GENEVA – By the time Swiss regulators began to investigate the role their banks played in Brazil’s wide-ranging Car Wash scheme in June 2015, the investigation was over a year old, had dragged down some of that country’s most powerful political and economic figures, and was about to ensnare its biggest catch: Marcelo Odebrecht, CEO of the eponymous Brazilian construction giant.
The timing was not a coincidence. The construction company had, for over a decade, relied on offshore companies and on a network of bank accounts to dispense bribes. As soon as Marcelo Odebrecht was arrested in São Paulo on June 19, Swiss banks began to report suspicious activity on dozens of years-old Latin American accounts. On June 20th, more than 60 fraud alerts landed on the Swiss regulators’ desks.
Two years on, the Swiss banks that in part made possible the anonymous cash transfers that were the life-blood of the Car Wash bribery network have yet to feel much in the way of consequences – or take much responsibility. The reasons are down to both the opaque nature of Swiss banking and the unprecedented professionalism with which Odebrecht carried out its illicit scheme.
Now, however, there are signs that their ability to remain unscathed as this scandal unravels may be coming to an end as Swiss authorities take a more aggressive approach to investigating potentially inappropriate bank practices. Last year, Swiss authorities looked into over 1,000 accounts in over 40 banks in connection to Car Wash operations in Brazil and elsewhere, and froze more than $800 million.
Regulatory changes are in the works as well. The Swiss Bankers Association (SBA), for instance, are negotiating new laws that could oblige clients to reveal more about the owners of bank accounts.
“It was always the case that we request to know the beneficiaries of an account,” said the SBA’s CEO, Claude Alain Margelisch. “But we now want to go one step further, in order to have more details about these persons. Many banks apply these measures already. But we want to transform them into law.”
This would prompt a significant change in an old and established relationship. For years, construction contractors such as Odebrecht paid bribes to executives at Brazil’s state oil company Petrobras and others in exchange for their business. The payments that facilitated the quid pro quo were rarely, if ever, made in Brazil; they were filtered instead through shell companies with bank accounts abroad, including in Switzerland, that were used to hide the money’s path and the identities of those involved.
Odebrecht took this practice to new heights. Documents that emerged from the leniency deal struck with the Brazilian Attorney General’s Office on December 2016 pointed out how the company used a secret internet server in Geneva to register and coordinate the distribution of as much as $2 billion in bribes to politicians and business leaders in at least 10 countries in Latin America and beyond.
The consequences are still being felt in the region. High-ranking officials, including at least five current or former heads of state, are currently under investigation throughout Latin America and the Caribbean.
Swiss bankers claim they follow international standards and could not have known the origin of the money being processed. Nonetheless, given the scope of the scheme, this might be a time for examining the adequacy of the controls that are in place.
“We cannot have 100 percent proof that there are not criminals trying to bypass these rules,” said Herbert Scheidt, chairman of the Swiss Bankers Association. “This needs to be severely sanctioned.”
But there are examples that suggest that in some instances, banks may have known about the scheme and who they were processing payments for and rarely – if ever – asked questions.
One instance, revealed in plea bargain testimony from former Odebrecht executive Fernando Miggliaccio on December 21, 2016, identified PKB bank in Lugano as one of the banks used by the company to facilitate kickbacks. One of the bank’s account managers, according to Miggliaccio, had access to the clandestine internet server set up by the construction company and would exchange messages with Odebrecht officials on transfers and payments done on behalf of the company.
According to the former executive, Odebrecht’s name was never attached to the secret accounts at PKB, despite the manager’s knowledge of the money’s origins. Offshore shell companies were instead presented as owners of the assets. PKB charged a fee of 1.5 percent on each transfer, and the operator inside the bank responsible for administering the assets kept part of this fee for himself, according to Miggliaccio.
Managers in other banks, too, allegedly knew that secret accounts under the name of offshore companies were, in reality, operated by Odebrecht. When the Car Wash sand castle collapsed, Miggliaccio claimed, the banks hurriedly wrote the name of the construction company by hand on internal documents related to the accounts, in order to avoid facing questions from regulators.
Perhaps most tellingly, Marcelo Odebrecht himself had regular contact with Swiss bankers and account managers. Searching the data on one of Odebrecht’s mobile phones, Brazilian police found that Patrick Valiton, a manager at Pictet bank in Geneva, had had regular contact with the CEO since at least 2010. One of their meetings was held on March 24, 2014, seven days after the Car Wash Operations began in Brazil.
Marcelo Odebrecht is in prison today, serving a sentence of 19 years and four months for money laundering and corruption. Miggliaccio is still awaiting trial. A statement from the company for AQ reasserted the organization’s close collaboration with investigators, and their commitment to changing corporate culture.
“The company is committed to combating and to no longer tolerating any form of corruption,” the statement from their public relations department read. “It is also resolved to act with ethics, integrity, and transparency.”
Around Latin America, dozens of politicians are under investigation. But Valiton faced few consequences. In fact, official files kept in the business registry in Geneva identified him as one of the bank’s directors until as recently as July 2017. Valiton now holds a consultancy role with the bank.
Pictet declined to provide an explanation when asked about Valiton’s conduct, and said that the bank had not done anything wrong. Many of the financial institutions dealing with Latin American clients have ordered their managers to assert greater control over new requests of transfers of money from Latin America, said sources who want to remain anonymous because they are not authorized to talk to the press. While visiting clients in Brazil, Peru or elsewhere in the hemisphere, Swiss bankers now take extra care, traveling without documents related to their accounts and even using fake business cards that suggest employment in other sectors of the economy, these sources said.
For its part, Switzerland’s bank regulator, FINMA, opened investigations against 25 financial institutions regarding their role in the Car Wash operations. Most of them were cleared, with only three banks having to undergo additional scrutiny. Their names have not been revealed. Those cases are still pending and the agency did not present a timeline for a final decision.
The Swiss attorney general’s office is also digging into how the country’s bankers may have facilitated corruption in Brazil. In September, the office released a statement saying that its early investigations were primarily meant to “establish the facts” by analyzing financial flows and working with Brazilian authorities.
“In an initial phase, the analysis concentrated on the targets of corruption and in a second phase on the ‘corrupters’ themselves,” the statement said. “Due to the magnitude of the affair, the analysis is still ongoing. In view of the results … in what has been called the third phase, (we) will examine the question of bringing criminal proceedings against financial intermediaries in Switzerland.”
Swiss regulators are indeed actively cooperating with authorities in Brazil, Ecuador, Peru and Panama, and are also providing information to the U.S. Department of Justice relating to other investigations in Venezuela.
Even as a number of their clients land in jail, bankers and managers of secret accounts are largely untouched, gazing from the windows of their offices in Geneva as the waters of the Rhone flow by, pretending storms 6,000 miles away are none of their concern.
Chade is a Brazilian journalist and the Europe correspondent for O Estado de São Paulo.