What Odebrecht Tells Us About Corruption in Latin America

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Anywhere you go in Latin America you will probably use something built by Odebrecht. You might drive along a road it constructed in Mexico, travel on one of the railways it laid in Colombia, use electricity generated by one of its power stations in Peru or drink Argentine water that’s been purified by an Odebrecht treatment plant. Founded in Brazil in 1944 Odebrecht became the biggest construction and engineering company in Latin America with world-leading technical capabilities.

Yet this source of Brazilian pride turned to shame when it emerged that it was the centre of the world’s largest discovered corporate corruption network. The $3.5billion that it has paid in corruption fines to authorities in Brazil, Switzerland and the US is the most by any private company. So far Odebrecht has admitted to paying almost $800million in bribes to more than 1,000 people to help it win around 100 contracts that helped it earn $3.3billion.

The bulk of Odebrecht’s dodgy dealings were in Latin America and the firm’s different experiences in each country, and how each has dealt with the revelations, sheds light on the differing levels of political and institutional integrity across the region. For example, Kathryn Hochstetler of the London School of Economics used data from the prosecuting authorities to calculate how much in bribes Odebrecht had to pay in each country to secure lucrative contracts. Canning House commissioned Latin America analyst and consultancy, LatinNews, to produce a Canning Paper investigating the scandal that’s sending shockwaves through the region.

Argentina 

Odebrecht claims it paid $35 million of bribes between 2007 to 2014 to various Argentine officials. The period ties in neatly with the government of former president Cristina Fernández de Kirchner, which is already facing various corruption charges. However, given that Odebrecht has admitted paying bribes since the early 1990s, that it’s been present in Argentina since 1987 and that Fernández de Kirchner is hardly the only corrupt Argentine president of the last 30 years, it seems likely that there are other cases that have escaped notice. Either way the ongoing revelations are likely to further undermine Fernández de Kirchner political comeback and play into the hands of incumbent, Mauricio Macri.

Even with the data Odebrecht has admitted, Argentina comes out looking bad. By paying just $35million in bribes Odebrecht managed to secure $278million of corruption. That meant each dollar in bribes led to almost $8 worth of contracts, which made Argentina the most lucrative country for Odebrecht to practise corruption in all of Latin America.

Columbia

The official claim from Odebrecht is that it paid $11 million in bribes between 2009 and 2014. However, local prosecutors believe the true figure to be nearer $30million. The amounts may seem small but the economic consequences are costlier, as Odebrecht’s involvement in the Rio Magdalena navigability project meant the $850million project has been cancelled. The re-tender will add delays to Colombia’s vital infrastructure upgrade programme.

Colombia’s response to Odebrecht has been stern, as some contracts have been cancelled, but it has been less efficient at finding the guilty parties. The public prosecutor has decided to pursue a flimsy case against Luis Fernando Andrade, the former head of the National Infrastructure Agency, who most expect to be found innocent, instead going after the more powerful perpetrators. Using Odebrecht’s figures, it seems that $11million-worth of bribes bought $50million of contracts, meaning that each dollar of bribe brought in $4.50 in work.

Central America and the Caribbean – where corruption costs more

Odebrecht paid $92million in bribes to officials in the Dominican Republic between 2001 and 2014. It’s a large amount for a relatively small economy and so far 14 people have been charged. Allegedly the graft only secured $163million-worth of contracts, which makes the DR the most expensive country to be corrupt as each dollar of bribe only brought in $1.80 of revenue. However, the true figures may be higher as Odebrecht jointly won a contract for a $2billion coal-fired power plant with a suspiciously uncompetitive bid.

In Guatemala Odebrecht admitted to paying $18million. Those bribes secured ‘just’ $34million of contracts in return, making that the second-most expensive place for Odebrecht’s corruption. The revelations had less of an impact in Guatemala as most people already assumed that the former president, Otto Perez Molina, was corrupt. He and much of his government were already sitting in jail awaiting trial for a local corruption scandal.

Panama comes in as the third-most expensive country in all of Latin America for Odebrecht to be corrupt. It shelled out $59million in bribes to win $175million of public contracts. That meant each dollar of graft earned $3 in extra revenue. The political repercussions have been huge. Former president Ricardo Martinelli evaded local arrest by fleeing for Miami yet Panama is working hard to get him extradited from the US. Meanwhile current president Juan Carlos Varela is not immune from the allegations, with a former Odebrecht employee claiming that $1.2million was paid to a rum company owned by his family. But despite the political upheaval the economic disturbance has been minimal as Panama decided to allow Odebrecht to complete the projects that it had already started.

Peru

In general, the countries most impacted by the Odebrecht scandal were those closest to it and Peru is no exception. The construction giant has admitted paying $29million in bribes between 2005 and 2014 in return for $143million of contracts. That means every dollar of graft helped secure almost $5 worth of shady contracts, making it the third-most profitable country for Odebrecht’s illicit business. The economic and political impact has been huge. Three former presidents are facing corruption scandals, while then president, Pedro Pablo Kuczynski, had to resign after belatedly admitting that he’d served as a financial adviser to an Odebrecht-linked project.

To its credit Peru took a hard line against Odebrecht, calling for the instant withdrawal of the firm. That noble stance came at a price as a $7billion pipeline will have to be re-tendered, while hundreds of other projects were suspended as investigations were carried out. Economists estimate the scandal could have cost Peru up to 1.5% of GDP growth in 2017.

Venezuela

With corruption it takes two to tango and no doubt one of Odebrecht’s most enthusiastic dancing partners was Venezuela’s corrupt Chavista regime. The firm admits to paying $98million in bribes in the country, the highest total outside of Brazil. However, it may have met its match in Venezuela. Most of the projects remain unfinished, making it impossible for researchers to calculate how much Odebrecht received in return for its corrupt payments. The impact of the Odebrecht scandal was limited in Venezuela, whose ongoing political and economic crisis could hardly be worsened by the revelations.

Mexico

Odebrecht paid $10.5million in bribes in Mexico, which is a relatively small amount when one considers how large and corrupt Mexico’s economy is. It secured $39million worth of contracts which means that each dollar paid out in corruption brought back almost $4 in dodgy deals. Suspicions centre on state oil producer Pemex, although disruption from the case is likely to be limited as the company is going through far more significant changes because of the energy reform. Likewise, the political impact of the revelations was softened by the fact that Mexico’s governing party was already embroiled in various corruption scandals. With an election this year the Odebrecht case simply reinforces the pre-existing corrupt image of the ruling Institutional Revolutionary Party.

Ecuador

The construction giant admitted to paying $33.5million between 2007 to 2016, a period that neatly overlaps with the rule of former president, Rafael Correa. Unsurprisingly under the Correa government investigations into the Odebrecht payments lacked vigour but new president Lenin Moreno, who was elected last year, has been pursuing the matter. Vice President, Jorge Glas, who had also served under Correa, has been stripped of his post and placed under preventative detention following claims from a former Odebrecht CEO that he received $14milllion in bribes. In total Odebrecht’s graft helped it secure $116million of contracts, meaning that each dollar of bribe was worth $3.50 in corrupt sales.

Conclusions 

It’s still too early to draw concrete conclusions from the ongoing scandal but some lessons seem clear. Taking a strong line against corruption, as Peru had done in the wake of the revelations, can be very costly. In most countries it seems that the whole political class colluded with corruption with guilty parties on both sides of the ideological divide. For some incoming governments the scandal has been a useful tool to stymie their predecessors’ political comebacks, while some incumbent administrations have been undermined by their Odebrecht links. Perhaps unsurprisingly the countries closest to Brazil, were those where Odebrecht managed to wield the most influence and get the most bang for its corrupt buck. Its ventures into Central America, Mexico and the Caribbean were costlier. In that context Bolivia and Paraguay deserve a special mention for being the only significant economies bordering Brazil not to be really dragged into the affair. Thanks to the law of unintended consequences Odebrecht may have carried out a great service to the rest of Latin America. The creation and collapse of its incredible corruption network has given a blueprint of how to fight graft. Moreover, the fact that oligarchs and presidents are sitting in jail will hopefully make Latin American political and business elites more nervous about being corrupt in the future.

 

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