As Brazil's Operation "Lava Jato" wraps up, Sean Hecker, Marshall Miller, and Ana Frischtak analyzed the impact of "perhaps this century’s most important anti-corruption investigation" for the NYU Program on Corporate Compliance and Enforcement, and looked ahead to "what comes next." Read this article at Compliance & Enforcement.
The largest criminal investigation in Brazil’s history – and perhaps this century’s most important anti-corruption investigation worldwide – came to a close last week. Operation “Lava Jato” (“Car Wash,” in English) was launched by the Curitiba[1] branch of the Brazilian Federal Police in 2014, (later known as the Curitiba Task Force).[2] The Operation, which drew its name from a car wash in Brasília where one of the targeted criminal organizations laundered illicit funds, uncovered a widespread, complex, and unprecedented web of corruption implicating Brazil’s giant state-owned oil company, Petrobrás, public officials, and Brazil’s largest construction companies in a sweeping contracts-for-kickbacks scheme. Operation Lava Jato ultimately expanded to expose bribery and graft in numerous other industries, involving dozens of politicians and government officials, and an almost countless number of companies, both Brazilian and multinational.
While the dissolution of Lava Jato’s Curitiba Task Force last week came as no surprise, it still delivered a heavy blow to Brazil’s efforts to combat the endemic corruption that has long plagued the country. The Lava Jato Operation shed significant light on the staggering scale of corruption in Brazil and, for the first time in history, put some of Brazil’s most powerful government officials, politicians, and businessmen behind bars; in a country with a long-engrained culture of impunity, the Operation’s achievements were nothing short of revolutionary. The Operation seemed to portend the dawn of a new era, one where public corruption in Brazil might no longer be accepted as the cost of doing business. And despite Lava Jato’s perceived shortcomings—critics accused prosecutors of employing illegal tactics to make their cases, and Judge Sergio Moro, the main judge tasked with adjudicating Lava Jato cases, was accused of partiality[3]—the Operation enjoyed soaring levels of public support. On one Sunday in March 2016, for example, 3.4 million Brazilians took to the streets in 262 cities across the nation to show their support for the Operation and to protest against corruption.[4]
And Lava Jato’s impact extended well beyond Brazilian borders, exposing corrupt officials in other Latin American countries, bribe-paying companies from the United States to Asia, and government graft in nations as far off as Africa. Extremely close cooperation between U.S. and Brazilian authorities led to some of the largest DOJ and SEC resolutions in history, and multinational corporations and executives from all over the globe were held accountable for misconduct in Brazil and elsewhere.
Without a doubt, Lava Jato has left its mark. What then, does the demise of the Lava Jato Operation mean for efforts to combat corruption in Brazil? As discussed below, we believe anti-corruption enforcement in Brazil has turned a corner and will remain strong – if less robust than in Lava Jato’s heyday. Even without dedicated task forces, Brazilian prosecutors remain fully committed to vigorous enforcement and can be expected to continue employing the legal tools advanced and refined during Lava Jato’s seven-year run. Further, the strong bond of cooperation and assistance that has developed between American and Brazilian prosecutors during the Lava Jato era shows no signs of fraying. Lava Jato may have been temporary, but we believe that vigorous anti-corruption enforcement will remain a permanent feature of the Brazilian landscape.
Looking Back
Lava Jato By the Numbers
Since March 2014, the Lava Jato Operation has launched 79 “phases”, or distinct investigations into suspected criminal activity,[5] 1,450 search and seizure warrants, and 132 warrants for pre-trial detention.[6] The Operation led to 174 convictions, including of leading political figures such as: former Brazilian President Luiz Inácio Lula da Silva; the former President of Congress, Eduardo Cunha; the former Governor of Rio de Janeiro, Sergio Cabral; and former top ministers in Brazil’s Working Party, José Dirceu and Antônio Palocci.[7] To date, a total of R$ 4.3 billion ($750 million) has been returned to the Brazilian government’s coffers pursuant to cooperation and leniency agreements, with the expectation that this amount will increase to R$ 14.7 billion ($2.7 billion) when all outstanding monies are recovered.[8]
Legal Developments
The Lava Jato Operation revolutionized the way criminal investigations are conducted in Brazil. It popularized the use of “delações premiadas,” roughly akin to plea bargains in the United States, and pioneered the use of “condições coercitivas,” measures that forced those under investigation to testify (though this procedure has since been prohibited by Brazil’s Supreme Court).[9] Lava Jato prosecutors also made frequent, successful requests for detention before defendants had exhausted all avenues of appeal, resulting in the timely imprisonment of many powerful individuals.[10]
International Impact: Cross Border Cooperation and Global Effects
Brazil received the first request for international cooperation within the scope of the Lava Jato Operation in July 2014.[11] Since then, Brazil has received more than 650 formal requests for legal cooperation from 41 countries.[12] A majority of these requests came from Peru (274) and Switzerland (123), followed by 37 requests from Argentina, 35 from Colombia, 33 from Panama and 24 from the United States.[13] Most of the requests received from foreign prosecutors were for the testimony of suspects, witnesses, victims, and experts. Brazil, in turn, made 597 requests to foreign countries, the majority of which were sent to Switzerland (the location of many offshore bank accounts) and the United States.[14] Brazil’s cooperation requests consisted of requests for serving process on defendants, obtaining records otherwise subject to bank secrecy laws, and freezing financial assets.[15] In addition to formal cooperation requests, Brazilian authorities also regularly exchange information with foreign counterparts on an informal basis, and these lines of communication remain in place today.
In the case of the United States, the requests for mutual legal assistance that emerged from the Lava Jato Operation, coupled with strong and open lines of communication between U.S. and Brazilian authorities, resulted in groundbreaking criminal resolutions. These included the $3.5 billion DOJ settlement reached with Odebrecht and Braskem in 2016 (later reduced because of the companies’ inability to pay);[16] the $422 million settlement with Keppel Offshore Marine Ltd. in December 2017;[17] and the $853 million settlement with Petrobrás in 2018.[18]
Investigations growing out of Lava Jato rocked other Latin American governments, particularly Peru, where four former presidents were imprisoned as a result of declarations from Brazilian construction company Odebrecht, which admitted paying $29 million in bribes in Peru from 2005 to 2014 for the award of contracts.[19] Tragically, one of these former presidents, Alan Garcia, committed suicide upon learning that he would be sent to prison as a result of such corruption charges.[20] But Lava Jato’s impact did not stop there. The governments of Argentina, Colombia, Chile, the Dominican Republic, Ecuador, Guatemala, Venezuela, Mexico, and Panama were all impacted by the Operation and the subsequent investigations to which it gave rise.[21]
Lava Jato’s Demise: Now What?
To bring Lava Jato to a close, Brazil’s Attorney General Augusto Aras effectively dismantled the Operation. As Lava Jato prosecutors have noted, “[t]o put an end to an investigation, an explicit request need not be made, one simply needs to take away its structure.”[22] On December 7, 2020, Aras determined that Lava Jato prosecutors who were part of the Curitiba Task Force would be seconded to another anti-corruption unit known as Gaeco (Grupo de Atuação Especial de Combate ao Crime Organizado).[23] On February 4, 2021, four of the thirteen prosecutors who comprised the Curitiba Task Force were officially assigned to Gaeco, where in addition to the Lava Jato Operation, they are now tasked with investigations of other crimes, such as organized crime, fraud, drug trafficking, and money laundering.[24] The nine remaining Task Force prosecutors are being transitioned to other matters in their hometowns. As a result, there is no longer a single dedicated Lava Jato prosecutor.[25] One of Lava Jato’s key strengths had been the ability of Task Force members to focus exclusively on the Operation. The upshot of these developments was to sound the death knell of Operation Lava Jato as we knew it.[26]
Lava Jato prosecutors have raised concerns that the demise of the Task Force reflects the current government’s ambivalence about combating corruption.[27] Prosecutors claim that in the last few months, the Office of the Attorney General (Procuradoria-Geral da República or “PGR”) conducted a “witch hunt” inside the Curitiba Task Force, demanding access to confidential information and threatening or opening administrative investigations against those who refused to comply.[28] The Attorney General himself has been vocal about his concerns regarding Lava Jato, calling the Operation “a box of secrets,” and announcing his intention to undo what he called the “Republic of Curitiba.”[29] Aras stands to gain the support of the political class by staking out this ground, given how many among them have been investigative targets. The demise of “Lava Jato” also weakens the legacy of former Judge Sergio Moro, who, despite serving briefly as President Bolsonaro’s Minister of Justice, is now a staunch opponent, and a possible presidential contender for his job in 2022.[30]
The Attorney General claims that Lava Jato lacked “institutionalization” and that its closure simply represents a change in name, to “Gaeco.” He further suggests that the work of Lava Jato has not ended and that Gaeco will institutionalize the prior task force activities.[31] But such pronouncements ignore the dramatic reduction in resources that will be devoted to anticorruption efforts going forward.
Prosecutors have vowed that anticorruption efforts will not disappear. For example, one experienced prosecutor noted that while the closure of the Curitiba Task Force represents a retreat in Brazil’s fight against corruption, the Operation also created permanent bridges that are not easily dismantled.[32] Another current prosecutor noted that in more recent operations, Brazilian prosecutors have been deploying investigative techniques adopted during the Operation and that reliance on leniency agreements will continue to be the new norm even after Lava Jato’s termination.[33]
Moreover, there is no indication that the U.S. DOJ or SEC are retreating from FCPA enforcement in Brazil or elsewhere. To the contrary, FCPA enforcement addressing corrupt conduct in Brazil continues to be vigorous and shows no sign of abating.[34] We also see no indication that the strong tradition of cooperation and information sharing among U.S. and Brazilian authorities will end with the demise of Lava Jato. U.S. authorities continue to emphasize Brazilian prosecutors’ important role in their investigations, highlighting, in one recent resolution, the government of Brazil’s “significant assistance.”[35] Although a less focused Lava Jato Operation may slow down U.S. and Brazilian investigations into misconduct in Brazil, investigations will continue, and we expect to see continued, vigorous anti-corruption enforcement in both jurisdictions. For companies operating in Brazil and abroad, this this is no time to let their guard down. Robust anti-corruption and third-party due diligence programs continue to be of paramount importance. Activities in Brazil should continue to be viewed as high risk, both because of the widespread incidence of corruption in the country and the vigorous FCPA and anti-corruption enforcement that follows in its wake.
Looking Forward
The closure of the Curitiba Task Force marks the end of an era. Its work lasted approximately seven years and witnessed the largest anti-corruption probe that Brazil—and the world—have ever seen. Even with Lava Jato’s future politically uncertain, Brazil has shown that it has the institutions, the will, and the tools to fight corruption effectively. Lava Jato’s legacy will live on, as prosecutors employ the legal tools that have become commonplace in criminal investigations in Brazil, and U.S. and Brazilian authorities continue to build on their cooperative relationship. Multinational companies and their executives should continue to employ anti-corruption best practices when operating in Brazil and should be leery of any suggestions that the end of Lava Jato marks the end of anti-corruption enforcement in the country. The genie is not going back into the bottle.
Footnotes
[1] The city of Curitiba is the capital of the southern state of Paraná.
[2] In addition to the Curitiba Task Force, the Operation led to the creation of additional task forces around the country, such as the Rio de Janeiro Task Force, that will be maintained until March, and the São Paulo Task Force, which was closed down in September 2020. See Paulo Motoryn, MPF anuncia fim da força-tarefa da operação Lava Jato no Paraná, Poder 360 (Feb. 3, 2021), https://www.poder360.com.br/lava-jato/mpf-anuncia-fim-da-forca-tarefa-da-operacao-lava-jato-no-parana/
[3] Governo de Bolsonaro põe fim à Operação Lava-Jato, Valor Econômico (February 5, 2021), https://valor.globo.com/opiniao/noticia/2021/02/05/governo-de-bolsonaro-poe-fim-a-operacao-lava-jato.ghtml; see also Glenn Greenwald, et. al., Secret Archive Brazil, The Intercept (June 9, 2019), https://theintercept.com/2019/06/09/brazil-lula-operation-car-wash-sergio-moro/.
[4] Maria Thereza Rocha de Assis Moura & Marta Saad, International Legal Cooperation in the Car Wash Operation, Lessons of Operation Car Wash: A Legal, Institutional and Economic Analysis (Nov. 2020), at 7, https://direitosp.fgv.br/sites/direitosp.fgv.br/files/arquivos/bi-09212020-car_wash_report_v2.pdf
[5] The first investigation was launched in March 2014 and is now known as Phase 1 of the investigation, with subsequent inquiries numbered sequentially.
[6] Ministério Público Federal, Caso Lava Jato: Resultados (last accessed on Feb. 6, 2021), http://www.mpf.mp.br/grandes-casos/lava-jato
[7] Id., Cleide Carvalho et al., Após sete anos, Lava-Jato de Curitiba é extinta, O Globo (Feb. 4, 2021).
[8] Ministério Público Federal, Caso Lava Jato: Resultados (last accessed on Feb. 6, 2021), (http://www.mpf.mp.br/grandes-casos/lava-jato)
[9] Renan Ramalho, STF proíbe condução coercitiva de réus e investigados para depoimento, Globo G1 (June 14, 2018), https://g1.globo.com/politica/noticia/maioria-do-stf-proibe-definitivamente-a-realizacao-de-conducoes-coercitivas.ghtml; see also Supremo Tribunal Federal, “Plenário declara a impossibilidade da condução coercitiva de réu ou investigado para interrogatório,” (June 14, 2018), http://www.stf.jus.br/portal/cms/verNoticiaDetalhe.asp?idConteudo=381510
[10] Cleide Carvalho et al., Após sete anos, Lava-Jato de Curitiba é extinta, O Globo (Feb. 4, 2021)
[11] Ministério Público Federal, Caso Lava Jato: Efeitos no Exterior (last accessed on Feb. 6, 2021), http://www.mpf.mp.br/grandes-casos/lava-jato
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] U.S. Dep’t of Justice, “Odebrecht and Braskem Plead Guilty and Agree to Pay at Least $3.5 Billion in Global Penalties to Resolve Largest Foreign Bribery Case in History,” (Dec. 21, 2016), https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve
[17] U.S. Dep’t of Justice, “Keppel Offshore & Marine Ltd. and U.S. Based Subsidiary Agree to Pay $422 million in Global Penalties to Resolve Foreign Bribery Case,” (Dec. 22, 2017), https://www.justice.gov/opa/pr/keppel-offshore-marine-ltd-and-us-based-subsidiary-agree-pay-422-million-global-penalties
[18] U.S. Dep’t of Justice, “Petróleo Brasileiro S.A. – Petrobras Agrees to Pay More Than $850 Million for FCPA Violations,” (Sept. 27, 2018), https://www.justice.gov/opa/pr/petr-leo-brasileiro-sa-petrobras-agrees-pay-more-850-million-fcpa-violations
[19] Carolina Riveira, Como o Peru teve mais ex-presidentes presos pela Lava Jato que o Brasil, Revista Exame, (Apr. 17, 2019), https://exame.com/mundo/como-o-peru-teve-mais-presidentes-presos-pela-lava-jato-que-o-brasil/
[20] Id.
[21] Lava Jato avança no exterior e coloca governos da América Latina sobre suspeita, Globo G1 (February 9, 2017), https://g1.globo.com/mundo/noticia/lava-jato-avanca-no-exterior-e-coloca-governos-da-america-latina-sob-suspeita.ghtml
[22] Aguirre Talento, Aras enterra operação com agrado a políticos e aceno a Bolsonaro, O Globo (Feb. 4, 2021).
[23] Cleide Carvalho et al., Após sete anos, Lava-Jato de Curitiba é extinta, O Globo (Feb. 4, 2021)
[24] Id.
[25] Id.
[26] Id.
[27] Id.
[28] Id.
[29] Esvaziamento da Lava-Jato deixa o Brasil muito pior, O Globo (Feb. 4, 2021).
[30] Aguirre Talento, Aras enterra operação com agrado a políticos e aceno a Bolsonaro, O Globo (Feb. 4, 2021).
[31] Cleide Carvalho et al., Após sete anos, Lava-Jato de Curitiba é extinta, O Globo (Feb. 4, 2021)
[32] Cleide Carvalho, Encerrou-se um ciclo, mas futuro ainda é incerto’, diz procurador veterano da Lava-Jato, O Globo (Feb. 3, 2021), https://oglobo.globo.com/brasil/encerrou-se-um-ciclo-mas-futuro-da-lava-jato-ainda-incerto-diz-procurador-24868488
[33] Andrew Levine, Ada Fernandez Johnson, Fabricio M. Archanjo, Daniel Aun, et al., “Latin American Anti-Corruption Enforcement: Walking a Tightrope of Challenges and Opportunities,” FCPA Update, Vol. 12, No. 3 (Oct. 2020), https://www.debevoise.com/-/media/files/insights/publications/2020/10/fcpa-update-october-2020.pdf
[34] See, inter alia, U.S. Dep’t of Justice, “Vitol, Inc. Agrees to Pay over $135 Million to Resolve Foreign Bribery Case”, (December 3, 2020), https://www.justice.gov/usao-edny/pr/vitol-inc-agrees-pay-over-135-million-resolve-charges-bribery-schemes-latin-america; see also U.S. Dep’t of Justice, “J&F Investimentos S.A. Pleads Guilty and Agrees to Pay Over $256 Million to Resolve Criminal Foreign Bribery Case,” (Oct. 14, 2020), https://www.justice.gov/opa/pr/jf-investimentos-sa-pleads-guilty-and-agrees-pay-over-256-million-resolve-criminal-foreign
[35] See U.S. Dep’t of Justice, “Sargeant Marine Inc. Pleads Guilty and Agrees to Pay $16.6 Million to Resolve Charges Related to Foreign Bribery Schemes in Brazil, Venezuela and Ecuador,” (Sept. 22, 2020), https://www.justice.gov/opa/pr/sargeant-marine-inc-pleads-guilty-and-ag…
Sean Hecker and Marshall Miller are partners, and Ana Frischtak is special counsel, at Kaplan, Hecker & Fink LLP.