Risky Business: Brazil’s Lava Jato Scandal

Brazil has become a nation defined by political backlash. Since early 2014, a regional Brazilian judge named Sérgio Moro has risen to domestic renown and international fame as the face of an investigation that has uncovered a web of corruption throughout Brazil, implicating those in the loftiest positions of Brazilian political and business life. From the 2014 arrest of Petrobras’ director of supply, Paulo Roberto Costa, to the implication of Brazil’s former president, Luiz Inácio Lula da Silva, and the suspicion of the involvement of recently impeached president Dilma Rousseff, what started as a simple corruption bust codenamed Lava Jato, or Carwash, has turned into the one of the most far-reaching scandals in Brazil’s history. As the country’s political structure and economy waver, Brazil must work to avoid three dangerous potential scenarios that could follow from the scandal.

The first big risk is that the persistence of the corruption scandal will weaken the already struggling Brazilian economy. Lava Jato first began as an investigation into bribes in the Brazilian construction industry. It proceeded to expand, leading to the implication of Petrobras, the enormous primarily state-owned oil company that is directly responsible for up to 13 percent of Brazil’s GDP. Petrobras’ involvement in such an enormous corruption scandal has clarified previously undefined questions about the impact of ethics on the economy. The impact of two years of investigations on the economy at large is extensive; Brazil’s recession continues in no small part because investor confidence has plummeted. Pension funds, as well as other forms of foreign investment, are pulling out of the politically unstable environment, which Standard and Poor’s, a highly respected credit ratings agency, attributed to Lava Jato when it downgraded Brazil’s credit rating. Petrobras has directly contributed to weaker growth due to poor leadership, a plunging stock price, and bad vibes from investors that have resulted in lower capital expenditures and thousands of layoffs.

However, the worst is not necessarily over. While Brazil’s interim president, Michel Temer, has been lauded for appointing accomplished technocrats to oversee the economy, he was also implicated in the Petrobras scandal for illegally asking for campaign contributions. As easily as one president might return the reigns of the economy to orthodox leaders, another might reverse these gradual improvements with new, worse qualified appointees. If Temer loses his position, his name and legacy will be tarnished, making allies like Finance Minister Henrique Meirelles weaker, thus endangering the safe, conservative policies that they defend. In this case, the zealous pursuit of justice against Temer could turn a struggling economy into a disastrous one.

The second risk is more remote than financial weakness, but could also be more impactful. Brazil, like many countries, has a dangerous history of responding to crises by overcorrecting for flaws. Brazil’s 1964 conservative military coup was designed to enact economic reforms, but good intentions were pursued too radically and rapidly produced miserable results, leading to national democratization in 1979. Twenty years later, following a swing back to highly redistributive policies under Lula da Silva, corruption and ineptitude have once again come to define the country’s political scene. Dilma Rousseff, da Silva’s successor, was impeached this year following accusations that she was aware of impropriety within her party and cabinet and tried to protect allies from investigation. The official reason for her impeachment was the relatively minor “window dressing” of Brazil’s economic numbers, making her term look more successful than it had actually been ahead of an election. But her impeachment swung the pendulum towards demagoguery and ineffectiveness.

When new forces defined in opposition to the status quo gain power, they run the risk of being corrupted themselves and recklessly throwing out the strongest policies of their opponents.

When new forces defined in opposition to the status quo gain power, they run the risk of being corrupted themselves and recklessly throwing out the strongest policies of their opponents. This has happened repeatedly in the past, and Brazil should be wary of making the same mistakes once again. Not only did Rousseff’s impeachment strike some as rather coup-like, Moro himself violated ethics and the law while pursuing this case. The public release of wiretapped conversations has been criticized as one mistake in an otherwise exemplary job, but it also indicates that Moro has both the influence and desire to manipulate public opinion. As recent regional elections show, the old guard of experienced politicians and the parties they represent largely lie dead at his feet. Moro may have cracked a few skulls together, but the system he is fighting has not changed at a structural level. Another politician — or indeed, Moro himself — might convert the public backlash into more instability and unproductive turmoil. In the current political vacuum, there is nothing to prevent, say, a boorish, conservative reality television and real estate mogul with no experience or policy chops from sweeping up disenchanted voters in a bid to gain power without changing anything. Brazil has a smorgasbord of potential candidates waiting in the wings for such an opportunity, from the ultra-right wing mayoral candidate Flávio Bolsonaro to Sao Paulo’s new mayor, João Doria.

But perhaps the most likely of the challenges facing the current reform initiatives is inertia. Mani Pulite, Italy’s 1992 corruption scandal, did severe damage to certain factions in Italy’s political scene, but ultimately puttered out without changing structural problems. The vigorous pursuit of one major corruption scandal was not sufficient enough to clean up the country; Italy is still riddled with corruption to this day. While Brazilian politicians have so far proven to be less resistant to judicial inquiry than their mafia-linked Italian counterparts, the real problem is still that Brazil’s justice system is both slow and broken. Even if Moro continues to pursue corrupt politicians nonstop and is successful in his immediate goals, he still will never come close to ending corruption in a meaningful way. Moro has support for a sterner reformation, but it will take a heroic effort to maintain reformist momentum once Brazil’s star judge turns away from the juicy corruption scandals to other, less explosive legal questions.

So what should be done? Moro needs to find avenues to channel his personal fame and the spotlight he has cast upon the judicial system. The court system suffers from judicial delay, high numbers of lawsuits, too many appeals, a lack of judges, corruption, and a politicized judiciary, to name a few problems. Brazil needs to capitalize on its recent adoption of Stare decisis and Certiorari legal standards. The former legal standard holds lower courts to the same standards and level of reasoning as the Supreme Court in cases that are similar, while the latter allows for higher courts to pick and choose the cases they wish to address. Now that these standards exist, judges should face swift and concrete punishment for blatantly ignoring precedent. They need to become a self-regulating class; corruption in the lower courts should be pursued with the same vigor as it is in the highest ones.

By being in the right place at the right time and following a tip about local money laundering, Moro has taken on an enormous burden. Lava Jato has opened up many potential pitfalls, but if Moro can lead the nation to a better future he will have earned a place in the pantheon of progress.

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