Brazil’s Presidential election is fast approaching, and who the ultimate winner will be is still an open question. The first round of voting happens on October 5th 2018, but the field keeps changing. The most popular candidate, Luiz Inacio Lula da Silva of the Workers Party (PT), who was running from a jail cell after receiving a 12 year sentence for corruption, withdrew from the election last Tuesday. He had been declared ineligible to run by the country’s top electoral board two weeks earlier. He named is running mate Fernando Haddad as his successor on the ballot.
While we can’t predict who will win the election, we can help our clients plan for different possibilities. Smith Brandon International has extensive experience working in Brazil. We know that despite the unpredictability of the upcoming elections, Brazil will likely remain a huge potential opportunity for businesses. We follow developments there quite closely, so we can provide the best advice and help to our clients. Read on for more information on the upcoming election.
Building bribes into costs required mind-bogglingly large numbers. For example, the cost for Petrobras’ Abreu e Lima refinery was five times -- $20 billion -- its initial budget. Bribes may not explain 100 percent of the ballooning costs, but according to Judge Moro: “The focus and concerns of executives at Petrobras were not on the welfare of the company but on opportunities to take bribes, not only for them, but for the politicians who gave them their political support so they could remain in their positions.”The article goes on to cover comments by Judge Moro that the impact of corruption is not just economic:
Recently there was a new round of leaks from Mossack Fonseca, the law firm at the center of the Panama Papers leak that happened several years ago. We’ve covered the Panama Papers several times here on the blog. These latest leaks, of internal company emails and other documents, don’t just add more names and companies to those already leaked, they also give a lot more detail on the practices of this law firm, and the chaos inside the firm after the initial leak, and the eventual demise of Mossack Fonseca.
One of the best summaries of the situation the we’ve read comes from Will Fitzgibbon and Ben Hallman, writing for the Organized Crime and Corruption Project. The article details how Mossack Fonseca tried to deal with the problems caused by the original leak. The article also goes into detail on all the ways the business practices of the firm left them so unprepared for the original leak. Not only were the names and holdings of many of their clients leaked (some of them very high profile), but it turns out in many cases Mossack Fonseca didn’t even know who their clients were, which caused problems when regulators came asking questions.
The US Department of State recently granted an extradition request filed by the government of Panamanian President Juan Carlos Varela to extradite his predecessor – former President Ricardo Martinelli (2009 – 2014), often described as a supermarket tycoon. The extradition request appears to focus primarily on allegations of illegal surveillance and political espionage during Martinelli’s presidential term. Although Martinelli is the subject of several corruption claims in Panama (to which he has already returned), it is unclear if he will be tried solely for illegal surveillance and espionage or if he will face additional corruption charges.
After Martinelli’s presidential term ended in 2014, he moved to Southern Florida and applied for political asylum claiming that President Varela was targeting Martinelli due to political motivations. Varela was previously the Foreign Minister (2009 – 2011) and Vice President (2009 - 2014) under Martinelli, though the two represented different political parties. In 2011 Martinelli dismissed Varela from the position of Foreign Minister, a move that resulted in widely-publicized tension between the two politicians and their respective political parties. In May 2014 Varela was elected president and his Government started inquiries into Martinelli. In June 2015 the Panamanian Supreme Court opened corruption investigations into Martinelli and by December 2015 the Court had issued a warrant for Martinelli’s arrest.
Ousting corrupt heads of government has slowly become more common across the world. In 2016, major corruption scandals and nation-wide political protests led to the impeachment of the Presidents of Brazil and South Korea. In 2017, the release of the Panama Papers led to the resignation of the Prime Minister of Iceland and the dismissal of the President of Pakistan. Now, a corruption case almost a decade in the making has unseated the Prime Minister of Spain.
On June 1, Spanish Prime Minister Mariano Rajoy was ousted after a vote of no confidence and Pedro Sanchez, the leader of the Spanish Socialist Worker’s Party (PSOE), became the new Prime Minister. The formation of the new Sanchez administration is the latest development of a corruption case that began over nine years ago and has completely disrupted the Spanish political landscape.
Investigations into the Popular Party (PP), Mariano Rajoy’s political party, started in 2009 when businessman Francisco Correa Sánchez was arrested on a number of charges, including bribery, money laundering, and tax fraud. In this case, called the Gürtel case, Correa was identified as the ringleader of a major kickbacks-for-contract scheme with the Popular Party. A series of investigations and court cases involving members of the Popular Party and associated businesspeople uncovered the extent of the kickbacks-for-contract scheme, which had run parallel to the party’s financial structure since the party’s creation in 1989.
It’s always important to hire the right person for the job. But the recent resignation of luggage-maker Samsonite’s CEO, Ramesh Tainwala, serves as a high-profile reminder that resumes sometimes fail to reflect reality.
Mr. Tainwala resigned on June 1, 2018, following the release of an activist investor’s report which included allegations that he had repeatedly been represented as “Dr. Ramesh Tainwala” in online media and regulatory filings, despite never actually completing the PhD program he’d enrolled in. A simple degree check confirmed that he’d never been awarded a diploma, and in statements to the Wall Street Journal (paywall), Mr. Tainwala acknowledged that he did not hold a PhD, and that he had “always felt embarrassed about it as [he] knew [he] did not complete the program.” Ramesh Tainwala’s resignation is reminiscent of former Yahoo CEO Scott Thompson’s resignation in 2012; Thompson had padded his resume by adding a computer science degree to the accounting degree he actually held.
Here on the blog we've discussed the 1MDB scandal before before in Malaysia. First reported on in 2015, the scandal involves some US $4.5 billion that was allegedly misappropriated from a government-owned fund.
Recently there have been some new developments in the case. As a result of investigations by the Malaysian Anti-Corruption Commission (MAAC), on May 19, 2018 police forces conducted raids on more than ten apartments associated with the former Prime Minister Najib Razak, as well as several apartments occupied by his children. Malaysian authorities reportedly seized nearly US $29 million in cash from Razak, who had been under investigation by the MAAC since 2015 for allegedly stealing nearly US $700 million from 1MDB. The cash seized by officials was reportedly composed of 26 different currencies. Officials reportedly also seized over 280 boxes containing designer handbags, watches, and jewelry.
Razak reportedly justified the cash as donations from friends intended for an election campaign by the Barisan Nacional political party. In order for authorities to verify whether or not the alleged donations are legitimate, Razak will be required to declare each of the individual sources of the funding if he wants to prove that none of the payments were illicit or improper.
As the 1MDB scandal shows, anti-corruption investigations can take years to produce results and recovering funding is a complex issue. It is prudent to protect your business from corrupt and unlawful dealings through compliance and due diligence programs. Smith Brandon International has a wealth of experience in global corporate investigations that can help protect your business.
Several days ago the Wall Street Journal published an article about a financial adviser in Beverly Hills, California (article is behind a paywall) named Mr. Kay who had promoted a supposedly high-yield, low-risk investment. Unfortunately, the company behind the investment is now in bankruptcy and is being investigated as a Ponzi Scheme. Mr. Kay himself, it turns out, was “barred from the securities industry for allegedly running a fraud, according to public records, and later fined $5,000 for breaking that ban.” However, he had changed his name since these infractions, which would have made it more difficult for investors to know about his history.
The investment he was promoting falls into the category of “private placements” a type of private investment a surge in popularity among accredited investors and companies looking to raise money for a variety ventures.
However, because they are more lightly regulated than other investments, and many stockbrokers have started marketing private placements to individuals who may not be as sophisticated investors, these kinds of less regulated investments can be very attractive to fraudsters and unscrupulous brokers.
Smith Brandon International has years of experience working in Brazil, and a broad network of investigators in the country. Many of our clients have asked us to help them with expanding their business in Brazil and we have been happy to help them avoid risks to keep their plans on track. We keep a close eye on developments in Brazil so we can be prepared for anything our clients might need. One huge aspect of life in Brazil is professional soccer (football), and with the FIFA 2018 World Cup coming up, Brazilian excitement for the global sport is at a fever pitch. That’s why we were particularly interested in recent events that combine both Brazil’s favorite sport and our ongoing monitoring of anti-corruption efforts.
Recently, the governing body of international soccer, FIFA, banned the head of the Brazilian football federation for life from involvement in professional soccer at the national or international level. The primary allegations against Marco Polo Del Nero are that he took bribes in exchange for awarding contracts to media and marketing companies.