Federal police in Brazil say they have uncovered a major corruption scheme inside the country’s finance ministry that allowed prominent local companies and foreign multinationals avoid paying up to €5.4 billion in tax.
The latest evidence of collusion between officials and businessmen to defraud the state comes as Brazil is reeling from the fallout from the multibillion euro scandal in the state-controlled oil giant Petrobras, which has aggravated a recession and left the government facing huge street protests by angry citizens.
Last week police raided the government offices and homes of tax officials as part of an investigation into the latest scheme which centres on the finance ministry’s tax appeal board, known as CARF.
Among the firms accused of defrauding the state are leading local banks Bradesco, Safra and BTG Pactual. Multinationals Santander, Ford and Mitsubishi are also under investigation. The list of companies involved also contains Petrobras as well as Camargo Corrêa, the Brazilian conglomerate at the centre of the investigation into the looting of the oil giant by an alliance of politicians and businessmen.
Investigators claim members of the tax appeals board took bribes in order to provide favourable rulings in tax disputes between the ministry and companies. Police say they have identified €1.7 billion in taxes lost due to corruption, with another 61 cases involving €3.7 billion awaiting analysis.
That would top the €2.83 billion investigators have already identified as stolen from Petrobras, although that amount is expected to rise significantly when the full scale of the damage done to Brazil’s biggest company is calculated.
In one phone tap, police said they overheard a former tax appeal board official saying “only the small debtor pays, the big guys don’t”. The cases under investigation stretch back to 2005. Companies reportedly paid between 1-10 per cent of their tax claim to officials in order to have the total reduced or waived.
One of the current members of the tax appeal board is the father of a federal congressman being investigated for his role in the Petrobras scandal. In last week’s police raids on properties connected with tax officials, police recovered half a million euro in cash, a fleet of luxury cars and jewellery.
The officials under investigation deny any wrongdoing.
This latest police operation highlights the increasing confidence of anticorruption authorities in Brazil to tackle the problem but also the entrenched nature of graft in Brazil. “This latest development shows corruption here is a cultural problem,” says Gil Castello Branco, head of Contas Abertas, a watchdog for public spending. “Petrobras is in focus at the moment but what is happening in that company is also going on in the public pension funds and in other sectors like the electrical sector.”
Another area likely to face scrutiny is Brazil's powerful national development bank BNDES, which lavished cheap loans on local companies in recent years in a bid by president Dilma Rousseff to build "national champions" that could compete on the global stage. Several beneficiaries of BNDES funds were among the largest donors to her re-election campaign last year and are now being examined by a federal prosecutor.
On Thursday, Ms Rousseff appointed the head of BNDES, Luciano Coutinho, as the new chair of the Petrobras board. He becomes the second presidential ally from the state banking sector to be appointed to the company following former Banco do Brasil chief Aldemir Bendine's arrival as its president last month.
Their immediate task is to try to stem the fallout from the Petrobras scandal, which is threatening to paralyse Brazil’s oil sector. With a cash-strapped Petrobras now freezing or cancelling contracts with companies under investigation for corruption, tens of thousands of workers have been laid off and several Petrobras contractors have entered bankruptcy proceedings.
The chaos in the oil sector is aggravating a recession in which Brazil’s economy is set to contract this year, with analysts predicting the downturn will continue into 2016. On Friday, Brazil reported growth of just 0.1 per cent in 2014.
The downturn is deepening as the government implements the toughest austerity programme in two decades, with the goal of producing a primary fiscal surplus of 1.2 per cent of GDP in order to avoid having its bonds downgraded to junk.
A recent analysis by the industrial federation of São Paulo estimated between 1.4 and 2.3 per cent of Brazil’s GDP was lost to corruption annually.
