Opinion: Uncle Sam Wants You! a Smidgen

Opinion, by Michael Royster

RIO DE JANEIRO, BRAZIL – One of the little noted features of the “Lava-Jato” scandal has been the influence of US law. This influence affects not only the investigations, but perhaps also the future of public works in Brazil. The Curmudgeon will explain.

“Plea bargaining”, where one criminal “blows the whistle” on others in exchange for a reduced sentence has long been a useful tool in U.S. criminal prosecutions. It was rarely used in Brazil, but has now become the principal “carrot” offered by the public prosecutor, while brandishing the “stick” of jail time at “malefactors”.

Another feature of U.S. law is that both the SEC (a regulatory agency) and the DOJ (Department of Justice) have the power to investigate any company with securities traded in the United States. Petrobras stock trades there and several huge Brazilian construction companies issue bonds in the US. Brazilian executives don’t want to face Uncle Sam.

Under U.S. law, the SEC regulates all large auditing companies based in the U.S., and does not hesitate to go after them when it suspects their audits have not been thorough enough. Petrobras accounts have been audited by one such firm which, in the face of the “Lava Jato” revelations, has refused to sanction Petrobras financials. It doesn’t want to face Uncle Sam.

The future is looking brighter, though, for large U.S. construction companies. The Brazilian cartel members have long been protected against competition from abroad by their government. But, once convictions are imposed on their executives, they can be declared ineligible for government contracts.

This is Dilma’s worst nightmare, because public works would grind to a halt—unless, of course, suitable foreign companies could be found to step in and carry on work here. If Brazil’s principal public works programs look like “going south”, US construction companies will soon be heading south.

Enter Uncle Sam, wearing a hard hat.

The Curmudgeon will emit more Smidgens opportunely. That’s a threat, not a promise.