drivers of corruption national perspective – brazil world bank, dc - october 23, 2014 fausto...

DRIVERS OF CORRUPTIONNATIONAL PERSPECTIVE – BRAZIL

WORLD BANK, DC - October 23, 2014

Fausto Martin De SanctisFederal Appellate Judge in São Paulo

DRIVERS OF CORRUPTIONNATIONAL PERSPECTIVE - BRAZIL

Introduction:

June/2013 – huge demonstrations on the streets against corruption (corruption appears to be endemic).

Ongoing crisis of governability in the Brazilian political system – weak institutions and the political power is concentrated and personalized in the president (although elected democratically, the president is able to govern autocratically). Former presidents Collor and Sarney fell due to personal foibles (unable to govern effectively).

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Models of Public Administration:

Patrimonialist – The tragedy of the Brazilian system is not on the fact that it only benefits elites (maintaining the status quo): but it primarily benefits itself (politicians and civil servants who operate it) – extension of the sovereign power ( public and private mixed together).

Bureaucratic – bureaucratic rules were gradually imposed and increasingly reached large sectors of the administration due to the transformation of the administrative structures and the institution of apparatus of the State (growing complexity of society and the deepening of the social division of labor);

Managerial – it has struggled to implose up to other models/professionalism. Brazilian society have not been able to develop institutions that promote efficient exchange and productivity. The weakness in the administration has contributed to increase corruption.

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Last four decades:

Several scandals – discreption of the authority without a strong governance system based on checks and balances;

Media – have played an important role, but also reinforcing people’s demonstrations;

Tolerance and lack of a strong stable mechanism of investigation, legitimated by the Judicial branch – e.g., an anonymous report was the argument to annul a big investigation of collusive corruption (corportation and politicians; Habeas Corpus and excessive right of appeals).

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Formal Tools – Constitution, laws, regulations. Dispute for power between Federal Police and Federal Prosecution: “Panamericano” case; Admendment 37 to avoid investigations by Prosecution, although approved by Special Committee in the Congress, was refused because of street demonstrations in June/2013; People’s Legal Action, art. 5º, LXXIII, Brazilian Constitution, to nullify harmful pratice to public administration.

Informal Ones – Habits, tradition and values. Cigarette‘s advertisement in the past: “You must take advantage of all situations”; mayors being requested for offering jobs (symbol of distorted value absorbed by the Brazilian society).

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Corruption cases – Remittances, “doleiros” (foreign exchange dealers), offshores, International Cooperation:

1)“Budget dwarves”/1989-1992 (kickbacks for transfering money to charities);

2) SUDAM/1998-1999 (diverted money through false tax documents for goods and services by the leaders of the Superintendency for the Amazon Development);

3) TRT Case/SP/1992-1999 (former President of Labor Appellate Court – US$85 million deviated);

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4) Marka Bank/1999 (illegal maneuvers bought US dollars from Central Bank);

5) Banestado/1996-2002 (tax evasion involving state bank – “doleiros”/foreign exchange dealers);

6) Mafia of the vampires of health sytem/1990-2004 (defrauded bids to purchase blood products by the Health Department – pre-arranged prices);

7) Porto Seguro/2012 (high-staff of Executive branch and regulatory agencies scheme – former chief of Staff of the Presidency in S.P.);

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8) Satiagraha/2008 (conviction of a Banker who alledgedly payed a Federal Police Chief to exempt him and his sister of a financial crime investigation);

9) Castelo de Areia/2009 (alledged collusion between corporation, politicians and bureaucracy – bribes) – plea bargain;

10) Mensalão (main scandal that hit Lula’s Government – monthly kickbacks with the main objective to guarantee the continuity of the power) – plea bargain. Supreme Court decision:

Facts: 2002-2003Criminal charges: March 30, 2006Indictment: August 22-29, 2007Trial: August 2 - December 17, 2012 (25 convicted)Decision published: April 22, 2013Appeals accepted for review for 12 defendants: September 18, 2013Decision for the prison in a closed and semi-open regime for 11 defendents: Nov 14, 2013;

11) Petrobrás/Car Wash Operation (2014), ongoing investigation - plea bargain (corruption for the benefit of politicians through black market broker and fraud in contracts – 3% of kickbacks). 8


Contradictory decisions between branches – Congress denied on Ago 28, 2013, impeachment of a congressman (lower house), Natan Donadon. He was arrested after conviction by the Supreme Court (13-year-imprisonment sentence) because of deviation of more than US$3,818,000 through media fraudulent contracts by State Congress. A Supreme Court preliminary decision (on Sept. 1) suspended the Congress decision.

Combating corruption demands the promotion of structural reforms.

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Executive and Legislative Branches

Political Issues:

Increasing the governmental machine – Financial Responsability Act (LC 101/2000) limits spending with income salaries up to the real capacity/50% (Federal Government) and 60% (States and municipalities); many positions occupied by people nominated without professional criteria. Civil servants are being controlled by them;

Financing political campaigns – source of corruption (budget law dealt with law inforcement authorities for the benefit of local interest, i.e., “corporations” and “congresmen” who are being funded by the first mentioned. Election Act (Law 9,504/1997 – limits expenses for campaigns; Electoral Courts verify its regularity).

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Office of the Comptroller General (Controladoria-Geral da União - CGU) – oversees the federal government (inspection frauds, internal control activities, public audits, corrective and disciplinary measures, corruption prevention, observatory of public expenditure, transparency);

The Federal Court of Accounts of Brazil (Tribunal de Contas da União - TCU) – oversees all Federal branches, audits the accounts of administrators and other persons responsible for federal public funds, assets, and other valuables, as well as the accounts of any person who may cause loss, misapplication, or other irregularities that may cause losses to the public treasury (art. 71 of the Brazilian Constitution). TCU is a collegiate body. As such, it is made of nine ministers. Six of them are chosen by the National Congress.

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Efforts to adopt a systematic model of public administration:

National Strategy against Corruption and Money Laundering/ENCCLA – 60 bodies from all branches;

Criminal Clean Record Act/LC nº 135, 04.06.2010 – a politician cannot be elected if he or she has been convicted by a final decision or by a any Appellate Court;

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Administrative Misconduct Act (Law nº 8,429, June 2, 1992) in case of illicit self-enrichment – against civil servant for loss of property, full compensation, loss of function, suspension of political rights (5-8 years), ineligibility for public power, fine;

Anti-Corruption Act (Law nº 12,846, August 1, 2013) – strict administrative liability for legal entities and subjective liability for natural persons; leniency programs;

Free Public Information Access Act (Law nº 12,257, November 11, 2011) – access to expenses; public procurements or bids; salaries;

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Criminal Procedure Code – if applied alternative measure to imprisonment (removal from the position), the civil servant cannot remain in jail (art. 282, § 6º, and 319, VI - Law 12,403, May 4, 2011);

Money-Laundering Act (Law nº 9,613, March 3, 1998, and Law nº 12,683, July 9, 2012) – no list of precedent crimes; plea bargaining (no more seen as act of vengeance);

Organized Crime Act (Law nº 12,850, Aug 18, 2013) – Drug Act/Law 11,343, August 23, 2006/minimum two persons; Criminal Code/three; Collective Judgement Act/Law 12,694, July 24, 2012/three; Organized Crime Act/Law 12,850, August 2, 2013/four);

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Judiciary Branch

Slowness (extreme judicial independence – “make and break” system);

Abuse of Defense rights (Habeas Corpus against any single decision and even from defendants at liberty);

“Apartheid Law” (special Courts for high-level authorities, no reelection – “table tennis” or “ping-pong” effect);

Meager participation of the judiciary (which can discourage all good actions taken by law enforcement bodies to fight corruption);

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Statistics:

95,14 million cases in all judicial systems (including the Brazilian Supreme Court); New cases in 2013 - 28,3 million. National goal from the National Council of Justice/CNJ/2014:

Goal 1: Productivity (ruled the same number of cases which were assigned)TRF3: 95,5%

In prison: 711,463 (including 147,937 home arrests); corruption 722;

Decisions (corruption, money laundering and administrative misconduct): 1,637 (205 final sentences conviction) out from 25,799 cases (Source: CNJ/2012, http://www.cnj.jus.br/noticias/cnj/24270-justica-condena-205-por-corrupcao-lavagem-e-improbidade-em-2012).

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National Council of Justice/CNJ – on February 2, 2012, Supreme Court decided that CNJ can investigate regardless ongoing inspector’s investigation; awareness of the importance of institutions (guarantees – independence for prosecutors, police, judges, inspectors - selection, even for the Supreme Court); work deeply to avoid punishing scapegoats – “Heliopolis” case, fraud of bids, only civil servants who were in lower positions were convicted;

Self-cleaning – e.g., Anaconda case/2003 (federal judges) and federal police (after the death in 1993 of policeman inspector Alciony Serafim de Santana, who were killed by his peer Carlos Leonel da Silva Cruz and others);

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Placing blame (feeling of shame and guilty) and sentencing prisons are rarely used and being discouraged;

Rational assumption in criminal Justice systems – “doleiros” or foreign exchange dealers in the beginning were bank account holders; use of third parties; shell companies; churches/less controlled; witnesses prefer to stay passive because of the risks associated with a reaction (missing career opportunities; threats; facing court cases; human rights violations; real risk of being a victim of trap or murder; Fake dossier (bank account holder of an offshore with alleged illegal money/“Dossier Cayman”); not accepting cash deposit.

Bribery size – decisions should not be based on this assumption (size of the bribery). “Satiagraha” case – indemnification (six defendants, the leader US$1,000,000; all defendants/total US$7,000,000);

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Moral costs (often forgotten) – education/training programs (how well he or she is able to rationalize crime); Internet/games – our role as parents, professors, researchers, authorities, etc.; “children brought up in a corrupted environment acquire bad habits by imitation; acceptance of non-authorized copies/tax fraud;

Society’s general opinion – role of media: how far the government is recognized by citizens – improve audit services and citizen’s tendency to react. Risk: the need of local media for government funds - advertisements/indirect media censorship; Monte Carlo case/2012 (use of media towards politicians who voted against illegal gambling/involvement of a senator);

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Monitoring transactions – examples:

1. Banco Santos case: transfer of public resources from the National Bank for Economic and Social Development – BNDES (linked Treasury Department) corresponded to 33% of the total portfolio of loans – US$580 million (R$1,158,066,000.00). The inspectors of Central Bank (Brazilian Federal Reserve) concluded that the Credit Analysis Reports submitted by the board of Banco Santos were outdated and inconsistent. Credit Committee for credit approvals did not even mentioned such reports. Frequent renewals of loans without proper technical analyzes of projects/negligence in granting credits and in the monitoring of projects. Deviations of purpose in the use of public resources;

2. Acquision of shares and debentures (US$3 billion) by the BNDES from the EBX Group (five companies), owned by businessman Eike Batista – bankrupticy/companies sold;

3. Public Funds from crime to social entities by the 6th Federal Trial Court in São Paulo (controler by bailiffs, on behalf of justice, before and after the execution of the project). 20


More control (monitoring) on procedures – budgets, recruitment, approval and the following steps for disregarding any practice related to corruption, but after;

Rationalizing tax system – simplicity, reduction and justice (tilting to the side of the offence instead of to the fear of committing it);

Bus –

1. Get in;

2. Sit beside and close our eyes;

3. In front of.

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Thank you for your attention!

Fausto Martin De Sanctis

Federal Appellate Judge in São Paulo (TRF3)

BRAZIL

[email protected]

Tel. (55 11) 3012 1791 22

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