Brazil's Petrobras Scandal Keeps Rattling Brazil More Than A Year Into Probe

The fallout from the corruption scheme encircling Brazil’s state-run energy company, Petrobras, is reaching new heights after authorities arrested two seemingly untouchable construction giants last week. Roughly a year since the scandal began unfolding before the public, the ongoing investigation has ensnared a slew of company executives and politicians, leaving a trail of political destruction in its wake.

Petrobras once symbolized Brazil’s hopes for becoming a global economic force to be reckoned with. In 2007, the company made a massive oil discovery off the coast of Rio de Janeiro, raising speculation that Brazil could soon emerge as an oil superpower. Eight years later, the company’s expansion plans have all been halted, while Petrobras itself has become deeply associated with the ills of corruption in the country.

The scandal broke open in March 2014, after Paulo Roberto Costa, a former Petrobras top executive, was arrested as part of a government probe into money laundering. Authorities had been investigating a money-laundering trail related to Alberto Youssef, a black market currency dealer, which led them to discover irregularities in Petrobras’ dealings and eventually to Costa. Shortly afterward, Brazil opened a congressional inquiry into the corruption scheme.

In September, Costa began testifying about the scandal as part of a plea bargain deal. He told investigators that he, along with several other executives, helped exaggerate the value of Petrobras’ contracts with several construction companies and paid 3 percent commissions to politicians to keep the deal under wraps. All these activities occurred while he was working at Petrobras, from 2004 to 2012, Costa said. Earlier this year, both Youssef and Costa were convicted and sentenced to prison terms over the scandal.

Youssef, himself under arrest, also had a plea bargain deal with authorities and turned over several names on his own. According to Brazilian magazine Veja, Youssef testified that President Dilma Rousseff, who was chair of Petrobras’ board at the time of the alleged misdeeds, knew about the illicit activities, a claim she vehemently denied. So far, there has not been any evidence to back up Youssef’s claims, and Rousseff and former President of Brazil Luiz Inacio "Lula" da Silva haven’t been targeted in the investigations. She won re-election as president in October by a thin margin against challenger Aécio Neves.

But Rousseff’s popularity has suffered deeply as a result of the crisis and economic stagnation in the country. Her approval rating stood at 42 percent in December, shortly before her second presidential term began. In June, it fell to just 10 percent, according to Brazilian newspaper Folha de Sao Paulo. Meanwhile, opposition protesters have taken to the streets on several occasions to demand her ouster.

Police began arresting and charging several executives from Petrobras and major construction firms, along with Workers’ Party politicians, for alleged connections to the scheme. Among some of the high-profile targets were Renato Duque, Petrobras’ former services director; Nestor Cerveró, former director of Petrobras’ international division, and Workers’ Party Treasurer Joao Vaccari Neto.

Petrobras CEO Maria Maria das Graças Silva Foster also resigned in February in the face of mounting pressure over the scheme, although she was not herself implicated and has denied that she knew anything about the activities. She was not CEO during the period of time under investigation, but she was a top Petrobras executive. She has since been replaced by Aldemir Bendine, former president of the Bank of Brazil.

On Friday investigators nabbed two other big fish: Marcello Odebrecht and Otavio Azevedo, the CEOs of Brazilian construction giants Odebrect SA and Andrade Gutierrez SA, respectively. Neither has yet been charged, but federal police said in a statement Friday that they were both deeply involved in the scheme. “Odebrecht’s voice in the cartel of businesses that operated in Petrobras had the power of decision,” Federal Police Commissioner Igor Romário de Paula told reporters at a press conference.

Odebrecht’s arrest brings the case closer to former President Lula, given a parallel investigation over accusations Lula helped the company secure contracts abroad by using his diplomatic influence. That investigation is still in preliminary stages, and officials will decide in the next several weeks whether to go ahead with a full probe.

Meanwhile, Petrobras has taken a severe financial hit, made worse by last year’s drop in global crude oil prices. In April, Petrobras recorded 6.2 billion reais ($2.1 billion) in losses directly from the scandal, with a total net loss of $7 billion for 2014.