Requiring Public Contractors To Have Anticorruption Compliance Programs May Sound Like a Good Idea—But Not When Government Capacity Is Lacking

Five years ago, in a thought-provoking post, Rick Messick proposed that developing states should demand that firms doing business with them have an anticorruption compliance program. At the time Rick wrote his post, he wasn’t aware of any developing state that had imposed any such requirement. A couple of years later, some Brazilian subnational jurisdictions, such as the state of Rio de Janeiro and the Federal District, adopted legislation in this spirit, requiring that companies awarded a public contract, or participating in a public-private partnership, above a certain value must establish an anticorruption compliance program. These initiatives seem to be of a piece with a broader trend in Brazilian anticorruption law, which has sought in various ways to create stronger incentives for companies to adopt effective compliance programs. (For example, Brazil’s 2013 Clean Company Act holds companies strictly liable for corrupt conduct, but companies that have a so-called “integrity program” may get a penalty reduction.)

Nonetheless, despite the importance of corporate compliance policies as a component of any effective anticorruption strategy (see here and here), demanding that contractors to establish such programs as a condition of doing business with Brazilian government entities is unlikely to achieve the intended goals.

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One Year After Bolsonaro’s Election, How Well Is His Administration Fighting Corruption in Brazil?

Exactly one year ago, on October 28th, 2018, Jair Bolsonaro, a right-wing congressman and former army captain, was declared the winner of Brazil’s presidential election after receiving 55.13% of the valid votes. He defeated the center-left-wing Workers’ Party (PT) candidate Fernando Haddad, ending the PT’s streak of four consecutive presidential election victories that had begun in 2002.

Brazil’s corruption problem played a major role in the election and in Bolsonaro’s victory. The Car Wash Operation had not only uncovered widespread corruption scandals during the PT administrations, but that Operation also led to the prosecution and conviction of former President Luiz Inácio “Lula” da Silva, which rendered Lula ineligible to compete in the 2018 election. Moreover, Bolsonaro centered his campaign especially on a vigorous anticorruption discourse, promising to set a new standard of public integrity and to hold corrupt companies and politicians liable for their misconduct (see here and here). To be sure, Bolsonaro did not campaign exclusively on an anticorruption platform. He also positioned himself as the defender of more conservative social values and pledged to take a hardline approach to violent crime and drug trafficking. Yet his anticorruption rhetoric undoubtedly played a key role in his victory.

Even before the election, though, some commentators expressed skepticism that Bolsonaro would undertake genuine efforts to fight corruption and strengthen the institutions needed to promote integrity, and this skeptical view has been echoed by other commentators, both inside and outside of Brazil, during Bolsonaro’s first term (see, for example, here and here).

Now, one year since Bolsonaro’s electoral victory, is a suitable time to analyze the Bolsonaro Administration’s performance so far on anticorruption related issues. Have his substantive accomplishments in this area matched his tough rhetoric?

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A Group of International Jurists and Scholars Condemns the Conviction of Former Brazilian President Lula as Unfair and Politically Motivated. A Group of Brazilian Prosecutors Defend Their Conduct, and the Conviction. Read Their Dueling Open Letters Here!

One of the biggest stories in the anticorruption community over the last few months—and one that we’ve featured extensively here on GAB—has been the controversy swirling around the so-called “Lava Jato” (Car Wash) anticorruption operation in Brazil, in light of private text messages among the Lava Jato prosecutors, and between prosecutors and then-Judge Sérgio Moro. These messages were stolen from hacked cell phones and provided to The Intercept, which published a series of stories based on them and also shared them with other media outlines. Critics, including the Intercept journalists, have argued that these messages show unethical conduct, political bias, and due process violations by the Lava Jato prosecutors and by Judge Moro, and that this alleged misconduct demonstrates that the convictions of many of the Lava Jato defendants—most importantly, former President Lula—ought to be thrown out. Others remain unconvinced by the most serious accusations of political bias, and find many of the allegations of misconduct questionable. (For my own, somewhat evolving take on these issues, see here and here, and for a useful debate among Brazilian legal experts, see here.)

Recently, a group of international jurists and scholars weighed in, writing an open letter in which they declared their view that, in light of the evidence revealed by the leaked text messages, Lula did not receive a fair trial and was the victim of political persecution. (An English translation of the letter is available here; the original Portuguese text can be found here.) In response, a group of 20 Brazilian Federal Prosecutors wrote a reply to the open letter’s signatories, arguing that the allegations in the open letter were based on an inaccurate, incomplete, or distorted representation of the facts. The prosecutors’ response letter has not previously been published, but the prosecutors have provided me with that letter and given me permission to post a slightly-revised version here.

I have my own views on the merits of the underlying dispute, which I may go into in a later post, but here I just want to present the two letters side by side, in the hope that this will be helpful to others who have been following this controversy and are trying to better understand the complicated questions at issue. I’ll present this in point-counterpoint format, starting with the English translation of the original open letter (with some corrections to apparent errors or ambiguities in the original translation linked above), and then presenting the prosecutors’ rebuttal: Continue reading

The Biggest Beneficiary of the Lava Jato Leaks Is Jair Bolsonaro

As most GAB readers are likely aware, one of the biggest stories in the anticorruption world in the last couple of months has involved the disclosure of private text messages by Brazilian officials involved in the so-called Lava Jato (Car Wash) Operation. Lava Jato, which has been in progress for five years, is one of the largest anticorruption operations ever, not just in Brazil but worldwide. The operation has secured the convictions of scores of high-level Brazilian political and business leaders once thought to be untouchable, including former President Lula of the Workers Party (PT). Lula’s conviction rendered him ineligible to run in the 2018 presidential election—which he likely would have won—and this factor, many believe, helped far-right candidate Jair Bolsonaro win the presidency. The prosecution of Lula, and a number of other PT figures, triggered accusations, mainly from PT supporters and others on the political left, that the Lava Jato Operation was a politically motivated conspiracy against Lula and the PT. That view had not been taken very seriously by Brazilian or international experts outside of a relatively small circle of left-wing activists, though when Judge Moro, who had presided over most of the Lava Jato cases, including Lula’s, accepted a position in Bolsonaro’s cabinet, it certainly fed into that narrative.

Then, last month, The Intercept published a series of stories based on leaked/hacked/stolen private text messages among the prosecutors on the Lava Jato Task Force, and between Task Force prosecutors and then-Judge Moro. According to The Intercept and others reporting on this these revelations (dubbed “VazaJato” on social media), the disclosed texts corroborate the longstanding PT narrative that the Lava Jato prosecutors and Judge Moro were ideologically biased against the PT, especially Lula, and that Lula was denied a fair trial as a result. The Intercept described its own reporting as “explosive,” and while one might quibble with the lack of humility (guys, it’s generally better form to let other people praise the importance of your work), the characterization is accurate. Now, I think the evidence of misconduct is less clear than The Intercept and other commentators have suggested (see a useful debate on the legal and ethical issues here), and I find the claims of ideological bias especially flimsy (see here and here). But there’s no doubt that the revelations have tarnished Judge Moro’s reputation, and have also damaged the credibility of the Lava Jato Task Force prosecutors (though unfairly and excessively so, in my view).

Who has benefited from these stories? The conventional wisdom seems to be that the VazaJato stories hurt not only Sergio Moro, but also the Bolsonaro administration—both because Moro is a senior figure in that administration, and because the VazaJato stories imply, or state outright, that Bolsonaro’s election was illegitimate due to the fact that the strongest alternative candidate was barred, on trumped up charges, from running. And the biggest beneficiaries of the VazaJato stories, the conventional view maintains, are Brazil’s left-wing parties (the PT and its allies), mainly because the VazaJato stories show (allegedly) that the PT activists were right all along when they claimed a right-wing conspiracy against Lula. That view is plausible, and seems widely shared (not least by The Intercept’s reporters and editors, who makes no pretense of journalistic neutrality). But I think it’s wrong.

Indeed, I worry that the biggest beneficiary of VazaJato may be President Bolsonaro, and the biggest loser may be the Brazilian left. I say “worry” because I view Bolsonaro as a dangerous bigot and wanna-be authoritarian, one who is also likely to worsen Brazil’s corruption problem. But my personal political views are not really important for present purposes—I mention them in the interests of full disclosure (much as I have been careful, in previous posts, to disclose my cordial professional relationship with Lava Jato Task Force lead prosecutor Deltan Dallagnol). Rather, my goal here is to explain why I think the VazaJato leaks, and the narrative they have helped to amplify, are likely to help Bolsonaro, while hurting the Brazilian left. There are four reasons for this perhaps counter-intuitive conclusion: Continue reading

Do the Lava Jato Leaks Show Illegal or Unethical Behavior? A Debate Between Brazilian Legal Experts

As readers of this blog are likely well aware, last month The Intercept published a series of articles, in both Portuguese and English, that called into question the fairness, legitimacy, and motivations of the Lava Jato (or “Car Wash”) anticorruption operation in Brazil. These articles were based on private text messages between prosecutors and then-Judge Sergio Moro (and among members of the prosecution team) that The Intercept obtained from an anonymous source (widely suspected to be an outside party who hacked prosecutors’ cell phones). The revelations raise a number of questions about the Lava Jato operation, including whether the leaked text messages demonstrate that Judge Moro violated Brazilian law and/or ethical codes, and if so whether these breaches would invalidate the convictions of at least some of the Lava Jato defendants, most notably former President Luiz Inácio Lula da Silva (known as Lula).

Shortly after the first set of Intercept stories came out, I offered my own perspective on the implication of the leaked text messages (see here and here). But on the specific question of whether these text messages were unlawful or unethical, I was and remain uncertain, not least because evaluating this particular question requires expertise in Brazilian law. To help shed further light on this topic, and to assist others in understanding the complex legal and ethical questions at stake, today’s blog post features a point-counterpoint debate between two Brazilian legal experts with opposing perspectives on this question:

  • First, Ademar Borges de Sousa Filho (a Professor of Law at IDB-Brasilia and a practicing defense attorney) makes the case that the text messages disclosed by The Intercept demonstrate that Judge Moro behaved unethically and unlawfully, and that his lack of impartiality requires the nullification of the conviction of Lula (and possibly other Lava Jato defendants, though any such decisions would need to be made on a case-by-case basis).
  • Next, Luciano Benetti Timm (the National Consumer Protection Secretary at the Brazilian Ministry of Justice and Professor of Law at FGV São Paulo) presents a rebuttal, arguing, first, that the unauthenticated text messages obtained by The Intercept are not legally admissible, and that even if they were, they do not demonstrate any illegal partiality, or unethical behavior, by Judge Moro, and therefore do not provide grounds for questioning the convictions of Lula (or any other Lava Jato defendant).

Before proceeding, I should note that there are a number of other legal and political issues that are being hotly debated inside and outside of Brazil related to the Lava Jato case, Lula’s conviction, and related matters. The pieces below do not address these other issues, because I specifically requested Professor Borges and Professor Timm to focus narrowly on the question of the legality/ethics of the communications between Judge Moro and the Lava Jato prosecutors. I hope that readers find the debate below useful and enlightening on this issue. Continue reading

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

Video: CAPI Panel on “Anti-Corruption Efforts in Latin America”

Recent developments in the fight against corruption across Latin America seem to have prompted an increasing number of conferences, workshops, and similar events that focus on this issue. (I was able to participate in one such event at Rice University’s Baker Center a few months back.) Last month, Columbia University’s Center for the Advancement of Public Integrity (CAPI) held another, similar event that may be of interest to those who follow these developments (indeed, perhaps of even greater interest to those who haven’t been following them, but would like to get up to speed). The panel, entitled “Anti-Corruption Efforts in Latin America: Perspectives from Brazil, Argentina, Colombia, and Mexico,” was moderated by Daniel Alonso (Managing Director of Exiger), and featured four senior lawyers from the region: Eloy Rizzo Neto (Brazil), Gustavo Morales Oliver (Argentina), Diego Sierra (Mexico), and Daniel Rodriguez (Colombia). The video of the discussion can be found here. And here’s a quick overview of the discussion, with corresponding time markers for the video: 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?

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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.

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