Why Corruption is Brazil’s Modus Operandi of Doing Business

From inside his office on a blue and yellow two-storey edifice, the phone rings. – Sir Paulo, utters an anonymous voice. – Found here ‘shoulders’ expired in February. Shall we throw ‘it’ away or leave in the production? continued.

Leave in the production, says a resolute Sir Paulo ending abruptly the call fractions of seconds later. Paulo’s office is located at the street Sunflower 168 on the outskirts of the Brazilian city Mauá, 40km south of the largest financial metropolis São Paulo. It was just an ordinary busy weekday.

A ‘shoulder’ is a ‘Boston butt’ or ‘pork butt’, the top portion of the neck of the hog. Paulo Sposito, 50, is a soccer lover and a renowned businessperson having established his successful pork processing firm ‘Larissa’ in 1994. Beloved by its peers for bringing economic development to this mid-size Brazilian town of 400,000 inhabitants, Paulo received, in 2014, the municipal honorary citizen’s title for employing 400 workers and creating other 2,000 indirect jobs in the supply chain. Known as Paulinho Larissa, he once decided to run for 2010 elections and get a seat in the

National Congress. He affiliated to the Popular Socialist Party under the slogan: ‘a different party, a conscious choice’. At the day of the phone call, Paulo was enquired by an worker what to do with the four month expired cuts of pork. He ordered to reuse them. The episode occurred in May 2016.

Four months earlier: – Big boss, said anxiously Osmar. – There’s been a problem down there in Iporã, heard about it?, questioned with concern. Iporã is a town of 15,000 people in the southern state of Paraná 60km from the border with Paraguay. – The dude there inspecting frightened Paulo saying he’ll shut down the unit. He opened his mouth and let Paulo terrified!, cried Osmar. – ‘Lemme’ check what’s goin’ on. Speak to you soon, hanged Daniel, the other person on the call.

Iporã is the town where ‘Larissa’ has a branch. Paulo Sposito was endangered of having his unit closed. The ‘big boss’ is Daniel Filho, the regional director of the Ministry of Agriculture in Paraná state. The Ministry holds regional offices throughout the country in charge of inspecting the quality of the meat. It is a national certifier. Not long after the call, the inspector in Iporã city “a pain in the

ass” was replaced for another one “easy to handle who liked money”. This event happened in

February 2016. The one who urged the ‘big boss’ Daniel to solve the issue is Osmar Serraglio, Brazil’s current Minister of Justice. A year ago, he was a congressman.

Weak Flesh

These sparse dialogues seem random at a first glance. They evidence an intricate and obscure network of bribery. The two phone calls were wiretapped by the Federal Police and publicly released March 2017. Daniel Filho is pointed as the leader of a criminal organization. As regional director in Paraná, he had a powerful position. An estimated 25% of all national agricultural GDP comes from this state due to the numerous local slaughterhouses.

The early hours of March 17, the largest Federal Police search-and-raid operation ever in the country’s history was carried out. The typical Hollywoodian spectacular action was staged by 1,100 police officers deployed on 194 raids with as many as 38 detention orders. Agents stormed the premises of global meatpacking companies such as Larissa. In total, more than 30 firms were implicated in a crackdown on alleged bribery of health officials. Named ‘Weak Flesh’, the operation targeted food processors accused of corrupting government officials to loosen

regulations and allow dirty practices. Paulo Sposito is among the arrested. The ‘big boss’ Daniel

Filho was a close friend of Larissa’s owner, attested the police chief in charge of Weak Flesh.

Other 77 people were coercively driven by the police to provide further clarification. The search-and-raid took place in seven Brazilian states – among them, São Paulo and Paraná. The two-year investigation found that in some meat packing units rotten food was grounded with cardboard and sent to retail. Public officials from the Ministry of Agriculture turned a blind eye to unhygienic practices and allowed tainted meat to be sold in the domestic market, delivered to schools and shipped overseas with traces of salmonella.

Dozens of food companies were implicated in this scheme – the world's largest beef and poultry producer, JBS and BRF enterprises were also involved. They are accused of using chemicals and mixing putrid meat with healthy ones. Meat is among Brazil’s top exports to 150 countries. Last year, it exported $6.9bn of poultry and $5.5bn of beef, according to industry groups. Brazil’s newest corruption case is an international embarrassment. It reveals a murky and malicious web deeply rooted on briberies of public officials and private sector.

Modus operandi

Why are there so many companies involved in illicit practices in Brazil? This latest scandal evidences that suborn is the modus operandi of making business and politics in Brazil’s contemporary democratic scenario. Brazilian democracy suffers from evil practices involving

exchange of favors, illicit payments, and pressure from economic groups on political actors. A propitious landscape encourages corrupt activities. The rotten meat flagrant is a direct consequence of it. The idea that you have to play within the rules of the game to make business is implicit in the Brazilian corruption culture.

Brazil’s mindset of taking advantage in everything, even against compliance of law, turned to an unwritten agreement: ‘Gerson’s law’. It is an amoral and tacit social regulation widely accepted: bribe, cheat and get benefits of every situation. It became famous after a TV cigarette commercial in the 1970s, starring a soccer player Gerson shown smoking and saying: “Take advantage of every situation to get ahead.” It quickly spread as a national cliché – a behavior that Brazilians use in social and political life. It is essentially acceptable to bribe and manipulate one’s way through a situation to achieve results.

Even illegal or simply immoral behaviors are regularly carried out by any citizen under the excuse that “everybody does”, “no one is watching.” The culture is certainly “part of the equation that explains corruption,” admits Fernanda Figueiredo, PhD researcher at the Brazil Institute, King’s College London.

Brazil offers an example of systemic corruption as a collective problem. There are high levels of social distrust in the country, and strong perceptions that elites are corrupt. Those in positions of power who benefit from the status quo generally have little or no incentive to change the rules of the game.

It has been decades now that Brazilians witness series of scandals of bribery and money laundry being exposed to the media. It became evident in the re-democratization period (late 80’s) and the resumption of freedom of expression, suggests Figueiredo. “What the recent investigations disclose is a systemic ‘quid pro quo’, an illegal tit-for-tat involving politicians and parties, decision-making bureaucrats and corporations. This model is directly related to our political system with the high cost of election campaigns and, of course, impunity.”

The Latin ‘quid pro quo’ means something given or received for something else . It is often used as “a favor for a favor”. It is established when: companies are willing to pay whatever is asked for in order to keep the business contracts; politicians and parties want money for their political campaigns or, simply, to pocket for themselves; or, bureaucrats relying on political patronage agree to overprice contracts. “This model is relatively easy to replicate anywhere,” stresses Figueiredo, especially in places where such practices are tolerated and the chances of being punished are low. “The Weak Flesh operation suggests this model.”

Brazil is ranked 79 out of 176 in the 2016 Corruption Perception Index. It shares the position with Belarus, China and India, and falls behind Turkey, Tunisia and Kuwait. Corruption remains one of the main challenges affecting the quality of services, infrastructure and overall investment in the country. “It is also considered a great problem by the private sector,” states Transparency International. Scandals of this magnitude undermine the trust in both private and public institutions, says the World Economic Forum 2016 Report. Figures dating back from the 2009 Enterprises Survey also showed that 70% of businesses consider corruption as the greatest impediment for doing business in Brazil.

Low compliance with the law and low governmental enforcement encourage unethical procedures. Brazilians have a negative reputation when it comes to business ethics. “The use of bribery or subornation isn’t considered a case of ethical misconduct in the organization,” wrote Maria Halter, expert in business environment. “When governors, top civil servants, and professionals in the private sector make a gain, the rest of society makes a loss,” described.

Going unpunished

It is not only about harsh penalties, but the certainty of punishment. “Going unscathed is an incentive. Laws alone aren’t enough,” says Figueiredo. Penalties do not mean less corruption nor increased accountability. Punishment must be efficient, recurrent, and balanced. “It cannot happen once and target ‘small fish’. I’m not convinced Brazil has a paradigm to punish corruption cases.”

Corruption and embezzlement of public funds may lead to 1-8 years of imprisonment. The Anti-Corruption Law imposes severe sanctions with fines of 20% of a company’s gross annual revenues. Still, Brazil’s legal framework does not have provisions on the offences of corporate criminal liability, private-to-private corruption and illicit enrichment. A new bill to close loopholes is being quietly discussed in Parliament.

Brazilian judicial system is highly ineffective with a lower than 5% probability of conviction. Being convicted and punished are key elements for fighting corruption. Impunity for corrupt conduct seems to be the rule, not the exception. Only few cases are penalized. Punishment is rarely executed. The chance of being criminally prosecuted for corruption is less than 34% and facing civil charges is even lower, 24%. “The chance of truly being criminally convicted is only around 3% and being held liable in civil action is even slimmer, less than 2%. Judicial anti-corruption enforcement in Brazil is negligible. The corrupt servant is almost certain of going unpunished,” stressed the economist Carlos Alencar, former head of the Ministry of Transparency.

In Denmark, tolerance is lesser for those breaking rules. The 2016 Corruption Perception Index, ranks the Nordic country as the first out of 176. “Denmark's experience tells us that fighting corruption isn’t something we do once and for all. The problem isn’t solved in a single action or with a great sudden change,” tells Figueiredo. In 1676, the Danish Crown prohibited public servants from receiving gifts and drinks under penalty of death. “It’s a long process and you must always be vigilant. They’ve been doing this for centuries. Changes don’t happen overnight.”

There is a clear separation between public and private spheres, which is not the case in Brazil.

“The greatest merit of the Danes is not to be the first in the ranking but to stay on top for so long. We need to improve the fight against corruption in a steady and consistent way,” stresses. Most of the punishments hitherto enforced are not definitive and still have to be upheld by the highest courts. “I wouldn’t be surprised if the Weak Flesh operation were to be annulled,” admits

Figueiredo.

The difficulties in combating it effectively are enormous. Political corruption has damaged the democratic institutions. Budgetary shortfalls, weak laws, understaffed state agencies and anti-corruption units, and internal inefficiencies are significant. Brazil needs to reform its political system and ensure that existing laws are enforced.

What’s next?

Although this panorama seems quite dismaying, experts recommend that transparency should be used as a tool to reduce corruption. “Good ethical behavior can help to build up a company’s image,” said Halter. Business transparency and penalties must be enhanced. Transparency is a new concept in the Brazilian business community.

In January 2014, the Clean Company Act (CCA) dubbed as ‘Anti-Corruption Law’ was put into force. It is a legal instrument to make companies liable for domestic and international acts of corruption. Amid general discontent and escalating street protests in August 2013, former Brazil’s

President Dilma Rousseff signed the Law. It aims to speed prosecution of corruption cases imposing civil and administrative punishment for companies. There are also clauses outlawing payments by the company’s employees and third parties. The CCA is limited to administrative

sanctions though. “It took 15 years for the Parliament to finally enact a Law to punish companies.

It’s visible the difficulty Government faces to implement it,” says Figueiredo.

The judiciary ordered the embargo of $300 million of people investigated in the Weak Flesh. Paulo Sposito who runs Larissa was preventively arrested for five days. Larissa’s branch in Iporã paralised its operation since March 17 and gave the employees leave until the dust settles down.

Pointed as the leader of the criminal organization, the ‘big boss’ Daniel Filho is still in custody.

For eight years, he was the Ministry of Agriculture regional director in Paraná. Filho was politically protected by the current Minister of Justice Osmar Serraglio. He used to be contacted every time there was an issue with the meat inspections, like the one that happened with Larissa in Iporã. Osmar Serraglio intervened in his favor. The involvement of the minister will be investigated by

the Federal Government Attorney General's Office provided the Supreme Court gives the green sign to do so.

Speed in dealing with such cases is fundamental. Punishment should be recurrent and swift. Moral condemnation by society is also an important factor. “If people start abhorring these practices, boycotting at the polls and on the streets who engage in briberies, it’ll be easier to make corruption an exception,” says Figueiredo.