The 10-year Scandal Tearing Through Brazil's Petrobras

The enormous scandal ripping through Brazil’s state-controlled oil company, Petrobras, continues to deepen every day. The scandal allegedly involves a 10-year-long scheme of kickbacks, political payoffs, and outright bribes that purportedly stripped almost $4 billion from the company.

According to reports, following his arrest for money laundering last March, Petrobras’s former chief of refining confessed to orchestrating a scheme whereby some of Brazil’s largest construction and engineering companies would be awarded inflated contracts from Petrobras, and then divert as much as 3 percent of the contract value to political slush funds.

The scandal has already claimed Petrobras’s chief executive, who resigned in February along with five senior directors. Additionally, the investigation has led to more than 50 arrests to date, federal police have warrants for another 18, and at least 50 more are still under scrutiny. It seems that no one in Brazil is above suspicion.

Many of those arrested are private citizens, including dozens of executives from Petrobras and some of Brazil’s biggest firms. Of the politicians under investigation, nearly all were from Brazil’s ruling coalition, the Workers’ Party, including its treasurer, who was formally charged with corruption on Monday. This is, by almost any measure, Brazil’s biggest scandal ever.

Late last year, the U.S. Department of Justice and Securities Exchange Commission both opened their own investigations into Petrobras’s dealings. Among other things, they’re looking into whether anyone connected with Petrobras ran afoul of the Foreign Corrupt Practices Act (“FCPA”), which is an anti-corruption statute that makes it illegal to bribe foreign officials to win or retain business.

One wrinkle, however, is that the FCPA does not apply to government officials and, in previous unrelated cases, federal prosecutors have argued that Brazil’s majority ownership of Petrobras makes the company’s employees tantamount to government employees. Still, U.S. authorities can pursue other claims if need be, including under anti-money laundering, conspiracy, or Travel Act laws.

With prosecutors in full swing and no end in sight, one thing is clear: the sprawling Petrobras scandal is bound to get worse before it gets better.