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Nov 14, 2014 6:40 PM

Brazil execs arrested as Petrobras scandal grows

The Associated Press

RIO DE JANEIRO (AP) Federal police on Friday sharply expanded what is becoming Brazil's biggest political kickback scandal, arresting top construction company executives and detaining another former director of the state-run energy company.

Authorities allege top officials from oil company Petrobras operated a kickback scheme on contracts involving several billion dollars, with the money eventually being fed back to the governing Workers Party and other top parties for political campaigns.

On Friday, police arrested Renato Duque, the former director of services of Petrobras, for his alleged role in the scheme.

Petrobras is Brazil's biggest company and is in charge of tapping big offshore oil fields and creating wealth that leaders hope will propel the country to developed world status. But the debt-plagued firm hasn't met development goals, and the riches remain buried deep under the sea.

Authorities also struck at the heart of some of Brazil's biggest private construction companies, enterprises that are consistently among the top donors to political campaigns via legal contributions.

Now, police are directly targeting them for allegedly making illegal kickbacks worth exponentially more than the legal campaign contributions. The case fuels widespread belief among Brazilians that their political system is rife with corruption, especially when it comes to big infrastructure works and state-controlled companies.

Last year, millions of Brazilians took to the streets in anti-government protests calling for the end of graft, which many blame for siphoning off funds needed to improve woeful public services that also angered demonstrators.

Police arrested top executives during raids on the offices of builders OAS and Queiroz Galvao, the industrial engineering firm UTC and Iesa Oil and Gas. An arrest warrant also was issued for the top executive of builder Camargo Correa. Authorities hauled away boxes of documents and the personal bank accounts of the executives were frozen.

Police also searched and confiscated documents in the offices of Brazil's biggest builder, Odebrecht, and the Mendes Junior and Engevix firms.

For months police have been investigating the alleged Petrobras kickback scheme in an effort they named "Operation Car Wash."

Many of the allegations center on what police have heard from Alberto Youssef, a convicted black-market money dealer who said that he laundered hundreds of millions in the scheme and that the governing party benefited from it.

Youssef, who is talking to police in exchange for a lighter sentence, claims recently re-elected President Dilma Rousseff and former President Luiz Inacio Lula da Silva knew about the kickbacks. He has offered no proof, and both leaders deny the allegation.

In March, police arrested Paulo Roberto Costa, a former director of downstream operations at Petrobras, for his purported involvement in the money-laundering scheme that police have said amounted to close to $4 billion. Costa, who is under house arrest in a plea bargain deal, has told prosecutors that he accepted bribes from big construction firms and other contractors to win bids from the oil producer.

Also Friday, Brazil's comptroller general's office said it will investigate allegations that about 20 Petrobras officials accepted bribes to award contracts several years ago to SBM Offshore, a Netherlands-based supplier of offshore oil vessels.

Petrobras said it had no immediate comment.

In a separate case involving the oil company, a Senate commission is investigating Petrobras' purchase of the Pasadena Refining System in 2006.

Petrobras paid Belgium's Astra Oil $360 million that year for a 50 percent stake in the refinery. A year later, Astra exercised an option requiring Petrobras to buy the remaining 50 percent. Petrobras refused, but lost an arbitration case in the U.S. in 2012 and had to pay $820.5 million for the remaining 50 percent, including interest and legal fees.

In the end, Petrobras paid $1.18 billion for a refinery that cost Astra $42.5 million in 2005.


Associated Press writer Brad Brooks reported this story in Rio de Janeiro and Stan Lehman reported from Sao Paulo.


Brad Brooks on Twitter: www.twitter.com/bradleybrooks


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