This Week in Markets and Democracy: Brazil’s Crisis Snowballs, Deferred Corruption Prosecutions, U.S. Bets on Cuba

Brazil’s Corruption Crisis Snowballs

Brazil’s corruption investigations expanded to encompass the former and current president. Federal police detained and questioned former President Luíz Inácio Lula da Silva (“Lula”) over whether he personally benefited from the Petrobras bribery scheme. São Paulo state prosecutors then separately filed to arrest him on money-laundering charges. In a plea bargain, Senator Delcídio do Amaral claimed current President Dilma Rousseff knew about Petrobras bid-rigging and tried to stop the criminal probe. Abroad, Argentine prosecutors are investigating if their own officials received kickbacks, and my colleague Matt Taylor predicts the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) could bring FCPA charges against Petrobras. And in what most perceive as a cynical move to defy justice, Lula joined Rousseff’s cabinet as chief of staff, removing him from the jurisdiction of both state and federal courts (only the Supreme Court can now try his case). As millions take to the streets in outrage, the political consequences may come more quickly than the legal ones.

OECD Touts Record, but Defers Prosecutions

The Organisation for Economic Co-operation and Development (OECD) touted its stepped-up anticorruption efforts against companies paying bribes abroad. Still, few executives or employees face jail time for their misdeeds. Most signed deferred prosecution agreements—paying fines and promising to change their practices in exchange for delayed charges or closing the case altogether. Sixty-nine percent of international corporate bribery cases over the last ten years ended with these agreements, as did seventy of eighty-four Foreign Corrupt Practices Act (FCPA) cases the U.S. Department of Justice (DOJ) settled between 2004 and 2012. While prosecutors favor this cheaper and more certain path, it does little to change companies’ fundamental calculus. The largest FCPA fine ever yielded—$800 million in the Siemens case—was a fraction of a percent of the company’s revenue that year. The DOJ seems to agree. It announced it will turn its focus to prosecuting individuals, not just fining their employers.

United States Bets on Cuba

The Obama administration eased Cuban trade and travel restrictions in the lead up to the president’s historic visit. Cuban citizens will now be able to open U.S. bank accounts, conduct business in U.S. dollars, and earn salaries from U.S. companies. And U.S. tourists can visit Cuba on their own, apart from larger groups. But the Castro regime has yet to reciprocate, politically or economically. A year after releasing fifty-three political prisoners, the Cuban government arbitrarily detained nearly 1,500 people in January alone, and it continues to limit media access and prohibit human rights monitors. Economically, little has changed with Cuba’s state monopolies and controlled markets. Still, the U.S. changes are part of a bigger bet: that ending Cuban isolation and encouraging economic and cultural interactions will bring political change, whatever the plans of the Castro brothers.