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ISSN : 1875-4120 Brazilian Car Wash Operation: Petrobras Case Issue : Vol. 17, Issue 6 by M.L. Labate Mantovanini Pádua Lima and
Published : October 2020 P.C. Goldschmidt
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Brazilian Car Wash Operation: Petrobras Case
Maria Lucia L. M. Padua Lima* and Paulo Clarindo Goldschmidt**
Abstract
The purpose of this paper is to examine the case of Petróleo Brasileiro S.A. (Petroleum of Brazil -Petrobras); the largest mixed capital Brazilian company. Founded in 1953, the company is currently the focus of major corruption investigations in the so-called Car Wash Operation. The severe crisis caused by the systemic corruption that affected Petrobras has created a domino effect within the whole oil and gas extraction and production chain in Brazil, leading to a contagion effect throughout the Brazilian economy. To illustrate the systemic corruption developed in Petrobras during the years of the PT governments (2003- 2016), this paper will feature the Pasadena case, an emblematic corruption scheme. Besides this case, many additional ones also occurred during the PT period. The correlation between all of these cases is their determination to use Petrobras with the ulterior purpose of corrupting the Brazilian democratic institutions, without neglecting the personal enrichment of the superiors. Petrobras was one of multiple companies to suffer the abuses of PT's mismanagement.
1. Introduction
The purpose of this paper is to touch on the Car Wash Operation, launched in March 2014, by Brazilian Federal Prosecutors.1 This Brazilian operation is considered the largest anti- corruption procedure in the world. At the beginning, the focus of the investigations was the largest mixed-economy company in the country: Petrobras.
As the Car Wash investigations were carried out, the operation spread to several other targets, not only in Brazil, but also in more than 12 countries through international cooperation agreements. The amount of funds diverted from mixed capital companies such as Petrobras and from other state-owned companies, public institutions, infrastructure projects, public companies’ pension funds and other economic activities with some degree of state intervention is in the trillions. The figures related to this operation provide more accurately the extent of the corruption crimes investigated so far. Thus, more than US$ 1 billion has been returned to the public treasury, US$ 500 million provided for compensatory fines arising from collaboration agreements; US$ 40 million for voluntary waiver values of defendants and US$ 3 billion are expected to be recovered.2
2. Car Wash Operation: Highlights
In the early 1990s, Brazil made an enormous effort to return to the international economic scene once the 1980s foreign debt crisis was overcome and the Real Plan3 controlled the
* Maria Lucia Labate Mantovanini Padua Lima, professor at FGV DIREITO SP. ** Paulo Clarindo Goldschmidt, professor at FGV DIREITO SP. 1 Ministério Público Federal do Brasil (Brazilian Federal Prosecutors)
1
process of accelerated inflation4 stabilizing the Brazilian economy. As part of this effort, Brazil adhered to the most important international conventions/treaties in order to curb corruption. Accordingly, the country joined the Inter-American Convention against Corruption (IACAC- 1996/2002); the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (2000), the United Nations Convention against Corruption (UNTC 2003). At the same time, the country also endorsed the recommendations made by the US Securities Commission (SEC). It was very clear for the Brazilian government authorities that to be part again of the international economic community and attracting foreign direct investments (FDI) was mandatory not only for solving the foreign debt and inflation problems, but also for embracing the international anticorruption regulation. Consequently, it was necessary to update the national legal framework and develop institutions to combat corruption.
It is important to stress the international business environment in favor of anticorruption measures, adopted mainly since the last decade of 20th century, in order to better understand how it was possible to have an anti-corruption operation of the Car Wash magnitude during corrupt governments.5
Another important point to note is the understanding of the Car Wash operation regarding the corruption character existing in the country during the PT governments.6 Built on the conception of systemic corruption7, the Car Wash operation has been working based on the insight that the adoption of corruption practices permanently, centralized, and widespread on the government activities, are the main characteristics of Brazilian Corruption from 2003/2016. This form of corruption has to be distinguished from the traditional corruption that occurs even in many democratic political regimes: the adoption of individual bribery practices with the purpose of electing or reelecting candidates during the election period.8 In
4 The inflation rate average from 1980 to 1994 was 450% per year, with a peak of 80% per month in March 1990. 5 Joaquim Falcão appointed some reasons for the success of the Car Wash Operation under the 13th Federal Court of Curitiba as; “Judges, prosecutors and delegates are young, well paid, hold their positions on merit and in the light of the Democratic State of Law; they use technology a lot and know how to deal with "number intelligence"; they make use of international partnerships in search of information; they realized that corruption is not restricted to Brazil; they employ plea bargaining and leniency agreements. With these instruments they have achieved a flow of information that drives the process and at the same time expands it; they focus on the facts and not on legal abstractions, making the work of defense lawyers difficult; and they have the impartiality of Judge Sérgio Moro, whose agenda is the fight against corruption.” See
2
both cases, however, corrupt agents can and usually do benefit from the outcomes of their criminal action.
Officially the Car Wash Operation was launched in March 2014 by the Brazilian Federal Police (BFP), based on a money laundering investigation which started in 2008. The original investigation had been initiated due to a businessman’s complaint against José Janene, a former federal congressman9 with the participation of a doleiro10, both from the state of Paraná and already known by the police authorities for other misconducts. Consequently in 2011, the investigation was transferred to the city of Curitiba (Paraná). Although slowly, the BFP in Curitiba analyzed bank documents (the money flow) and monitored some doleiros concluding that part of the paying sources in the money laundering investigation came from a gas station in Brasilia owned by a well-known doleiro.
In Paraná, the case was under the 13th Federal Court of Curitiba headed at time by Judge Sergio Fernando Moro. In 2013, the court issued an authorization for a confidentiality breach of the telephone’s and electronic correspondences of the doleiros. These measures made possible to identify the payments in cash to several politicians through the doleiro’s gas station in Brasilia. The doleiros modus operandi inspired the name of the operation: Car Wash.11 After BFP launched the Car Wash Operation in March 2014, the Federal Prosecutor's Department in Curitiba (MPF/Curitiba) organized a prosecutor’s task force to act on the case.
This first phase of Car Wash operation pointed to the actions of four doleiros. The BFP and the MPF monitoring Paraná doleiro’s telephone and e-mail led to the operation’s second phase and to the name of Paulo Roberto Costa, Petrobras’ Supply Director from 2004 to 2012. Paulo Roberto Costa was imprisoned from 20th March to 19th May 2014.12 At the time, it was already clear the intense relationship (various illicit businesses) between Mr Costa and the doleiro Albert Yousseff, and also the association with José Janene previous denounced by a businessman in 2008. Not coincidentally, this former congressman had appointed Paulo Roberto Costa to be director of Petrobras in 2004.
Despite Mr Costa’s release in May, 2014, information sent by the Swiss Public Ministry was determinant to the reinprisonment of Mr Costa in June 2014. After two months in prison, he decided to collaborate with the investigations and detailed how the scheme worked.13 Mr Costa’s plea bargaining was the first of its kind, and considered crucial for the Car Wash Operation.
The summary of the criminal scheme started to be unveiled from Mr Costa’s plea bargaining and is briefed by MPF as follows: “In this scheme, which lasted at least ten years, large contractors organized into cartels paid bribes to Petrobras’ senior executives and other public officials. The amount of the bribes varied from 1% to 5% of the total amount of overpriced
9 This congressional representative, José Janene, was involved in another corruption scandal called Mensalão (2003-2006). PT government paid monthly installments to part of the congressman in order to obtain their votes for executive initiative. 10 Illegal currency (US dollar) exchanger. 11 Brazilian Federal Police (BFP) has the habit of naming their operations with suggestive and very original names. 12 On May 19th, 2014 Paulo Roberto Costa was released through habeas corpus granted by the Federal Supreme Court (STF). 13 For Mr Costa’s plea bargaining see 3 contracts. These bribes were distributed through the financial operators of the scheme, including doleiros investigated in the first stage.”14 Therefore, the operation that had begun with the doleiros’ money laundering investigation was radicalized through the input from a former Petrobras director, and intensified in subsequent years. In the first year of the Car Wash Operation, seven investigation phases were carried out, most of which (five phases) focused on the relationship between doleiros and Petrobras executives. In November 2014, a few days after the final round of Brazilian presidential election15, the seventh phase of this operation reached, for the first time, the major Brazilian contractors. Early in 2015, in January, another Petrobras director was arrested in the eighth phase of the Car Wash Operation. During this year, there were fourteen more phases of the Car Wash Operation, the focus of which continued to be Petrobras, but already with relevant developments for high PT members and another large state-owned company in the electric power sector. In this year, the Chief Cabinet Minister of the first PT government and the PT treasurer were arrested under the accusation of corruption, money laundering and gang formation. Consequently, in 2015 the Car Wash Operation made important advances regarding the investigation about the relationship among government entities as Petrobras, the ruling political party and private sector. No less important, the year was marked of an accelerating economic deterioration and huge mass demonstrations in favor of the Car Wash Operation and against the PT government. The degradation of the main economic indicators already presented in 2014 was sharply accentuated in 2015. The controversial reelection of the PT ruler and the maintenance of economic policy have thrown the country into a severe recession, raising unemployment and inflation, making public deficit and debt out of control and generating extremely negative expectations.16 So far, the peak of the Car Wash Operation was in 2016 when 16 new phases were launched and the modus operandi of the systemic corruption that took over the country from 2003 to 2016 was synthesized. That year, the Car Wash Operation officials drew the connections linking the government; the ruling party (PT) and its allies; employees of state-controlled companies; the private business sector; doleiros, banks and offshore companies for money laundering and illicit actions in the electoral and legislative processes in the country. The first international investigation was also established under the Car Wash Operation scope in 2016. Prosecutor Mr Deltan Dallagnol,17 the head of Car Wash Operation at MPF, declared on September 2016 that the chief commander of the corruption system identified in the Car 14 4 Wash Operation was Luis Ignácio Lula da Silva (Lula)18, aformer Brazilian President from 2003-2010 and the PT supreme leader. According to the MPF, “Lula was the common link between the party and the government scheme”.19 Mr Dallagnol exposed the MPF thesis surrounding the corruption engineering at Petrobras20 during PT governments. Four groups of agents formed this corruption engineering: i) political unit composed by the Federal Government plus PT and allied parties, ii) administrative unit formed by Petrobras officials, iii) business unit made up by Petrobras suppliers, and iv) operational unit composed by financial operators (Doleiros) and shell companies. Source based on p.72 http://estaticog1.globo.com/2016/12/15/denuncialula.pdf Suspicions about the results of the 2014 presidential election, the astonishing outcomes of the Car Wash Operation's investigations and the unmistakable economic deterioration led to 18 Brazilian President from 2003-2010. 19 “In this criminal scheme, Lula dominated all the structure he set up, with full powers to decide on his practice, interruption and circumstances. The scheme lasted for at least a decade. Several people close to Lula and the PT summit, who were part of this criminal arrangement, have already been denounced for their involvement in corruption and money laundering crimes, reinforcing the partisan and vertical character of the criminal scheme. Among them are former Ministers of State (such as José Dirceu de Oliveira e Silva, who was once considered the second largest authority in the country, as Lula's right-hand man), ex-treasurers of PT (as João Vaccari Neto), Presidential campaign marketers (such as João Santana), and people of extreme confidence from the former President of the Republic (like José Carlos Bumlai See 5 increasing dissatisfaction of the PT government. This discontent came to be demonstrated in spontaneous protests of Brazilian society shortly after the 2014 election continuing in 2015 and the beginning of 2016. This period was marked by gigantic peaceful demonstrations throughout the national territory demanding the impeachment of the PT president and the arrest of those responsible for systemic corruption that was causing the destruction of the country. The popular movement against the PT government and in favor of Car Wash gathered millions of Brazilians in numerous demonstrations around the country until the president impeachment process was completed in August 2016. In this political process, the figure of Judge Sergio Moro came to represent the struggle of the majority of Brazilians against the PT government's misconduct, not only regarding systemic corruption but also in the fiscal/economic area. The main legal argument for the impeachment of the PT president was based on the non- compliance with the fiscal rules established by the fiscal responsibility law approved21 in the midst of the economic stabilization reforms of the country in the 1990s/2000. After the impeachment approval in the Brazilian Congress, a long process for economic recovery in the country gradually began. The transitional government from 2016-2018 referred urgent measures to Congress to control public spending and proposed structural reforms to restore public accounts. Many important measures were also taken to rescue Petrobras for a critical financial situation. The Car Wash Operation stayed active in the following years focused on Petrobras but equally important in other areas of systemic corruption as roads and infrastructure projects, state-owned companies, pension funds and Brazilian constructors’ international operations. At beginning of 2018, a presidential election year, the PT former President Lula, after a long judicial battle, and being convicted in the first and second justice instances, was sent to prison. PT used extensively this fact to protest against the country's judicial system and to claim that the arrest of its supreme leader was solely and only to prevent PT to return to power. During the 2018 election process, the candidate Jair Bolsonaro - a congressman considered a right wing politician - began to gain space even with the traditional media’s fierce campaign against him. In September 2018, one month before the first round election, Mr. Bolsonaro was seriously stabbed during a political rally. The candidate survived and recovered after undergoing four delicate surgeries. In November 2018, Mr. Bolsonaro was elected as the Brazilian President for the period 2019-2022. The new president invited Judge Sergio Moro to be the Minister of Justice in his government. In order to accept this invitation, Judge Sergio Moro resigned from his 20-year career in the judiciary. 21 LEI COMPLEMENTAR Nº 101, DE 4 DE MAIO DE 2000 6 The acceptance of the post of Bolsonaro’s Government Minister of Justice intensified the opposition by PT and allies to the former judge who had commanded the Car Wash Operation and condemned the supreme leftist leader in the first instance. For example, the illegal leak of conversations between the former judge and Car Wash Operation prosecutors were used to try to substantiate the PT political persecution thesis. Nevertheless, the Car Wash Operation is still active; having performed 12 different phases in 2019, many of them based on the plea-bargaining made by a high official and former Minister of the Economy in the PT governments. During the last almost six years of investigation of the Car Wash Operation resulted in 1,400 law suits, 300 persons confined (preventive and temporary), 70 plea bargaining agreements, 160 criminal charges for crimes as corruption, money laundering and establishment of criminal organization, the operation up to December 2019 has 70 phases termed with curious. See names listed below.22 Until December 2019, Lula had been considered a defendant in five lawsuits under the Car Wash Operation and two other processes related to this operation. The common ground of all these accusations is the fact that the resounding criminal scheme led by PT governments, was not only for illicit enrichment, but also expressly to achieve governability based on corrupt practices and criminal perpetuation in power. The change of understanding of the Supreme Court (STF) about the moment a convicted person should start serving sentence in prison benefited Lula ensuring his releasing in November 2019. However, all the judicial proceedings against him remain in courts. 3. Car Wash Petrobas Case Since its founding in 1953,23 Petrobras has been considered a very important pillar of Brazil's development strategy. Controlling the production and refining of the epicenter raw material of the energy matrix was essential for a country that had decided to become a developed nation. In the prevailing development view, the country should support its strategy on a tripod: international, state-owned, and national companies. In the oil industry case, only a state-owned company could guarantee autonomy of Brazil's development process. The perception of the Brazilian economic strategy was however gradually developed over the decades, and especially after some relevant milestones; the re-democratization of the country in 1985, the overcoming of the 80’s debt crisis and the Real Plan in 1994. Shortly after the 22 For example: Dolce Vita; Doomsday; My Way; Erga Omnes; Radioactivity; Nessum Dorma; Alethei; Pirro's Victor; Addiction; Abyss; Ghostbusters; Omertà; Déjà vu; Pentiti; Tango & Cash; Mine Map 23 Law No. 2004 of October 3, 1953, established the state oil monopoly company called Petroleum of Brazil (Petrobras). Getulio Vargas, then president of Brazil, created Petrobras and designated General Juracy Magalhães as president of the newly created company. The military structure of the company based on meritocracy was maintained during the following decades, having been reinforced during the Brazilian military regime (1964-1985). This Petrobras military structure was renovated in the second government of President Fernando Henrique Cardoso (1999-2003) but it kept the same meritocracy principle. Nevertheless, in 2003 the first president of the Partido dos Trabalhadores (Workers Party- PT), Lula da Silva, abandoned the merit criterion replacing it by the loyalty to the Party (PT) and participation in the union structure. From the beginning until then, being part of Petrobras was a pride and proof of competence. The admission of the personnel was only made through much disputed national contests. During more than 50 years being part of Petrobras meant meeting the highest development goals in the country 7 beginning of Fernando Henrique Cardoso's24 first term in 1995, by means of constitutional amendments25, the complete state monopoly over oil and gas was ended. According to this constitutional amendment, the Brazilian Government could authorize or give concessions to private individuals and/or Brazilian companies to develop the exploration, production, transportation, processing, import and export of oil and gas. At this time, Petrobras ceased to be an exclusively state-owned company and became a mixed capital company. In 1997, the regulatory framework26 of oil and gas in the country was changed and permitted the opening of the sector to private investments. This new law also created a regulatory agency, called Agência Nacional do Petróleo, Gás Natural e Biocombustíveis - ANP. The capital restructuring in Petrobras was followed by a renewal of its management. It was essential to modernize the company administration in order to face the new reality imposed after the legal changes mentioned before.27 To modernize and improve Petrobras’ corporate governance several measures were taken as: i) elaborating the company's strategic plan and business plan, ii) working out international standards to guarantee competitiveness and profitability, iii) opening capital for national and international private investors,28 iv) increasing domestic competition in the refining area, and v) introducing rules for filling management and board of directors positions in order to ensure the use of technical criteria. As seen later, the adoption of modern corporate governance was not enough to preserve the company from the systemic corruption that affected the country between 2003-2016. Lula won the elections in October 200229, and the Petrobras’ management changed drastically. With Lula in command, the Minister of Mines and Energy, Dilma Rousseff, and the Minister Chief Staff, José Dirceu de Oliveira e Silva, were in charge of choosing names for the first and second levels in the company. They also approved persons appointed by the leader of the Oil Workers Union- Federação Única dos Petroleiros (FUP)30 for strategic positions in the company structure. Never before had Petrobras changed so many management positions at one time. Most of these positions were held by trade unionists who even though were Petrobras employees, had never held management positions before. Consequently, the complex company’s human resources, based on meritocracy, was totally distorted. 24 Fernando Henrique Cardoso (FHC) was elected in 1994 based on the great success of the economic stabilization program (Real Plan) conducted by him as Minister of Finance of the Itamar Franco Government. His party government program was explicitly market friendly. The main opposition party (PT) was totally contrary to both the stabilization plan and the liberalizing economic reforms perpetrated during the two FHC mandates (1994-2002). 25 Constitutional amendments Nos. 5 and 9, both of 1995. 26 Law No. 9,478, of 1997 8 Petrobras’ president, PT unionist José Dutra, continued to state that the best practices of corporate governance conceived by previous administrations would be preserved. In fact, it was a general strategy of Lula’s first presidential term: swear that PT members would not follow the party’s principles. In this sense, the first PT government made many efforts to overcome the negative reaction of the market by reaffirming the economic policies tripod (flexible exchange rate regime, inflation targeting regime and primary fiscal surplus) would be preserved. Cases to illustrate the systemic corruption developed during the years of PT governments (2003-2016) abound. Pasadena case described below has become quite well known and emblematic. Certainly not for the amounts involved, considered modest in the scale of other cases, but for the international repercussion and unquestionable impudence. Besides this emblematic case, many others occurred during PT period in several other mixed and state- owned companies, public institutions. Infrastructure projects, pension funds and other economic activities with some degree of state intervention. 4. Financial Effects of Corruption on Petrobrás and an Emblematic Example Since its creation in 1953, Petrobras had been a profitable company. The only exception of its profitable history was in 1991 when the company reported a loss of US$ 237 million after 37 years of continuous profit. Furthermore, the reason for this loss was a political one. Faced with an inflation rate of more than 1,100% in that year, the government used the “fuel account” to avoid increasing the domestic price of fuel in order not to affect even more the inflation rate. At that time, Petrobras produced 650 thousand barrels per day and had to import an additional 600 thousand per day to cope with the domestic demand. In August of 1991, the company was losing US$ 2 million per day due to the difference between the international fuel price and price that was practiced in the domestic market.31 The company returned to operate in the profit arena from 1991 onwards until the Car Wash Operation showed the deleterious effect of corruption in the largest Brazilian company. From 2014 to 2017, Petrobras reported a loss of R$ 71.6 billion, which is equivalent to US$ 20.9 billion (see Table below). Year Loss in R$ billion Equivalent in US$ billion32 2014 21.6 8.12 2015 34.8 8.10 2016 14.8 4.55 2017 0.4 0.12 These losses include both costs directly accepted by the company as part of the corruption scheme, as well as, costs associated to impairment of company assets due to wrong investments decisions made during the last 15 years. 31 Roberta Paduan, Petrobrás: Uma história de orgulho e vergonha (Editora Objetiva 2016). 32 Exchange rate used was the dollar equivalent to the last business day of each respective year from 2014 to 2017 9 In respect to the accepted corruption losses, the company established a fixed assumption of 3% overprice in all contracts signed by the company between 2004 and 2012 and, as consequence, applied a loss of R$ 6.2 billion in the financial statements of 2014.33 The 3% overprice figure was established as a result of some plea bargain agreements signed by former Petrobras executives directly involved in the corruption scheme. Of course, the exact figures of the amounts embezzled by these persons will never be known. Some analysts say that the overprice in Petrobras contracts could reach 20%, what would bring the total loss to R$ 43 billion. In addition, the real destination of the money which was appropriated fraudulently through overpricing contracts is still not entirely known. The losses due to impairment in Petrobras were also of enormous magnitude. An impaired asset is an asset whose market value is below book value. Generally, an asset impairment occurs when a company pays more than book value for a set of assets and later lowers the value of those assets. Numerous factors could lead to the reduction in value of an asset. Wear and tear, poor management, new competition, technological innovations, market price fluctuations, could all result in an asset becoming less valuable. Corruption also may lead to impairment of assets. Buying an asset for a price above its market value may be a form to generate cash flows to persons taking advantage of their positions in high management of state-owned enterprises. From 2014 to 2017, Petrobras had made a write-off in its assets in the amount of R$ 116.4 billion, equivalent to US$ 36.4 billion, following the results of the Car Wash Operation. Overpriced investments in assets, bad management, price fluctuations in oil prices were some reasons for the impairment. Only in two Brazilian refineries – Abreu e Lima in the State of Pernambuco and Comperj in the State of Rio de Janeiro- the effect of the impairment was R$ 30.9 billion (US$ 11.7 billion) in 2014. One of the most emblematic cases of corruption and wrong (maybe purposeful) management decisions is the case of Pasadena refinery described below. It is interesting to mention this case has gained a lot of notoriety even though it represents quite modest values compared to Petrobras' numerous other appointed by Car Was Operation as fraudulent investments during 2003-2016. Pasadena represents one of the worst deals ever made by the Brazilian government ever. After Petrobras had paid, since 2006, US$ 1.18 billion for the total refinery acquisition, Pasadena was resold to Chevron in the beginning of 2019 for just US$ 467 million. In addition to having a loss of more than US$ 700 million, this sale involved a lot of additional issues.34 Having a refinery in US was always in Petrobras plans. The company´s long-term strategic plan, defined in the beginning of the 90’s, had already established the goal of acquiring a refinery in US, in order to produce oil of better quality than the one which was produced in Brazil. 33 This amount was equivalent to US$ 2,5 billion. 34 10 Being located on the Houston Ship Channel - one of the most important waterways in the US - Pasadena refinery has great value. The oil refining capacity is 110,000 barrels per day. The refinery was founded in 1920 by one of the companies of the former Rockefeller empire, which controlled, at that time, 88% of the oil refining in US. However, Pasadena became old and hence the target of several operational problems, many related to environmental issues. To make matters worse, in 2016 the refinery suffered a fire. Texas environmental groups filed a lawsuit in the United States for violations of pollution limits. Nevertheless, quite well before that fire happened the negotiation involving the company was made. Here is where the systemic corruption installed in the Brazilian Government since 2003 showed its real face. The story is appalling. In 2005, Belgian Astra Oil paid for the entire refinery US$ 42.5 million. So far, it seemed like a great deal to the Europeans. Nonetheless, the following year they made an even better move. They resold to Petrobras 50% of the company for US$ 360 million. The amount received by Astra for half of the plant was almost nine times higher than they had paid for the entire refinery, just one year before. The justification of the Brazilian state-owned company to carry out the transaction was based on the need for the company to expand oil production to serve mainly the foreign market. The contract signed by the parties had several clauses. Two of them eventually turned into the confusion that led the Brazilian company to buy the other 50% for an even more stratospheric value. The clauses in question were called Put Option and Marlim. The Put Option clause established that in the event of disagreement between the partners, the other party would be required to acquire the remaining 50% of the shares. In the Marlim clause, Petrobras guaranteed to its partner Astra Oil a profit of 6.9% per year. In 2008, the partners had a disagreement related to a dispute over the investments to be made in the refinery and the case ended up in US justice. According to a note published that year by Petrobras, Dilma Rousseff (then Brazil’s Minister Chief of Staff of the Presidency and member of Petrobras Board) questioned the two clauses of the contract: Put Option and Marlim. What is interesting to notice is that only in 2008, two years after the contract was signed, she had argued against the two clauses, although she had been member of Petrobras Board since 2003. The questioning would have helped to increase the quarrel between the Belgian and Brazilian partners. The US court decision was released in 2010. A Texas federal judge ordered Petrobras to buy the remaining Astra Oil's shares, thus enforcing the Put Option clause. Petrobras appealed for disagreeing with the ruling, but lost the dispute also in the New York International Chamber of Arbitration and in US Superior Courts. What was already bad continued to worsen. The Arbitral Chamber determined that the Brazilian state had to pay for the other half of the society US$ 466 million. Another US$ 173 million was added corresponding to the reimbursement of part of a bank guarantee provided to the company by the partners, plus interest, fees and procedural expenses. As Petrobras appealed and only settled the debt two years later, in 2012, more interest and legal costs were added to the final invoice amount. The bill came to US$ 820.5 million; this for the other 50% of Pasadena refinery. The Pasadena refinery's total cost to the Brazilian coffers reached US$ 1.18 billion. In other words, Petrobras has paid more than twenty-seven 11 times what Astra had disbursed for the refinery seven years before. The case turned into a scandal when disclosed by the Car Wash Operation. When the Brazilian oil company began to negotiate the purchase of the first part of the Belgian partner, former President Dilma Rousseff was the Minister Chief of Staff in the Lula administration and also President of Petrobras Board of Directors. As a counselor, Dilma voted in favor of buying the first block of 50% of the shares in 2006. The former president has always defended herself, alleging after the opening of investigations in the Federal Court of Accounts (TCU), Federal Police and Public Prosecution, that she only approved the purchase of the first 50% because the report presented to the Board by Petrobras executives was "flawed". "According to her, the documents presented to the Board omitted the two clauses of the contract, Put Option and Marlim, which ended up generating more expenses to the company. Confronting her statement, Petrobras executives who signed the plea bargain agreement confirmed that the Board had full knowledge of both clauses. As Pasadena was finally sold in 2019, this case will probably be forgotten in the near future. The main executives of Petrobras involved in the scandal, after agreeing to sign a plea bargain with Brazilian Federal Prosecutors, returned some amounts diverted from the overpriced contracts to the coffers of the company and were released from jail. No penalties were imposed to the members of Petrobras Board who had approved the deal. 5. Final remarks Pasadena was one of many scandals in Petrobras and in other Brazilian’s state-owned companies, public institutions, infrastructure projects, pension funds and other economic activities with some degree of state intervention due to the systemic corruption that knocked down the country in the last 15 years. According to the Car Wash Operation, the common ground of all these cases is the determination of a political party to perpetuate its control over Brazil.35 The diversion of resources had the purpose of corrupting Brazilian democratic institutions without neglecting the personal enrichment of its leaders. On the other hand, PT and its supporters attributed to the Car Wash Operation the responsibility for the destruction of value of Petrobras as well as for the severe Brazilian economic downturn. In their opinion, the Car Wash Operation, under the leadership of Judge Sergio Moro, had been unleashed by the political enemies of the left wing, represented by its top leader Lula da Silva, in order to allow the right wing to return to power. As part of this narrative, Dilma Rousseff’s impeachment in 2016 was a coup d'état and Lula’s arrest in April 2018 was a ruse to exclude him as the victorious candidate of the October 2018 elections. For them, the election of President Bolsonaro in 2018 was illegitimate and based on fake news spread by robots across social networks. 35 In this case, the political party, which was ruling the country, was the Partido dos Trabalhadores (PT) or Workers Party which ruled Brazil between 2003 with the election of Lula until August 2016 when President Dilma Rousseff was impeached and removed from office. 12 However, since Dilma Rousseff’s impeachment in 2016, the Brazilian Economy has been recovering.36 Important economic reforms have been approved and Petrobras is following the same virtuous path. Regarding the combat of corruption, there were setbacks and advances. In general, it was considered negative the decision of the Supreme Court (STF) in November 2019 to change its own 2016 understanding related to when should a defendant start serving his/her sentence37 in prison. As a result, a defendant able to hire good lawyers can procrastinate serving his/her sentence in prison for long years until the crime(s) prescription. On the positive side is worth to mention the approval by Brazilian Congress of the Anti- Crime Law proposed by the Minister of Justice Sergio Moro38; and the law project proposal in the Congress to reverse STF decision regarding the possibility of arrest after decision in the second instance. 36 For example, inflation rate 2015: 10,97% a.a and 2019: 3% a.a; interest rate 2015: 14% a.a and 2019: 5%a.a.; Brazilian Country Risk 2015: 830 points; 2019: 138 points; GDP 2015: -3,8%; 2019: 0,9%; IBOVESPA (Brazilian Stock Market Index) 2015: 38.000; 2019:114.000; 37 This decision was responsible for Lula’s release from prison. It also promoted the release of several other convicts in corruption cases. 38 Judge Sergio Moro was appointed as Minister of Justice and Public Security by President Bolsonaro in January 2019. In order to accept this position, he resigned his career as judge. 13