Powerful Brazilian CEO arrested in Petrobras graft probe

Reuters News
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Posted: Jun 19, 2015 9:26 AM

By Caroline Stauffer and Walter Brandimarte

SAO PAULO (Reuters) - Brazilian police on Friday arrested Marcelo Odebrecht, the head of Latin America's largest engineering and construction company Odebrecht SA, and accused his family-run conglomerate of spearheading a $2.1 billion bribery scheme at state-run oil firm Petrobras.

In pre-dawn raids that netted 12 arrests in four states, police also apprehended Otavio Marques Azevedo, head of Andrade Gutierrez [AGIS.UL], the second-largest Brazilian construction firm.

A lead prosecutor, Carlos Fernando dos Santos Limas, said he had "no doubt" Odebrecht and Andrade Gutierrez led what he called a "cartel" that overcharged Petrobras for work and passed on the excess funds to executives and politicians.

The arrest of 46-year-old Odebrecht, who has personal ties to former President Luiz Inacio Lula de Silva, could bring the scandal closer to the political heart of the ruling Worker's Party, already weakened by Brazil's largest ever corruption investigation known as "Operation Car Wash."

"There is a larger connection between Lula and Odebrecht and we see (Odebrecht's) possible indictment as a big risk," said Cameron Combs, Latin American researcher with Eurasia Group.

President Dilma Rousseff, who was chairwoman of the Petrobras board during Lula's presidency, has denied knowledge of the corruption scandal dating back to at least 2004 and urged a thorough investigation. Neither she nor Lula have been implicated.

Last month federal prosecutors opened a separate investigation into whether Lula improperly used his connections to benefit Odebrecht, saying he had frequently traveled abroad at Odebrecht's expense since 2011.

Lula's institute, the Instituto Lula, denied wrongdoing at the time and declined to comment on Friday.

Odebrecht is the third generation leader of the privately held company and has been instrumental in the company's expansion throughout Latin America, in Africa and the United States. It has recently executed big projects in Miami and Cuba.

A lawyer for Marcelo Odebrecht did not return calls seeking comment.

Odebrecht SA [ODBES.UL] said in a statement that the arrests were "unnecessary" because it was collaborating with investigators.

Odebrecht bond prices <675758AJ5=1M> <67576GAA5=1M> fell on Friday and shares of Braskem SA <BRKM5.SA>, a petrochemical producer Odebrecht controls slumped 7 percent.

Andrade Gutierrez said it was also cooperating with the investigation, but had no connection to the alleged corruption at Petrobras.

'SOPHISTICATED WAY'

Neither Azevedo nor Odebrecht have been formally charged, and it was not clear how long they would be detained. Arrests of other top Brazilian executives resulted in months-long pre-trial incarceration.

The "Lava Jato" probe, centered on Petroleo Brasileiro SA, as the oil major is formally known, has led to the indictments of more than 100 people and implicated dozens of lawmakers, most of them from Rousseff's Workers' Party.

The treasurer of the Workers' Party is currently in jail awaiting trial for corruption though the party denies campaign donations it received were bribes.

Federal judge Sergio Moro said until now the probe had lacked proof that executives from Brazil's largest contractors had engaged in corruption. Now investigators have evidence that the company Odebrecht paid bribes "in a more sophisticated way" than the other contractors, Moro wrote in his arrest order.

The scandal has blocked the construction firms, including Odebrecht and Andrade Gutierrez, from doing business with Petrobras and economists say the subsequent paralysis contributed to Brazil's descent into recession.

While the arrests were somewhat expected, they nevertheless raised hopes among Brazilians that the investigation would not spare the elite in a country where the wealthy have enjoyed relative impunity.

"The objective of the operation is to bring a clear message that the law applies to everyone, no matter the size of the company, its place in society or its economic power," federal police agent Igor Romario de Paula said at a news conference in Curitiba.

(Additional reporting by Sergio Spagnuolo in Curitiba; Asher Levine in Sao Paulo; Jeb Blount in Rio de Janeiro and Alonso Soto in Brasilia; Editing by Mary Milliken and W Simon)