The Corruption Scandal That Shook Latin America

How police probe of a gas station in Brazil uncovered a global bribery machine

Perhaps Paulo Roberto Costa was troubled by a guilty conscience. Or maybe he was indulging a dark sense of humour when he inscribed the quotation in his journal. It was a line from the twentieth century Brazilian humourist Millôr Fernandes that caught his eye: “Rooting out corruption is the ultimate goal of those who have not yet come to power.”

The diary was among the items seized by police—along with boxes and boxes of cash, in three currencies—when they raided Costa’s Rio de Janeiro home in March 2014.

Whatever the state of his conscience, Costa’s choice of inscription reflects the attitude that prevailed in Brazil about grand-scale corruption—it was so ubiquitous, so entrenched in the country’s political system and business dealings that only a fool who did not know the system personally might suggest it could be rooted out. Costa, then sixty, was a director at Petrobras, the Brazilian state energy company that, at its height on 2008, was worth close to $300 billion (all figures US).

He had come to the attention of police who were monitoring a gas station in Brasília; they gave their probe the name Lava Jato—“car wash” in Portuguese—because almost every Brazilian gas station has one. Police thought that one the money changers, or doleiros, who ran the station was laundering money. It seemed, at the outset, like a fairly straightforward investigation.

Then police found a receipt for a Land Rover the doleiro had given Costa—and when they went to question the Petrobras executive and search his home, neighbours spotted his relatives attempting to destroy documents at his office and warned the police. At that point, police arrested Costa—they didn’t know what they had found, but they knew it must be something significant.

And, indeed, Costa would prove to be the thread that caused a mammoth graft scheme to unravel, revealing a web of corruption and dirty politics so vast that it brought down a government, spread across Brazil’s borders to the far reaches of South America and Africa, and helped send the world’s sixth-largest economy into freefall. As of July 2019, Lava Jato–related cases have yielded at least 900 indictments and more than 200 convictions, revealed billions of dollars in bribes and inflated contracts, and prompted criminal investigations in at least a dozen countries.

Costa was soon convicted on charges of corruption and money laundering. I learned about his diary in a briefing from prosecutors for the first Lava Jato story I wrote, as the Rio-based Latin America correspondent for the Globe and Mail.

It was a story about a corruption investigation at Petrobras that had grown big enough that it was worth telling foreign readers about. At the time, it seemed that it might raise a few questions for the upcoming presidential election campaign of Dilma Rousseff—who was seeking her second term as Brazil’s first female president—given that she had once served as the chair of the board at Petrobras. I had no inkling, as I listened to the tally of what police had uncovered in Costa’s condominium a few months before, that this was a story that would see Rousseff ousted from her job in a dirty round of horse trading in Brasília, send the country on a dramatic swerve right that raised fears of a return to dictatorship, and become the focus of all the political and economic reporting I did in Brazil.

Lava Jato would grow from a business story about an oil company into a story about Brazil confronting the systems and relationships at the heart of its politics and about whether the country’s elite might, for the first time in centuries, see its grip on power loosened. It would accelerate into a story that moved faster, with greater drama, than anything I had seen outside of violent revolution, in twenty-five years of reporting from more than seventy-five countries. It was, for a time, an optimistic story—as Brazilians watched some of the most powerful figures in the country marched off to prison, their iron shell of impunity finally breached. But, over the next few years, that hope faded, replaced with despair and cynicism, as the traditional holders of power and influence slowly succeeded in wresting back control, rebuilding their castle of privilege—and a new cast of characters, elected on a platform of moral righteousness, proved to be playing by all the same rules.

Lava Jato was, at its heart, a kickback-for-contracts scheme that involved Petrobras and a handful of giant Brazilian construction firms, led by Odebrecht, acting as a cartel.

Petrobras was ballooning on the discovery of vast deepwater oil fields off the coast of Rio, the size of which caused a jubilant president Luiz Inácio Lula da Silva, or Lula, to declare, “God is Brazilian!” Lula’s government introduced local-content requirements for Petrobras and its international partners, prompting a surge of demand for oil platforms, deepwater ports, refineries, highways, and every other potential piece of infrastructure. Petrobras managers inflated the price of the contracts, and Odebrecht and other building firms played the game—Odebrecht had an entire department set up to track who they were bribing, for how much, and when.

But the twist in Lava Jato was that a portion from every bribe was funnelled to the politicians who oversaw the oil company and could advance legislation approving more exploration, more airports, more roads. Between 1 and 3 percent of every bribe went to politicians, Costa and other executives eventually testified.

Within Petrobras, the company was divided into three sections—supply, services, and international—and the kickbacks from each were shuttled to one of the country’s three largest political parties. Lula’s Workers’ Party (PT, in its Portuguese initialism) was in power when the scheme became public, but eventually all of the parties in the ruling coalition would be implicated. When investigators dug into Costa’s affairs at Petrobras, they quickly realized he was no lone actor but part of a system—and as they worked to decipher that system, they had new tools at their disposal.

Brazil had recently passed a law allowing prosecutors to offer plea bargains, including the possibility of lighter sentences in exchange for cooperation with investigators. Judges were also allowed to hold those facing charges in jail until their trials. This proved to be a brutally effective tool for winning cooperation from privileged Brazilians given a brief taste of the country’s barbarically overcrowded prison system.

Marcelo Odebrecht, billionaire scion of the construction family and former CEO of its firm, walked out of prison after serving two and a half years of a thirty-one-year sentence in exchange for a lengthy naming of names and the full cooperation of his company, which started handing over bankers’ boxes full of documents to prosecutors in more than a dozen countries.

He is still under house arrest and is required to wear a monitoring anklet.

The sight of Odebrecht and his coterie of executives being marched into police stations in handcuffs intrigued the public, and the team driving Lava Jato soon became cult heroes. Chief among them was Sérgio Moro, a federal judge in the sleepy southern town of Curitiba, in whose courtroom that first money-laundering case began.

In Brazil, judges play an active role in investigations, and Moro supervised a team of ambitious prosecutors, most in their thirties and forties, and educated at Ivy League law schools. He worked to keep the cases together in his court and under his control. This made it more difficult for wealthy defendants and their fleets of lawyers to stall their cases. Moro made zealous use of the new law that allowed him to keep politicians in jail, and as they cracked and offered deals, he pushed prosecutors to move up the value chain.

Moro typically appeared in public in dark suits and black ties and presented himself as an exemplar of moral rectitude. Soon, his face was on T-shirts worn by protesters at anticorruption, anti-Rousseff demonstrations. People carried his likeness in inflatable dolls. He was mobbed by fans when he appeared in public, and there was soon a national movement to draft him as a presidential candidate. Moro demurred, but when I saw him in public appearances, it was clear he enjoyed the attention.

Yet from relatively early days in Lava Jato, there were signs that the venerated judge might have some complicated motivations. In 2016, he brazenly leaked recordings from wiretaps he had ordered of Lula talking to Rousseff—a move of dubious legality that even judicial analysts who admired Moro told me violated every ethical standard. PT supporters began to argue that Moro and his team had a personal, antileftist political agenda, something they strenuously denied. And, for a time, it did just seem like sour grapes on the part of Lula’s party.

In Lava Jato’s first years, defence lawyers tried repeatedly, but mostly unsuccessfully, to get cases moved out of Moro’s jurisdiction so that they could be made to disappear into decades of procedural issues, the way the handful of corruption charges that got to court in the past always had. But, after the first year, other judges began to use the Moro strategy, digging into contracts at Eletrobras, the national electric firm, and into the functioning of the entire state of Rio de Janeiro.

By 2018, four of the past five governors of the state were in jail or facing charges. The 2016 Olympics got its own Lava Jato spinoff, too, with prosecutors charging that members of Brazil’s Olympic Committee conspired with construction firms to buy the athletic federation votes needed to ensure that the Summer Games came to Rio.

Politicians from almost every party in Brazil were indicted in Lava Jato, but the probe began to be the subject of partisan debate. From the beginning, it appeared that Moro had a particular focus on Lula and on proving the chain of corruption led all the way up to the former president, who enjoyed very high approval ratings (above 70 percent) in the country and was called the “most popular politician on earth” by Barack Obama.

Lula grew up in São Paulo as a refugee from the impoverished northeast, quit grade school to work in a factory, lost a finger in an industrial accident, became a union leader, and made three unsuccessful attempts at the presidency before he led a new leftist force into power in 2002.

He oversaw both a boom in the economy, fuelled by the oil finds and a surge in Asian demand for commodities, and also the first significant effort at redistribution in Brazil, implementing policies that ranged from basic income cash grants for the poor to race-based affirmative-action admissions at public universities. According to Lula’s supporters, those policies made him a target for enmity from the ruling class—so that, when Moro went after him, it led many of his supporters to view the probe with suspicion, as an anti-Lula, anti-Workers’ Party plot, the revenge of the ruling class.

Rousseff, Lula’s handpicked successor, had won her battle for reelection in October 2014. But, as more details about the Petrobras corruption became public, even Brazilians who supported her struggled to believe that she was not aware of how deep the corruption was in her own party—allegedly extending to using kickbacks to fund her election campaigns—or at the oil company where she had once chaired the board.

A year after the election, an air of siege hung over Brazil’s futuristic white congress buildings. In the hallways, there was a sense of frantic machination. The drama culminated in a vote to begin the process of impeaching Rousseff in April 17, 2016. She was not accused of personal corruption or any tie to the Lava Jato probe but charged with overseeing the fudging of state accounts to mask a budget deficit to allow for social spending.

When she testified in her own defence, Rousseff argued that she was being targeted by political enemies who were furious that she had refused to shut down Lava Jato—that she had appointed independent prosecutors for several years. Her enemies carried the day and quickly installed her former vice president, Michel Temer, in the presidential palace.

But Rousseff’s argument received grim, posthumous confirmation with the release of a recording of a then senator, Romero Jucá, a close ally of Temer’s, plotting with other senior figures to work with sympathetic Supreme Court justices and take direct action to “staunch the bleeding” and shut Lava Jato down, once Rousseff was out and Temer was in.

The night of the first impeachment vote in congress in Brasília, I sat in the gallery and watched the action. There was drama on the senate floor but also a flurry on the sidelines, out of the view of the television cameras. There, opposition legislators, many of them men from multigenerational political dynasties, wealthy landowning families, and business families, posed for jubilant photos with their wives, who carried designer handbags worth an annual minimum-wage salary. As the votes to impeach mounted, their jubilation grew—power was shifting out of the hands of the Workers’ Party and back to those who had traditionally ruled Brazil.

It would be difficult to overstate the public impact of the kinds of arrests the Lava Jato team had carried out in its first years. When police arrested Eike Batista—a Brazilian icon, once listed as the seventh-richest man in the world, a tycoon whose career was synonymous with the economic boom, and a man who kept a $1.3 million sports car in his living room—it felt like the era of impunity was over. I had conversations with dozens of people, both rich and poor—they always expressed surprise, and varying degrees of discomfiture, that such powerful people were actually going to jail.

Once Temer was president, he moved quickly to try to stifle Lava Jato. His new justice minister disbanded the federal police Lava Jato task force. He replaced the prosecutor who had tried to charge him. The new prosecutor shared the dais at her inauguration with three political figures under investigation, and in her speech, she didn’t mention Lava Jato, which should have been her greatest responsibility in her new role. The new president named a new federal police director, who soon said he saw no reason for a probe of Temer’s involvement in a lucrative port contract to go forward.

At that point, Lava Jato came to seem like a race between the effort to build a new Brazil and the revenge of the old. In May 2017, two of Brazil’s richest businessmen, billionaire beef barons Joesley and Wesley Batista, struck plea bargains with prosecutors based on a secret recording that Joesley had made of Temer allegedly discussing a hush-money payment with him at a clandestine, late-night meeting in the official residence of the vice president.

As I reported in the Globe and Mail, police said they had evidence that the Batistas’ firm, JSB, the second-largest meat-packing company in the world, had paid $248 million to a whopping 1,829 candidates for political office from twenty-eight different parties in 2014—just $5 million of it legal donations—in exchange for laws that favoured the Batistas’ business.

It seemed impossible that Temer could survive this evidence. But, after doling out millions of dollars in funding for political pet projects, he managed to buy enough support in Congress to shut down the investigation and maintain the shield of traditional presidential immunity. In the ensuing months, Lava Jato caught up to another president. In July, Moro convicted Lula of graft for having received about a million dollars’ worth of renovations on a beachfront apartment in a poky town in the state of São Paulo.

When his conviction was upheld in January 2018, he was sentenced to twelve years in jail, and by April, he was behind bars. The sight of him being led into the prison was a watershed moment for Brazil.

It was also true that the appeals process—dispatched with a swiftness unprecedented in the creaking Brazilian legal system—rendered Lula ineligible to compete in the next election, for which he had a wide lead in the polls. For a dispassionate observer, it was difficult to ignore that, while Lula went down on weak evidence for a relatively small offence, given the multi-billion-dollar scale of the scam, and for acts committed after he left office, Temer remained in the presidency despite significant evidence of his involvement in millions of dollars’ worth of bribery schemes and that powerful figures around him had also successfully escaped prosecution.

“Brazil today is at a crossroads,” Nicole Verillo, an analyst with the Brazil office of Transparency International, told me for the Globe and Mail, as Temer rallied his allies to stay in office. “We have on the one hand great advances against corruption through the work of Operation Lava Jato…and on the other side, you have a very powerful political class that wants to hold on to power at any cost and who absolutely do not want to be investigated or punished.”

While Brazil had its moment of reckoning, Lava Jato was causing upheaval across much of the rest of South America—probes in Ecuador, Peru, Panama, and Colombia, begun with evidence collected by Brazil’s prosecutors, quickly began to produce charges against politicians; Mexico and Argentina moved slower, but there were political repercussions there too. The impact on Peru has arguably been as great as that on Brazil—three of its former presidents are jailed, and one died by suicide as prosecutors closed in on him. Even an ocean away, political change in Angola has created new interest in prosecuting corrupt officials, which leaves Odebrecht’s deals open to investigation. If and when change comes to Venezuela, there will be investigations there too.

In Brazil, the initial optimism—the belief that the country’s institutions might prove stronger than the transactional relationships that govern politics—has faded. Temer finished out his term; no one bothered any more to bang on pots and pans when he gave televised speeches. When the next presidential election arrived, in late 2018, corruption, and a shrinking economy battered by the years of scandal, were all that mattered to voters.

With Lula out of the running, his party tapped a mild-mannered political-science professor, Fernando Haddad, as proxy for the imprisoned former president. Other parties put forth veteran politicians. But it was Jair Bolsonaro (campaigning as an outsider despite being a seven-term congress member) who quickly emerged as the front-runner, promising a total purge of traditional systems. The rest of his platform was a mashup of conservative, evangelical-influenced social policy, such as a promise to defend “the true meaning of marriage as a union between man and woman,” old-school paranoia about communism, promises of sweeping privatizations, and a pledge to liberalize gun ownership to end crime. Bolsonaro offered little by way of leadership bona fides—he successfully sponsored just two pieces of legislation in twenty-seven years in congress and changed parties nine times, suggesting he had little of the political capital needed to navigate the fractious legislature. And he had made statements that were nakedly homophobic, racist, and misogynistic, including calling a fellow lawmaker “too ugly” to rape.

But Brazilians nonetheless elected him by a wide margin in October. And, within weeks, the new president made good on a campaign promise and named the Lava Jato judge, Sérgio Moro, as his justice minister, with free reign to bring his anticorruption campaign to Brasília. That move was extremely popular with many Brazilians. Moro moved swiftly to propose legislation based on the Lava Jato playbook and to demonstrate his new power. Weeks after leaving the presidential palace, Michel Temer, stripped of his immunity, finally went to jail on corruption charges, although as fast as prosecutors got him behind bars, his raft of lawyers got him out again.

And yet it took only weeks for a series of scandals to make clear that the new president was much like the old presidents. He appointed cabinet ministers and other officials who were under investigation and even indictment for corruption. Then prosecutors announced they were investigating his son Flavio, a senator and key presidential adviser, for money laundering; they reported mysterious payments to a staffer with ties to a militia believed to have assassinated a left-wing city councillor. Bolsonaro’s popularity plummeted.

And then came #VazaJato: in June, the left-wing publication the Intercept began reporting based on a vast trove of leaked files (hence the hashtag: Vaza is Portuguese for leak) that included text messages on the app Telegram between Moro and his prosecutors. The conversations suggested that, just as PT supporters had long believed, Moro had a particular vendetta against Lula and worked to keep him from running for president again. The messages showed Moro apparently coaching prosecutors on how to make their case and what evidence to bring to his courtroom—actions that could violate the law governing judicial behaviour in Brazil. Meanwhile, messages showed Moro’s young prosecutors brokering high-priced speaking gigs, strategizing about how best to leverage their fame and influence.

The justice minister was called before congress to explain and blustered about the authenticity of the messages, but the revelations kept coming: the Intercept partnered with large, right-wing publications that had once venerated Moro but issued mea culpas as they verified the messages. Moro took leave from his job, and his survival as minister was uncertain. The extent of damage to the Bolsonaro government is still unclear; already weak, its ability to advance a legislative agenda will be further undermined.

What was clear was the irreparable harm done to Lava Jato. Nothing changes the fact that a once-inviolate wall in Brazil has been breached; people as powerful as presidents have been held to account, have gone to jail. But Brazilians now have incontrovertible evidence that there are no heroes, no saviours, no institutions invested purely in the public good. Even when the traditional elite was dislodged, it was by those who schemed to take their place.

Stephanie Nolen
Stephanie Nolen is a veteran foreign correspondent who has reported from more than 80 countries around the world, and is the author of Promised the Moon: The Untold Story of the First Women in the Space Race, and 28 Stories of AIDS in Africa, which won the PEN Courage Prize. She is a five-time winner of the Amnesty International Media Award for coverage.