting appeals and spin-off investigations. Brazil’s biggest engineering conglomerate, family-run Grupo Odebrecht, may have therefore waited too long when it decided to collaborate in March.

Federal prosecutor Deltan Dallagnol denied negotiations with the company, which was in talks with the government.

He recently told reporters there would only be deals that serve the public interest: “Examples need to be set to discourage criminal practices.”

Reporting by Caroline Stauffer and Anthony Boadle; Editing by Richard Chang and Bernard Orr