Law helps Brazil to grow up

I read with interest Pedro Aguiar de Freitas’s article last year in The Lawyer on the Mensalão case (29 October 2012). The case has attracted attention around the world since the scandal at its heart led to dozens of defendants being tried in Brazil’s Supreme Court and the conviction of, among others, a top aide of the former Brazilian president.

The sentiments expressed in the article echo my own. I must confess a particular interest in the issue of Brazilian political corruption in light of the asset recovery work Lawrence Graham has undertaken since 2005 on behalf of the Federal Republic of Brazil and the Municipality of São Paulo.

This work has culminated in an important judgment handed down recently by the Royal Court of Jersey in The Federal Republic of Brazil & Ors v Durant International Corporation & Ors [2012]. The court found that the Jersey bank accounts of two British Virgin Islands companies beneficially owned and controlled by Paulo Maluf, the former mayor of São Paulo and a well-known public figure, held the traceable assets of a fraud carried out against the municipality in the late 1990s. In particular, the court held that Maluf was a party to the fraud to the extent that in early 1998 he and others on his behalf received millions from a ‘kickback’ scheme relating to the construction of the Avenida Agua Espraiada, deemed in the 1990s to be the most expensive road ever constructed. The court held that the kickbacks were funnelled out of Brazil into a bank account in New York, which was controlled by Maluf’s son Flavio and beneficially owned by him and/or his father.

Some of these gains were then filtered into Jersey accounts to the tune of $10.5m (£6.5m) - a sum (plus interest) that the Royal Court has ordered to be paid back to the municipality.

The Jersey judgment is significant in light of the determination of the Brazilian authorities to fight corruption. These are the largest and most complex civil proceedings brought by the authorities to repatriate assets and as such this is arguably the most important corruption and asset recovery case ever undertaken by Brazil.

While likely to go to appeal, the case shows the ability of foreign governments in general to trace and repatriate assets in offshore jurisdictions, a factor that may have far-reaching implications for the treatment of corruption in the future.

Despite the corruption allegations that have dogged his later career, Maluf still enjoys an elevated position and currently serves as a deputy in congress for the Progressive Party.

This has ensured that, like the Mensalão case, this matter has been subject to intense scrutiny, particularly against the back-drop of recent mayoral elections in São Paulo. It is perhaps too early to say whether this case, together with Mensalão, signals a fundamental change of attitude to corruption in Brazil - but it is unquestionably a step in the right direction.