Brazil’s Public Prosecutor’s Office (MPF) formally closed Operation Car Wash (Lava Jato), the epic corruption investigation which began in 2014 with a routine money laundering probe of an actual car wash in Brasilia. The investigation, which ended in February, quickly grew into a complex series of criminal prosecutions that snared former-President Lula da Silva as well as dozens of high-ranking federal officials and some of Brazil’s most prominent business figures. Since 2014, Car Wash has resulted in hundreds of arrests and prison sentences as well as billions of dollars in combined fines involving political elites and companies in nearly every country in the Americas.
Brazilian legal experts and political commentators have mixed opinions of Car Wash’s legacy on anti-corruption efforts in Brazil. In one sense, Car Wash succeeded by demonstrating that it was possible to hold powerful politicians and billionaires accountable for wrongdoing and that prosecutors could at least confront and expose, if not destroy, the entrenched culture of grand corruption in Brazil. The campaign was popular with a broad cross-section of Brazilians, keeping with a continent-wide trend of popular disgust with entrenched cultures of corruption among the Latin American political class. The MPF also developed deeper and broader ties with local law enforcement agencies as well as prosecutors in the U.S. and Europe, leading to better information-sharing and coordination to prosecute wrongdoing by multinational firms. The willingness to go after corruption at the highest level is exemplified by a Brazilian Senate committee’s recent report recommending an indictment of President Jair Bolsonaro for crimes against humanity and mismanagement of the coronavirus pandemic.
On the other hand, critics of Car Wash question the tactics employed by prosecutors, such as the extensive use of preventive detention to hold suspects while prosecutors gathered additional evidence and the offer of plea agreements to obtain cooperation from key witnesses. This later development is a novel innovation in Brazil’s legal system and remains controversial. Several high-profile convictions of politicians, including Lula, were later overturned by courts on technicalities.
There is also an open question of whether Brazilians are simply exhausted by seven years of near-constant Car Wash revelations. The reputation of popular Car Wash judge Sergio Moro took a significant hit after The Intercept leaked messages indicating that Moro may have improperly influenced the investigations into Lula and other political figures. Brazil’s score decreased by five points in Transparency International’s 2020 Corruption Perceptions Index compared to 2012, indicating survey respondents actually perceive the country to be more corrupt than when Car Wash began.
Despite these caveats, experts agree that Car Wash and the 2014 Anti-Corruption Law (commonly referred to as the Clean Companies Act) have had dramatic ramifications for companies operating in Brazil. The most important culture change is the normalization of compliance procedures among Brazilian firms. Prior to 2014, only multinationals typically had these measures in place. In addition, the harsh penalties stipulated by the Anti-Corruption Law have incentivized companies to cooperate with prosecutors in exchange for reduced fines and sentences, in contrast with the previous tendency for companies to simply deny wrongdoing and drag out court proceedings as long as possible. Brazil’s Comptroller-General (CGU) has also emphasized that proper implementation of a robust compliance program is a key factor in its decision-making on potentially reducing or waiving fines against companies found guilty of violations. Moro, who is now in private practice, commented at an October 2021 legal industry event that companies should proactively collaborate on proposing joint compliance standards, rather than hoping that individual firms act as “islands of integrity” or waiting for the government to make formal rules.
In December 2020, several enforcement agencies announced a five-year Anti-Corruption Plan that calls for enhanced inter-agency cooperation and further centralizes anti-corruption enforcement under the CGU. Notably, the MPF did not participate in the government’s announcement of the plan and has not agreed to cede authority to the CGU on negotiating plea agreements. The extensive proposals in the plan, such as the creation of public databases of politically exposed persons (PEPs) and public procurement invoices, nevertheless represent a commitment by the Brazilian government to continual improvement and scaling up of compliance and anti-corruption measures.
Car Wash as a discreet investigation may be over, but it kicked off a cultural shift towards compliance and an ongoing wave of enforcement changes in Brazil. Companies operating in the country should be ready to maintain and expand their due diligence procedures for third parties and clients.
For your international due diligence needs in Brazil, turn to Vcheck Global. Our analysts have the Portuguese language skills and in-country experience to navigate post-Car Wash compliance and reputational risks.
Jon Ettinger is a Senior Associate at Vcheck Global.