Carnival of Fraud: Brazilians Register Disgust at Corruption Scandals

The following excerpt is from an article published in CRI Group’s latest Fraud 360 magazine (Issue 1 2015)

By Scott Patterson

Recent fraud scandals within their country appear to have pushed a significant number of Brazilians over the brink. A massive corruption investigation involving government officials and Petrobras, the sixth-largest energy company in the world, lit the spark for what be-came an outpouring of discontent this year that manifested in demonstrations and protests involving millions of Brazilians.

The focus of their ire isn’t Petrobras, entirely. The scandal, and others, allegedly involves prominently placed officials at the highest levels of the Brazilian government. In fact, the appearance of impropriety goes straight to the top: President Dilma Rousseff sat on the board of directors for Petrobras from 2003-2010, a time during which bribes-for-contracts, skimming, illegal gifts, bid-rigging and other alleged corruption was reportedly rampant between company officials and politicians.

While the Petrobras scandal has left Brazilians reeling, it is not the only high profile case to consume the headlines within even just the last few months. In late March, German construction firm Bilfinger announced that it was investigating claims of bribes paid by some of its Brazilian employees to secure business for last year’s World Cup in Brazil. For the Fédération Internationale de Football Association (FIFA), international football’s premier governing body, the news represented just the latest black eye in a long string of them (in regards to alleged corruption). For football-loving Brazil, it likely struck an even deeper chord among the populace: why was FIFA’s corrupt culture finding a natural fit in the business environment of Brazil?

A Reputation for Corruption

To outside observers, it would appear that some degree of national pride, comingling perhaps with a strong sense of justice, is rising to the surface in a country that is too often spotlighted for failures rather than successes in the fight against fraud. In its highly cited Corruption Perceptions Index, European-based corruption monitor Transparency International ranked Brazil 69th (out of 175 countries), with a score of 43 points (with 100 being the highest/best possible).

While Transparency International noted in its report President Rousseff’s strong public stance against fraud, the organization points out that “risks in the sector have lingered. For example, a number of public officials have been charged with demanding bribes, particularly to hurry bureaucratic processes. From 2003 to 2012, the federal auditor’s office fired nearly 4,000 employees from public service. And most of these charges stemmed from corruption or dishonesty.”

The Corruption Perceptions index was released in December, before the latest scandals came to light in Brazil. These new developments, and public reaction to them, are likely to figure heavily in the 2015 rankings.

“Order and Progress”

The Federal Republic of Brazil is the largest country in South America, and the fifth-largest in the world by both population and land mass. It boasts a robust economy with an estimated 2015 Gross Domestic Product of nearly U.S. $3.26 trillion (seventh-largest in the world). For hundreds of years, Brazil was a Portuguese colony, finally achieving independence in 1822. Traditionally, Brazil is known to much of the outside world as a king of coffee exportation, forestry and other agricultural production — but within the last few decades it has been at the forefront of technology, energy and banking, among other fast-changing industries.

Brazil’s national motto, “Ordem e Progresso,” translates to “Order and Progress.” While that sounds, arguably, a bit dry for a country so rich in culture and vibrance, the motto represents the importance that Brazilians place on having a reputation as a for-ward-thinking society with a strong sense of justice. And as the protests of March and April have shown, many living and working in Brazil appear to feel that a sense of order and justice has been betrayed.

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Toshiba Accounting Probe: Where There’s Smoke …

What is happening at Toshiba? The massive Japanese technology corporation is causing a stir among investors after announcing a second “internal accounting probe” in as many years. And, according to media reports, this one could have serious financial repercussions.

News such as this has a way of perking up the ears of anti-fraud sleuths because it sometimes serves as foreshadowing that a major scandal is coming to light. Enron and Worldcom both initially creeped onto the news wire with headlines of “accounting irregularities” and “internal investigations,” that sort of language. What followed, of course, were reports of (alleged, at the time) outright financial statement fraud.

This writer is not stating that this is the case at Toshiba; it is too early to make that conclusion. Anyone might be quick to point out that, as noted above, this is the second time this has happened – recently. And the last go around with Toshiba’s accounting mess has not yet pointed to potential criminal conduct. What we do know is that Toshiba Corp. stock collapsed more than 10 percent in trading today in the wake of this latest news – as a Reuters article points explains:

“Fears over Toshiba Corp’s second probe into its own accounting in two years wiped close to $2.5 billion off the Japanese industrial giant’s market value on Monday, with analysts saying lingering doubt on the root of the problem will keep investors on edge.”

So what is “the root of the problem?” That is the question that Toshiba will need to answer, quickly and decisively, to gain some stability in what has become a volatile situation. Its public relations office has said only (to paraphrase) that several construction projects came in over budget. Interested parties will likely demand a much better explanation in the coming days to restore the trust of investors.

Shuli Ren wrote a news brief on the Toshiba fiasco for Barron’s Asia. Ren brings us up to speed thusly:

Until now, the accounting investigation has focused on power systems, social infrastructure and community solution units in Japan and overseas. “Several construction projects have understated costs,” according to a spokesperson from Toshiba. Toshiba earned about 11% of its operating income from its power and social infrastructure business in 2013.

With just a few short paragraphs, the brief serves as a “here’s-what-you-need-to-know” for investors grabbing their news on the fly – but then Ren includes for emphasis: “This is serious.”

Indeed it is, Toshiba. Stay tuned.

Marriage Fraud of the Year? Woman Can’t Stop Tying the Knot

Welcome to Pyramids and Ponzis, where we endeavor to comment on some of the most interesting, important, and sometimes just downright bizarre fraud and white collar crime stories that come across the wire (in this case, “the wire” refers to the all-knowing, all-seeing Internet).

So here is the first one out of our box: a woman in the Bronx has allegedly been married at least 10 times. What makes this extra newsworthy (and of keen interest to investigators) is that, according to an article in the New York Times, the woman doesn’t seem to concern herself with the small detail of properly (legally) ending her previous marriages before taking on each new husband.

At least one of the husbands, a soon-to-be ex, has finally gotten around to divorce proceedings — which might be what brought this odd scenario to light. There isn’t a lot of detail to go on as to what, exactly, Liana Barrientos seems to be doing with her serial weddings spree. However, for her, the case is no laughing matter. The NYT article points out that she is facing felony fraud charges. The fraud allegations stem from her false claim (via a marriage license) that she had not previously been married.

Perhaps she didn’t understand the question on the marriage license. Too bad it didn’t say “How many times have you been married this month?“