Spreading Odebrecht corruption claims put Latin American leaders on notice

Protesters want action taken against former Peruvian presidents in connection with bribery scandals Keystone

When Peru’s President Pedro Pablo Kuczynski held a call with US President Donald Trump last week, one of his tasks was to ask whether his former boss could be extradited.

Alejandro Toledo, president from 2001 to 2006, is wanted on suspicion that he received $20m in illicit funds from Brazilian group Odebrecht.

Mr Toledo, believed to be in California, has rejected the claims. Two other former Peruvian presidents are also facing scrutiny for links with Odebrecht, while Mr Kuczynski is facing an investigation for agreeing a law that smoothed the granting of road contracts when he was Mr Toledo’s prime minister.

But Peru is just one country rattled by the shockwaves from the admission by Latin America’s biggest construction company that it paid $788m in bribes in 12 countries in the region. Interpol has issued wanted notices for two sons of Ricardo Martinelli, former president of Panama.

The case has already led to the Brazilian group agreeing a plea bargain with US, Brazilian and Swiss authorities to make the biggest corruption-related payout in history of at least $3.5bn. But the political repercussions of the case are spreading, shaking governments and politicians across Latin America.

The rise of leftist populist governments across the region at the turn of the century was propelled by poverty and inequality. Now, in crisis-hit Venezuela, authorities raided the Caracas offices of Odebrecht, after the company admitted paying $98m in bribes supposedly to socialist officials – the highest amount outside of Brazil.

Political corruption

Juan Carlos Varela, Panama’s leader, denied receiving campaign donations from Odebrecht, as alleged by Ramón Fonseca of the law firm at the centre of the so-called Panama Papers scandal and a former adviser.

As the economic downturn continues to bite across the region, “people are increasingly associating the fact that there’s a slowdown with corruption. They feel that if there’s no money now, it means it’s because someone in the government stole it,” says Paulina Recalde of pollster Perfiles de Opinión in Ecuador.

While governments face allegations of receiving illegal donations or kickbacks from Odebrecht, the silver lining of the investigation is a newfound adherence to the rule of law in growing pockets of Latin America. However, analysts warn, this could open the gates for a renewed boost of populism. “Corruption was something present but abstract. Now people really feel politicians were stealing from their pockets. This will surely have electoral consequences,” explains Luis Benavente, a political analyst with the Lima-based consultancy Vox Populi. “It could easily feed the rise of anti-establishment candidates.”

Already in Mexico, where state-oil company Pemex is being investigated for its links to Odebrecht, populist Andrés Manuel López Obrador is promising to stamp out corruption and sweep out the “mafia of power” in yet another bid to win the presidency next year.

National elections

In Brazil the sweeping investigation that led to Odebrecht’s fall from grace is entering its fourth year. The probe known as Car Wash helped lead to the fall of president Dilma Rousseff in 2016.

Her replacement, former vice-president Michel Temer, is also battling allegations of receiving illegal funds. With testimony from 77 Odebrecht executives expected to soon be released by the supreme court, Mr Temer runs the risk of having his tenure terminated.

The scandal, coupled with Brazil’s worst recession in more than a century, has thrown wide open the nation’s elections next year. That may also be the case in Colombia, where President Juan Manuel Santos and a political opponent have been tarnished by accusations.

María Luisa Puig at Eurasia Group says this “paves the way for candidates rallying on anti-corruption platforms” in Colombia’s 2018 presidential poll. Argentina’s President Mauricio Macri faces crucial midterm elections this year at a time when the director of the intelligence agency is accused of receiving an Odebrecht bribe in 2013.

Last week, prosecutors from nine Latin American countries held closed-door talks in Brasília and agreed to set up investigation teams to provide “the most extensive, speedy and efficient international judicial co-operation”.

Politicians in the region have been placed on notice. Reporting by Andres Schipani in Quito, Joe Leahy in São Paulo, Jude Webber in Mexico City and Benedict Mander in Buenos Aires

Copyright The Financial Times Limited 2017