As Netflix launches a major new drama based on the Car Wash scandal in Brazil, Global Witness reveals the cost to the country may be eight times higher than the £1.4 billion stolen – enough to pay for a million nurses.
“The true cost of Car Wash is so much bigger than the eye-watering sums actually stolen,” said Ed Davey, investigative journalist at Global Witness.
“White collar crime is anything but victimless. The looted funds could have paid for the salaries of a million nurses, saving countless lives, or funded a year’s education for over 17 million children. And the knock-on effect on the economy went far beyond this, helping to bring about Brazil’s worst recession since records began.” Global Witness’s findings on the Car Wash scandal were published by the New Statesman today.
The Mechanism, from the creators of Narcos, is released on 23rd March. It tells the story of how Brazilian police uncovered a racket involving the state oil company Petrobras that implicated 20 political parties, 28 major corporations and has resulted in more than 100 convictions so far. Former left-wing president Luiz Inacio Lula da Silva is appealing a twelve-year bribery sentence, while current right-wing president Michel Temer has also been fighting off corruption charges.
If withdrawn in ten pound notes, the sum embezzled – much of which was laundered in cash – would make a stack eight miles high, equivalent to 16 Burj Khalifas (the tallest building on earth) . The 119 tonnes of banknotes would take a fleet of 97 Ford Transit vans to deliver.
But a new analysis by Global Witness reveals the scandal may have cost the Brazilian people vastly more money than was actually stolen. The fallout from the scandal reduced Brazil’s GDP by an astonishing 3.6% in 2015, 2016 and 2017, according to leading firm of Sao Paulo consultants GO Associados. That would imply a total loss of $13.8 billion (£9.9 billion) in lost tax revenues. Furthermore, while it was mired in the scandal, Petrobras did not pay the Brazilian government a dividend for three years – depriving the country’s hard-pressed public services of a further $1.5 billion (£1.1 billion). The total of £11 billion in lost taxes would have paid for more than a million nurses in a country where universal healthcare is some way off – or educated more than 17 million primary school children for a year.
If one considers capital losses too, the picture is bleaker still. Petrobras’s share price has dropped by more than 25% - a paper loss of £14.1 billion.
José Padilha, writer and director of Narcos and The Mechanism (himself a Brazilian), said: “I feel disgust and exasperation. Too many Brazilians fall into the trap of ideology, but this mechanism has no ideology.
“In my country you can turn any stone and there will be cockroaches underneath. Democracy has failed.”
How did the Car Wash scam work?
The fraud revolved around Petrobras, Brazil’s state-owned oil company. Instead of awarding huge contracts for construction projects, oil rigs, shipping and so on in the normal manner, the work was rotated around a cartel of companies in orderly fashion. Petrobras would over-pay the companies by at least 3%, the extra money kicked back to the directors responsible for awarding them the contracts. These directors would pocket some of the money, the rest handed to the politicians who had appointed them to their lucrative posts. The money then went on to fund the campaigns of Brazil’s political parties and provided back-door funds that kept otherwise unstable governing coalitions together.
The result was a Byzantine racket of astonishing intricacy and scale in which everyone took a cut. Bribes took the form of bricks of cash, expensive art works, aircraft and yachts. Anonymously owned companies in tax havens and foreign bank accounts helped launder the loot. One Petrobras director alone channelled €20m through banks in Monaco to accounts in the Bahamas, Panama and elsewhere. And this ‘mechanism’ had been running uninterrupted for at least 12 years
The Mechanism. Season One of the series begins on 23rd March. https://www.netflix.com/gb/title/80120485
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