Brazilian Corruption Scandal Spreads to Peru: Halts Construction Industry

By Alexander Dombrowski, International News Writer

A corruption scandal centered on a Brazilian construction firm, Odebrecht, has implicated the current sitting Peruvian president and three of his predecessors. The allegations presented on these politicians are that they accepted varying amounts of Odebrecht money in order to grease the wheels of the public construction industry by giving Odebrecht more jobs. Fallout from these allegations is that all public construction projects in Peru have been halted, leaving private manufacturers and suppliers without business.

Beginning in Brazil in 2014, prosecutors found that the reason Obebrecht was so likely to receive government contracts such as roads, bridges, tunnels, and dams was due to payments that Brazilian officials accepted in order to recommend Odebrecht for the projects. The scandal, known as “Operation Car Wash,” remains ongoing, with 30 percent of Brazil’s Congress still under investigation. In 2016, a global investigation by Brazil, the United States and Switzerland resulted in Obebrecht paying $2.6 billion in fines after pleading guilty to bribery charges.

This scandal has spread to every Latin American nation that Odebrecht does business in, with bribery appearing to be the norm. In Venezuela, an Odebrecht official alleged that he gave $35 million to a representative of now President Nicolas Maduro’s campaign. However, no country has been hit harder by the corruption charges and industry fallout than Peru.

Odebrecht has admitted to bribing Peruvian public officials with $29 million between 2005 and 2014, receiving $12.5 billion in government contracts. Coinciding with the fast economic growth Peru experienced during that time, Odebrecht was heavily invested in all development and public works projects of the small nation. Estimations on the effects of the scandal conclude the frozen contracts and halted projects cost Peru 1.5 percent of its Gross Domestic Product last year, economists at the Washington Post say, with this year costing the small nation another percentage point. Economists say that in order to reduce poverty in the country, a 5 percent GDP growth will be needed, a figure now rendered unattainable by the halting of industry due to the corruption allegations. Dozens of Peruvian companies are on the brink of bankruptcy, with 150,000 jobs already being lost. The government’s response has only exacerbated the halting of Odebrecht projects from investors. The current administration froze all Odebrecht assets and stopped all of its projects, including some expensive well known irrigation and gas contracts.

As for the allegations themselves, the sitting Peruvian President Pedro Pablo Kuczynski conceded that his company, Westfield Capital, received $782,000 from Odebrecht while he was a government minister. Additionally, he served on the board of First Capital, which accepted $4 million from Odebrecht between 2006 and 2013. These concessions come after Kuczynski had denied receiving any payments from Odebrecht or anyone associated with the company, after a senior executive at Odebrecht disclosed the payments. Shortly after the news broke, an impeachment attempt was made, with the President barely surviving by 8 votes after swinging a political deal to remain in power.

Kuczynski is not the only Peruvian President implicated in the scandal, with his predecessor, Ollanta Humala being detained due to allegations he accepted $3 million of Odebrecht contributions for his 2011 Presidential campaign. Additionally, the President before Humala, Alan Garcia, is being investigated for a number of projects he signed away to Odebrecht, including the massive projects of Lima’s subway system. Some members of Garcia’s administration have already been arrested for accepting bribes, with the only question being if the President himself was complicit in the bribery. The string of Odebrecht investigations doesn’t end there however, as Garcia’s predecessor, Alejandro Toledo, has an arrest warrant for allegedly accepting $20 million for securing Odebrecht’s rights to construct a major highway linking Brazil and Peru. All three former presidents have denied the charges.

In the coming weeks, prosecutors are set to interview Jorge Barata, the former head of the Peru branch of Odebrecht, currently under house arrest. His testimony will likely shed more light on just how deep the Odebrecht bribery goes.

 

A version of this article appeared in the Tuesday, January 30th print edition.

Contact Alexander at

alexander.dombrowski@student.shu.edu

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