Brazil Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) Scandal

Posted by: : Shayne HeffernanPosted on: March 7, 2015 Brazil Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) Scandal

Brazil Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) Scandal

Brazil’s Supreme Court authorized the investigation of dozens of politicians, including the presidents of the senate and of the chamber of deputies over the multibillion-dollar graft case roiling state oil giant Petrobras.

Those facing investigation include 22 serving congressmen and 12 senators, among them a former president, after a move marking a new front in a snowballing scandal that has caused political and social uproar, threatening to tear apart the ruling coalition.

Not under investigation is President Dilma Rousseff, who was Petrobras board chair during much of the decade-long period when politicians allegedly benefited from huge kickbacks via inflated contracts struck between the oil firm and dozens of companies.

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“Launching investigations was considered viable as there are indications of illegality,” a court statement read, quoting a decision by Supreme Court presiding minister Teori Zavascki.

Around three dozen politicians were named, many of them allies of the leftist president’s ruling coalition, following a demand by public prosecutor Rodrigo Janot that the court lift their political immunity.

The list namely includes former president Fernando Collor, now a senator.

A different corruption scandal saw Collor forced from power in 1992 “- he resigned before he could be impeached.

Those named are variously accused of crimes relating to involvement in a scheme facilitating corruption and money laundering that saw an estimated 3.8 billion creamed off inflated contracts over a decade.

According to Janot, the scheme operated under clear “rules… along similar lines to a football league,” whereby inflated contracts were shared out principally among major construction firms and those who benefited received between one and three percent of the value.

Rousseff’s Workers’ Party (PT) issued a prompt rebuttal of the allegations, while declaring its “wholesale” support for an investigation “without favor or partiality.”

A PT statement added that, while the party “is proud to have led governments which implacably fought against corruption,” it would support statutory punishment for any politician found guilty.

The party added that any money that might have gone to politicians were “donations” that were “legal and duly declared” to the authorities.

– Severe repercussions –

Rousseff won re-election just four months ago, her top priority the revitalization of a flailing economy hamstrung by four straight years of low growth and rising inflation.

The naming of Congress president and senator Renan Calheiros and Eduardo Cunha, president of the chamber of deputies, could have severe repercussions for the centrist PMDB party and the ruling coalition.

The PMDB is the strongest political group in the senate and the second-biggest in the lower chamber after the PT, making its support in Congress critical for Rousseff.

Both Calheiros and Cunha have denied any wrongdoing, while Rousseff has denied all knowledge of the kickbacks scheme, backing the investigation.

Cunha said that his situation was “transparent — nothing to fear.”

Calheiros for his part said that his “relations with the public authorities never went beyond institutional limits.”

He added he would submit “all information the judges want” in a case set to last up to four years.

The scandal, dubbed Operation Car Wash, broke a year ago when a former Petrobras director turned whistleblower in a bid to strike a plea bargain.

His accusations, which have slowly filtered through the media, suggest that the kickback cash was destined for private accounts or to finance political parties.

Among those questioned but later released was PT treasurer Joao Vaccari Neto.

The Progressive Party, another Rousseff ally that has 32 members facing investigation, did not immediately react to the latest developments.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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