Brazil’s massive Lava Jato corruption investigation has turned to its development bank, BNDES, whose financing of the Mariel port in Cuba is being questioned.

Though the bank itself is not at risk, the investigation could lead to a review of its due diligence processes, and executives directly involved in the financing could face criminal charges.

Earlier this month, the Brazilian department of justice ordered BNDES to disclose documents relating to the US$682mn financing of the Mariel port development in Cuba. Following the announcement, GTR spoke to Luciene Marchado, deputy managing director of the sanitation, transport and infrastructure division at the bank, who explained that the documents in question were in fact not BNDES documents, but involved the conditions of the political risk guarantee provided by the ministry of finance.

“They really belonged to our ministry of foreign trade and development. The guarantee provided by our treasury to cover political risk is provided by our ministry of finance. To approve this kind of guarantee, we need a decision from a specific committee of the ministry of the foreign trade chamber. The decision of this chamber was in fact what was requested by the department of justice in the first place,” she said.

Department of justice documents show that BNDES refused to disclose the papers in the first place, but Marchado explained that the decision was not the bank’s: “We were asked to show these documents and we asked the foreign trade chamber to do that, because it is not a document produced by BNDES. In the first place, the minister in the previous government decided these were very confidential documents that they really didn’t want us to share with the department. That’s why we were prevented from doing that.”

We don’t consider the terms practised on the Mariel port as unusual. Luciene Marchado, BNDES

It is the change of government following Dilma Rousseff’s impeachment in May and the increase in transparency that ensued that has since made it possible to disclose the documents in question.

Marchado also denied claims that the terms of the Mariel financing – and especially its 25-year tenor – were “exceptional” as alleged by Brazilian magazine Época. “We don’t consider the terms practised on the Mariel port as unusual. It is higher than the normal terms that we have, but it was very adequate to this type of project. The comparisons were made using all of BNDES’ transactions. It’s not a fair comparison in our mind, because supporting a greenfield port in Cuba is very different from, for instance, the acquisition of an Embraer aircraft by an American enterprise,” she said, pointing to BNDES’ Belo Monte power plant financing in Brazil and its 30-year repayment period as an example.

Unclear benefits

Jorge Nemr, a lawyer specialising in international litigation and business criminal law at Leite, Tosto e Barros Advogados in Brazil, explains that the decision of the foreign trade and development minister to keep the transaction secret at the time was what raised suspicions, especially as the Mariel port’s benefits to the Brazilian economy are unclear.

“The question is first whether the financing was necessary: the main objective of the bank is to develop Brazilian companies. Why give a loan for a port in Cuba which, at the time was very much a closed country, instead of infrastructure in Brazil? What was the usefulness of the port for Brazilian companies?” he asks.

Another part of the investigation revolves around the allegation that Odebrecht overestimated the cost of the project and used the extra – public – funds to finance former presidents Rousseff and Luiz Inácio Lula da Silva’s political campaigns. Lula in particular is being accused of lobbying for Odebrecht in Cuba, an activity that, Nemr explains, was not supported by official contracts or payments.

“There was no formal contract between Lula and Odebrecht to say he was hired to do that work for the company. It is said that Lula received payments from Odebrecht for speeches that he made, for which the company paid as much as if they had hired Bill Clinton. It wasn’t a clear contract, and it is alleged that all the money that went from Odebrecht to Lula wasn’t declared for tax purposes,” he tells GTR.

There are also suspicions that Lula abused his influence to push BNDES to finance the project – something that BNDES has denied.

Potential consequences

As for legal consequences, Nemr says that if investigators find sufficient evidence of wrongdoing, they will send the results of their probe to Lava Jato prosecutors, who will then be able to file lawsuits against Rousseff and Lula, as well as BNDES’ former president, Luciano Coutinho, and Odebrecht itself – whose former CEO Marcelo Odebrecht was sentenced to 19 months in jail for money laundering corruption back in March 2016. Coutinho, who was already under investigation for his involvement with Petrobras as board member, was replaced by Maria Silvia Bastos Marques as head of BNDES in May 2016.

Investigations are ongoing, but as part of a potential sentence, a return of any overpayment or funds deemed unnecessary could be requested, along with the payment of potentially hefty fines. Rousseff and Lula’s right to run for elections could be rescinded, and Odebrecht risks being banned from contracting with public authorities or receiving public financing.

Rebecca Harding, co-founder of Equant Analytics, warns that any investigation into a Brazilian financial institution is also likely to be another blow to the country’s economy: “Anything that shakes Brazil’s reputation as a financial centre at the moment is extremely damaging to its economy. The political environment has been fragile for a while and much of this has been because of the whiff of corruption that has hung over the previous regime. This has made financial institutions extremely cautious about doing business in the country,” she says.