The Incredible Shrinking Scandal? Further Reflections on the Lava Jato Leaks

Last week, I published a lengthy commentary on the recent explosive reports from the Intercept regarding the Lava Jato operation in Brazil—reports that were based primarily on text messages provided by a source who apparently hacked (or otherwise gained unauthorized access to) the cell phone of Deltan Dallagnol, the lead prosecutor in the case. Because I am unable to read Portuguese, my discussion was based exclusively on the two substantive English-language reports, here and here. (There are more reports in the series, but so far they’ve not been translated into English; if and when they are, I may update my commentary.) The Intercept’s reports argued that these leaked text messages indicate: (1) that Judge Moro engaged in unethical and possibly illegal coordinating with and coaching of the prosecutors; (2) that the prosecutors recognized that their case against former President Lula was without solid legal or evidentiary foundation; and (3) that the prosecutors were motivated by political/ideological bias against Lula and his party, the PT.

In last week’s commentary, based on my preliminary analysis of the Intercept stories, and what I knew about the background context, I reached the following tentative conclusions:

  • First, I thought that the evidence of extensive text communications between the lead prosecutor and the presiding judge was (or at least should be) per se impermissible. I used very strong language in making this point, describing the fact that the two were in regular text contact as “the height of impropriety,” and a “shocking and inexcusable breach of judicial ethics.”
  • Second, though, I thought that the specific text exchanges reported by the Intercept—the ones that allegedly showed the coaching and collaboration—were largely innocuous, and didn’t seem to contain much problematic material over and above the fact of the communications themselves.
  • Third, I did not think that the text messages reported by the Intercept provided any reason to call into question the legal and evidentiary basis for Lula’s conviction. That conviction was and remains controversial, but the leaked text messages don’t show anything other than a prosecutor preparing appropriately for his case.
  • Fourth, I concluded that although texts exchanged among prosecutors in late September 2018 did indeed indicate that the prosecutors did not want the PT candidate to win the election, this didn’t necessarily show that the prosecutors were biased against the PT back in 2015-2016 (when the decision to investigate and prosecute Lula took place), nor was there any evidence that the prosecutors had taken any concrete action that could be ascribed to partisan bias.

Much to my surprise, last week’s post seems to have attracted a lot of attention, particularly in Brazil. As a result, I’ve had the opportunity to engage in substantive exchanges with multiple Brazilian experts from across the political spectrum, who hold a wide range of views on Lava Jato, Lula, and related matters. Some of these exchanges can be found in the comment section of last week’s post, which I highly recommend that interested readers check out (particularly those who might have read that post the day it came out, before the comment thread included over 60 separate entries); others have communicated with my privately. (To be clear, though, I have not communicated about the post, publicly or privately, with Mr. Dallagnol or anyone else named or discussed in the Intercept story.)

Based on these conversations, and on further reflection, my views on the Intercept’s reporting have shifted somewhat, mainly in the direction of thinking that this “scandal” is considerably less scandalous than the Intercept reported, or that I’d originally believed. Continue reading

Just How Damning Are the Lava Jato Leaks? Some Preliminary Reflections on The Intercept’s Bombshell Story

[Note: My thinking on the issues discussed in this post has evolved somewhat. For the update, see here.]

Two days ago, The Intercept published a collection of dramatic reports (here, here, and here) regarding the long-running Brazilian investigation into high-level corruption. That investigation, known as the Lava Jato (Car Wash) operation, which began as in inquiry into money laundering and associated offenses at the Brazilian state-owned oil company Petrobras, has led to the prosecutions and convictions of scores of powerful business leaders and senior politicians—including, most notably, the conviction and imprisonment of former President Luiz Inacio Lula da Silva (known as Lula). That conviction prevented Lula from competing in the presidential election in 2018, an election that was one by far-right candidate Jair Bolsonaro. Anger on the Brazilian political left over Lula’s conviction, as well as the impeachment and removal of his successor Dilma Rouseff, has provoked accusations that the Lava Jato operation is really a right-wing conspiracy, and that the Lava Jato task force—the special team of prosecutors led by Deltan Dallagnol—and Sergio Moro, who presided over the most significant Lava Jato trials, including Lula’s, are politically biased enemies of the Left who are engineering a kind of coup d’etat through the judicial system. Many people, both in Brazil and internationally (me included), have pushed back against these accusations.

The Intercept’s recent reports assert that the critics were right all along. The evidence for this consists mainly of a huge quantity of data (texts, emails, and video and audio recordings) from a cell phone—almost certainly Mr. Dallagnol’s, based on the fact that all of the reported exchanges involve him. The Intercept has published a set of stories (some in English, some in Portuguese) based on a small portion of this material, mainly text message exchanges; the reporters emphasize that more is likely to emerge as they and other journalists review more of the leaked/hacked data. The big story here is that, according to the Intercept’s reporting, these text messages provide evidence of serious ethical breaches, particularly by then-Judge Moro, as well as evidence that the prosecutors knew their case against Lula was not strong, and, most damningly, that the task force prosecutors were motivated by partisan antipathy toward Lula and his party (the Worker’s Party, or PT), despite their claims to the contrary.

What to make of this? The news is clearly bad for the Lava Jato operation, the task force, and those of us who have supported the operation and defended it against various accusations and attacks. The question I want to address here is: Just how bad is it? My tentative answer is that, while the Intercept’s reports reveal some very upsetting, disappointing, and in some cases likely unethical conduct, the leaked text messages quoted in these first reports are not as damning as either the Intercept or other preliminary reports have made them appear. In this post (which will be longer than usual), I’ll try to work through the various allegations and associated texts and do my best to assess which revelations are most serious, which least so, and where we really need more evidence before making even a preliminary judgment. Continue reading

Guest Post: Expert Interviews on Corruption Control in Latin America

Today’s guest post is from Columbia University Professor Paul Lagunes, who this year is also a Visiting Fellow at Rice University’s Baker Institute for Public Policy:

Elections in Latin America are freer and fairer than they used to be, and, with rare exceptions, political power in the region is no longer monopolized by a single individual, junta, or party. From Chile to Mexico, legal reforms have promoted higher levels of government transparency and citizen participation. But in spite of these improvements, the region continues to grapple with systemic corruption. Not only are individuals asked to pay bribes by lower-level government officials, but scandals such as Lava Jato (“Car Wash”) in Brazil, La Estafa Maestra (“The Master Fraud”) in Mexico, and La Línea (“The Line”) in Guatemala have revealed grand corruption at the most senior levels, making the fight against corruption a top priority for the region.

Prompted by these concerns, I contributed to organizing a conference at Rice University’s Baker Institute for Public Policy on corruption control in Latin America, which has already been featured (with links to the conference videos) on this blog. Some of the conference panelists stayed long enough that we were able to interview them about their important work. Tony Payan, my colleague at the Baker Institute and an expert on U.S.-Mexico border issues, agreed to conduct the interviews.

The videos of these interviews are now publicly available, and are well worth viewing for those interested in hearing a diverse range of perspectives on the corruption challenges currently facing Latin America. In this post I will provide links to the interviews as well as a brief summary of their content. (There’s also an online website, where you can find all the interviews, here.) Continue reading

A Plan To Share FCPA Penalties with Brazil has Been Thwarted… by Brazil: The Supreme Court’s Invalidation of the Lava Jato Foundation

A frequent criticism of how the US Department of Justice (DOJ) enforces the Foreign Corrupt Practices Act (FCPA) is that the fines recovered typically go to the US Treasury, rather than being used to make reparations for the damages caused by corruption in the countries where the bribery took place. Those who hold that view were likely encouraged by the non-prosecution agreement (NPA) that the DOJ concluded with Petrobras, the Brazilian state-owned oil company, in September 2018. The US enforcement action against Petrobras is a development of the so-called Lava Jato (Car Wash) investigation, in which firms paid off some Petrobras’ senior employees to benefit them in the contracts they had with the oil company. Such senior employees also shared a portion of the briber of politicians and political parties. In Brazil, Petrobras (and its shareholders, including the Brazilian federal government) are considered the victims of this scheme, but the US DOJ considered Petrobras a perpetrator (as well as a victim), because Petrobras officials had facilitated the bribe payments, in violation of the FCPA. Thus, the DOJ brought an enforcement action against Petrobras, and the parties settled via an NPA that required Petrobras to pay over US$852 million in penalties for FCPA violations. But—and here is the interesting part—the NPA also stated that the US government would credit against this judgment 80% of the total (over US$682 million) that Petrobras would pay to Brazilian authorities pursuant to an agreement to be negotiated subsequently between Petrobras and the Brazilian authorities.

This unusual agreement was the result of unusually close cooperation between U.S. and Brazilian authorities, especially the Lava Jato Task Force (group of federal prosecutors handling a series of Petrobras-related cases). After the conclusion of the NPA between the DOJ and Petrobras, the Task Force then entered into negotiations with Petrobras and reached an agreement under which Petrobras would use US$682 million that it would otherwise owe to the US government to create a private charity, known unofficially as the Lava Jato Foundation, with the Foundation using half of the money to sponsor public interest initiatives, and the other half to compensate minority shareholders in Petrobras. According to the agreement, the Foundation would be governed by a committee of five unpaid members from civil society organizations, to be appointed by the Task Force upon judicial confirmation. Once created, the Task Forcewould have the prerogative to have one of its members sitting at the Foundation’s board.

This resolution of the Petrobras case seemed to be a win-win resolution and a promising precedent for future cases: The US imposed a hefty sanction for violation of US law, but most of the money would be used to help the Brazilian people, who are arguably the ones most harmed by Petrobras’s unlawful conduct. Yet this arrangement has proven extremely controversial in Brazil, both politically and legally. Indeed, the issue has divided the country’s own federal prosecutors: The Prosecutor General (the head of the Federal Prosecutor’s Office, from which the Lava Jato Task Force enjoys a broad independence) challenged the creation of the Foundation as unconstitutional. She prevailed on that challenge in Brazil’s Supreme Court (Supremo Tribunal Federalor STF), which suspended the operation of the Foundation.

What, exactly, was the legal argument against the creation of the Lava Jato Foundation, and what are the implications of the STF’s ruling for this approach to remediating the impacts of foreign bribery going forward?

Continue reading

Brazil’s Supreme Court May Have Ended the Lava Jato Operation as We Know It

This past March, Brazil’s Supreme Court (the Supremo Tribunal Federal, or STF) issued an opinion that is considered one of the most significant defeats yet to the anticorruption effort known as the Car Wash (or Lava Jato) operation (see here and here). The case involved allegations that the former mayor of Rio de Janeiro and his campaign manager received roughly USD 4 million from the construction firm Odebrecht that was used for a campaign slush fund, in exchange for business advantages in connection with certain construction projects. The particular legal claim on which the defendants prevailed concerned not a substantive issue, but rather a jurisdictional question: whether the case was brought in the wrong court. In Brazil, the ordinary federal courts adjudicate ordinary federal crimes, but there are also special electoral courts that handle violations—including criminal violations—of Brazil’s Electoral Code. The use of slush funds, though not expressly listed as one of the actions criminalized under the Electoral Code, could be prosecuted under the Electoral Code’s prohibition on false statements, because doing what the former mayor allegedly did would entail failure to report funds used in an election campaign. Such charges would ordinarily be heard by the specialized electoral courts. But taking illegal contributions to a campaign slush fund in exchange for political favors could also be charged as bribery (or associated crimes like money laundering) under Brazil’s Criminal Code—crimes that would typically be adjudicated by the regular federal courts. Given that the same wrongful transaction might entail violations of both the Electoral Code and the Criminal Code, which court (or courts) should hear the case?

This is the question that the STF had to resolve, and it had, roughly speaking, three options. First, the STF could have ruled that the whole case (both the electoral crimes and the ordinary crimes) should be heard by an ordinary court. The second option would be to require that the special electoral court adjudicate the whole criminal case, including the ordinary criminal charges. Third, the STF could have held that the case should be split, with an electoral court dealing with the alleged violations of the Electoral Code and an ordinary court handling all the other charges. In a 6-5 decision, the STF went with the second option, holding that whenever an ordinary crime is committed in connection with an electoral crime, the whole criminal case must be decided by an electoral court.

This is hugely significant for the Lava Jato operation, because many of the cases the operation has uncovered involve potential violations of the Electoral Code, in the form of illegal or undisclosed campaign contributions made in exchange for political favors. (The newspaper Folha de Sao Paulo estimates  that almost 30% of Lava Jato’s rulings touch discussions of illegal campaign finance.) But although some cases related to Lava Jato have gone to the electoral courts, most of the cases, including all of the main criminal cases, have been prosecuted in the ordinary courts. Federal prosecutors, especially the Lava Jato task force, are very concerned about the STF’s decision and have criticized it as a significant blow to Brazil’s anticorruption efforts.

They are right to be worried. Although some have maintained that there is no serious cause for concern, in fact the STF’s decision poses a very serious problem, for several reasons.

Continue reading

Video: Baker Center Conference on Controlling Corruption in Latin America

A few weeks back I was lucky enough to attend a mini-conference hosted by Rice University’s Baker Institute for Public Policy entitled “A Worthy Mission: Controlling Corruption in Latin America.” The conference featured an opening keynote address by Yale Professor Susan Rose-Ackerman, with a brief response by BYU Professor Daniel Nielson, followed by two panels. The first of these panels (which I moderated) focused on anticorruption prosecutions in Latin America generally, and featured Thelma Aldana (who served as Attorney General of Guatemala from 2014-2018, and is rumored to be a likely presidential candidate), Paolo Roberto Galvao de Carvalho (a Brazilian Federal Prosecutor and member of the “Car Wash” anticorruption Task Force), and George Mason University Professor Louise Shelley. The second panel, moderated by Columbia Professor Paul Lagunes, focused more specifically on corruption control in Mexico, and featured Professor Jacqueline Peschard (former chair of Mexico’s National Anticorruption System), Claudio X. Gonzalez (the president of the civil society organization Mexicanos Contra la Corrupcion y la Impunidad (MCCI)), and Mariana Campos (the Program Director at another Mexican civil society organization, Mexico Evalua).

Video recordings of the conference are publicly available, so I’m going to follow my past practice of sharing the links, along with a very brief guide (with time stamps) in case anyone is particularly interested in one or more particular speakers or subjects but doesn’t have time to watch the whole thing. Here goes: Continue reading

Guest Post: The World’s Biggest Anticorruption Legislative Package You Haven’t Heard About Is in Brazil

Today’s guest post is from Professor Michael Freitas Mohallem (head of the Center for Justice and Society at Fundação Getulio Vargas (FGV) in Rio de Janeiro, Brazil), Bruno Brandão (Director of Transparency International, Brazil), and Guilherme France (a researcher at FGV).

Transparency International’s Brazilian chapter, together with scholars at FGV’s Rio and Sao Paolo law schools, are leading a wide-ranging effort, with input from multiple sectors of Brazilian society, to develop a package of legislative, institutional, and administrative reforms—the “New Measures Against Corruption”—that will address the systemic causes of corruption and offer long-term solutions. The project, which was developed over approximately 18 months in 2017 and 2018, was prompted by two related developments. First, so-called Car Wash (Lava Jato) operation has uncovered one of the biggest corruption scandals in modern times, implicating hundreds of politicians, civil servants, and business leaders. Second, although the Lava Jato operation led to a proposal, spearheaded by some of the Lava Jato prosecutors themselves, for “Ten Measures Against Corruption,” which was endorsed by over 2 million people, that effort was stymied by the National Congress. So, despite the success of Lava Jato in exposing and punishing corruption, Brazil has not yet developed the necessary long-term reforms to address the underlying sources of the problem.

The New Measures Against Corruption are intended to provide a path forward for Brazil, setting out a bold reform agenda that addresses issues relating to prevention, detection, and prosecution of corruption. The New Measures consist of a package composed of 70 anticorruption measures—ranging from draft federal bills, proposed constitutional amendments, and administrative resolutions—in 12 categories:

  1. Systems, councils and anticorruption Guidelines;
  2. Social accountability and participation;
  3. Prevention of corruption;
  4. Anticorruption measures for elections and political parties;
  5. Public servant accountability;
  6. Public servant investiture and independence;
  7. Improvements in internal and external control;
  8. Anticorruption measures for the private sector;
  9. Investigation;
  10. Improvements in criminal persecution;
  11. Improvements in the fight against administrative improbity;
  12. Tools for asset recovery.

The complete report on all 70 proposals (which runs 626 pages, and so far is only available in Portuguese) is here. Further discussion of the specific proposals would be welcome, both from domestic and international commentators, and we hope that at some point soon we will be able to provide summaries and translations of all of the measures. But in the remainder of this post, we want to offer some more background on the process that we used to develop the New Measures, as well as the prospects going forward for pushing the government to adopt these reforms. Continue reading