Brazil’s Corruption Crisis Boils Over

On August 2, the Brazilian Chamber of Deputies narrowly decided against placing President Michel Temer on trial before the Supreme Court on corruption charges. In a recorded conversation with Joesley Batista, owner of meatpacking giant JBS, Mr. Temer was heard purportedly accepting millions of dollars in bribes and directing illicit money flows for witness silence in a larger anti-corruption investigation. Nevertheless, despite the Chamber vote, President Temer, 76, may still prove unable to avoid the same fate that befell his predecessor Dilma Rousseff: removal from office.

Attorney General Rodrigo Janot is expected to charge Temer with another series of felonies, obstruction of justice and racketeering. The Chamber of Deputies may have to vote again on Temer’s fate in a few months. His approval rating stands at five percent. According to recent polling, 80 percent of Brazilians want Temer prosecuted. Because all of the Chamber Deputies are up for re-election next year, voting to keep Temer in power is not in their political self-interest. It would not be unreasonable for deputies to consider Temer a liability and cut him loose in a few months. Moreover, even if Temer were to survive removal from office this year, the 2018 general election does not bode well for him.

President Temer’s troubles are only the latest involving Brasilia’s politicians. There is a cancer consuming Brazil’s political class—its name is corruption. In the last few years, the independent judiciary in Brazil has asserted itself. With this, there is hope the cancer will be excised and discarded. While the situation is tumultuous and traumatic in the short-term, Brazil’s judiciary and law enforcement services are demonstrating that Brazil is a nation of laws and not of men.

“There is a cancer consuming Brazil’s political class—its name is corruption.”

Most politicians have been disgraced by the Lava Jato (car wash) probe. The reason Mr. Temer was caught on tape is because Joseley Batista was cooperating with federal prosecutors in a corruption inquiry that began when police discovered money laundering at a Brasilia gas station. From this small thread, investigators uncovered a vast kickback scheme that had been going on for years. It involved and tarnished the oil giant Petrobras, the multinational construction company Odebrecht, and most of Brazil’s well-heeled political elite. Through the revelations of this scandal, Brazil’s longstanding culture of impunity has temporarily come to a screeching halt.

Last year, the federal police raided the home of the once hugely popular President Luiz Inacio “Lula” Da Dilva in Sao Paulo. This year, he’s been sentenced to 10 years in prison for illegally receiving $1.1 million in improvements to his beach house. Also, the once powerful House Speaker Eduardo Cunha is serving a corruption sentence behind bars. Finally, the fortunes of two of Brazil’s most iconic corporations, the aforementioned Petrobras and Odebrecht, are mired in scandal and plagued by financial illegality. The judge presiding over most of these cases, Sergio Moro, is now a hero in anticorruption circles.

If this corruption crisis is properly handled, it should inspire confidence in Brazil’s future and ensure long-term political and market stability. Corruption endangers the success of free-market, democratic capitalism and puts economic prosperity at risk because business needs reliability and the ability to know contracts are fairly secured and properly executed; otherwise, legal remedies outside the realm of politics must be available.

Corruption breeds distrust by undermining the rule of law. In such an environment, neither business nor civil society can flourish. For this year and next, the IMF is projecting a return to economic growth after a commodities bust and a years-long recession. If this corruption crisis is handled properly and justice is meted out to those who defrauded the public, many future scoundrels will be deterred. Citizens will regain trust in their institutions and business will reinvest in the economy.

“Corruption breeds distrust by undermining the rule of law. In such an environment, neither business nor civil society can flourish.”

There is a cynical saying that “Brazil is the country of the future and always will be,” but this need not be the case. Brazil is capable of change, just like many other countries. For example, while the United States is not perfect in rooting out corruption, its business environment is less ethically challenged than during the robber baron epoch of the Gilded Age, and its political class is less venal than during the era of Tammany Hall or Teapot Dome. For such a transformation to transpire, many special interests were dislodged and powerful figures prosecuted, as is happening in Brazil today.

On the other hand, mishandling the current corruption crisis risks repeating the mistakes and history of the last generation of Italian politics. During the 1990s, the Mani Pulite “Clean Hands” judicial investigation revealed a vast corruption conspiracy that tainted every aspect of the established political parties. More than half of the members of Italy’s parliament were indicted. Famously, the Christian Democratic Party, the political party that ruled Italy since the end of WWII, dissolved in the wake of revelations concerning kickbacks on public works projects. The established parties floundered and Italians grew so disgusted with their political class that they entrusted their country to a charismatic billionaire demagogue who promised to not be beholden to the corrupt special interests that had undone the Christian Democrats: Silvio Berlusconi.

Instead, Mr. Berlusconi proceeded to disgrace Italy for the next 15 years with new financial and sexually salacious scandals of his own. In the interim, Italy’s corruption problem never disappeared, and while Italian corruption has improved somewhat in the past few years, the state has yet to fully realize the clean government its citizens have been clamoring for since the 1990s.

For this occasion, there exists an excellent refrain. Rahm Emanuel, the current mayor of Chicago and former White House chief of staff, is fond of admonishing others: “Never let a serious crisis go to waste.” It is in times of crisis that circumstances are ripe for executing reform. At present, Brazil is facing an enormous crisis. If all proceeds well, it will not squander its opportunity to implement a new form of politics before it’s too late.

Image: Brazilian President Michel Temer. (PMDB Nacional, Flickr, Creative Commons)


Marco F. Moratilla works for New Magellan Venture Partners, LLC, a venture capital firm. He has experience at the National Security Archive and the U.S. House of Representatives. He holds an M.A. in international affairs from The George Washington University and a B.A. in political science from the University of California, San Diego. His work has appeared in International Affairs Review. A native Californian, he spent his formative years in Madrid, Spain.

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