The Odebrecht Scandal, the González Daher Scandal, and Incentives for Corruption

The Invincible Roman Empire and the Odebrecht Case

During the 2nd century A.D., Rome was at the height of its imperial power. The success of its military strategies, the strength of its institutions, the expansion of its territories, the ingenuity of its engineers, the sharpness of its thinkers, and its influential culture all made Rome a formidable civilization. Not even the most pessimistic prophet of the time would have predicted the Empire’s eventual fall. Given these circumstances, then, one might ask… what led to its downfall?

When seeking an explanation for the collapse of the Western Roman Empire in A.D. 476, historians generally cite the following causes: the barbarian invasions, the division of the Empire into East and West, the weakening of the military forces, the deficit in public finances, and special emphasis is also placed on the endemic corruption that plagued the vast governmental structure. Corruption was primarily the domain of high-ranking public officials and emperors, who, at the expense of the people, engaged in influence peddling and the embezzlement of wealth. This corrosive affliction suffered by the Romans gradually eroded the momentum with which Rome, at one point in its history, had come to rule over much of the world.

A few months ago, in Latin America and the rest of the world, we witnessed an alarming and terrifying tremor that continues to send out incessant aftershocks—an earthquake that shook the world: “the Odebrecht case.” Just as happened in Rome, this case unearthed and laid bare for all to see a corruption scheme involving public officials and business leaders who colluded with one another for their own gain, to the detriment of others.

In December 2016, the U.S. Department of Justice released an investigation into the Brazilian construction company Odebrecht, which was accused of paying bribes to high-ranking public officials in 12 governments (including Angola, Argentina, Colombia, Ecuador, the United States, Guatemala, Mexico, Mozambique, Panama, Peru, the Dominican Republic, and Venezuela) to secure advantages in public procurement contracts over the past 20 years. It is estimated that the total amount of illegal payments could reach the astronomical sum of US$$ 3,000,000,000.

On a large scale, the Odebrecht case is also part of the well-known “Lava Jato” operation, launched by the Brazilian Federal Police in 2014 to investigate criminal schemes involving money laundering, corruption, and influence peddling, with Federal Judge Sergio Moro—now widely known—playing a central role. As a result of this operation, nearly 1,200 legal proceedings have already been opened, and to date, approximately 160 people are in prison. Among those indicted are businessman Marcelo Odebrecht and former President Luiz Inácio “Lula” Da Silva.

Gary Becker, Bruce Benson, and the Incentives for Corruption

When we talk about large-scale corruption schemes, we must necessarily get to the heart of the matter and ask ourselves the following: What leads a person to engage in corrupt behavior?

Professor Bruce Benson of the University of Florida applied the economic theory of crime proposed by Gary Becker, the 1992 Nobel laureate in Economics, to try to explain the motivations that drive human beings to commit acts of corruption. Within Becker’s framework, Benson outlined the following incentives for corruption: 1) the benefits the official expects to obtain (bribes) compared to the alternatives available to them, 2) the probability of being discovered and punished, and 3) the severity of the sanction or punishment.

As for bribes, Benson understands that the official compares the potential income from corruption with the income derived solely from lawful activity. The latter is usually very low. Furthermore, officials do not receive any “extra” benefits when they refrain from accepting bribes and focus on improving the effectiveness of surveillance and law enforcement. In this context, the possibility of receiving bribes is a tempting alternative. Of course, we must not forget that the equation also includes the willingness of the “buyer”—generally from the private sector—to pay for an illegal grant of rights, since without it there would be no business.

The size of bribes varies. When the discretionary power to grant rights within a judicial system is concentrated in the hands of a few officials, bribes can amount to large sums of money. This is typically the case with judges and prosecutors. Another important factor to keep in mind is that the greater the market distortion caused by the implementation of new laws, the greater the potential for bribes. In other words, the more complex and bureaucratic the implementation of a new law is, the more attractive the incentives for officials to engage in corruption become.

With regard to the likelihood of being discovered, the following occurs. If there is a high probability that illegal grants of rights will be detected and that the corrupt official will be identified and charged, then, logically, the official is less likely to engage in corruption. This is directly related to impunity within the system. The problem with monitoring officials is one of cost. It is extremely costly for the government to invest time and effort in identifying corrupt officials. Once again, therefore, it is a matter of resource allocation and economic incentives.

Finally, the severity of punishments. Punishment affects human behavior in much the same way—in a sense—as prices do. The higher the price of a product, the less likely it is to be purchased. Therefore, the more severe the punishment, the less likely the crime is to be committed. However, the severity of punishment is subjective. While public scandal and the loss of one’s position might indeed be severe penalties for a high-ranking official, they are not for a low- or mid-level official with other career options. Naturally, the possibility of criminal punishment in the event of a conviction also influences this factor.

Paraguay: Politics, Justice, Corruption, and Impunity

According to the “Corruption Perceptions Index” published in the 2016 report by the German NGO Transparency International, Paraguay ranks 123rd… out of a total of 176 countries. Sharing the 123rd spot with Paraguay in this group are: Azerbaijan, Djibouti, Honduras, Laos, Mexico, Moldova, and Sierra Leone.

According to a survey conducted by the same organization in Latin America and the Caribbean, released on October 9, 2017, seven out of ten Paraguayans believe that politicians are the most corrupt, followed by police officers, judges, and government officials.

Given these distressing figures, we should not be surprised by the leak of the audio recordings recently made public, which expose one of the biggest corruption scandals of our democratic era and prove and confirm the perception of those surveyed. We live under the shadow of a reprehensible judicial system corrupted by political influence and bribery, which jeopardizes the very foundations of our rule of law.

As we look back on some of the milestones in our history as a nation, we must acknowledge that the fall of the dictatorship in 1989 ushered in a new—and promising—era: democracy. However, it also led to an—unexpected—consequence: the democratization of corruption. After the fall of the authoritarian regime, corruption went viral and spread, likely to nearly every level, agency, and social class. It affected everyone indiscriminately—from the poor to the rich; from simple administrative procedures to complex bidding processes; from small claims cases to multimillion-dollar lawsuits.

The “González Daher case” undoubtedly marks a turning point in our history as a democratic country. Now is precisely the time to identify the shortcomings in our institutions—the very ones that encourage officials, whether politicians, judges, prosecutors, or lower-ranking civil servants, to engage in corruption. Now is the right time to strengthen our judicial, political, and social systems—and, consequently, our economy. Now is the time to reverse the trend, to make bribery less attractive than acting honestly; to invest in measures that make the likelihood of being discovered and punished alarmingly high; and to ensure that the severity of penalties acts as a deterrent against corrupt behavior.

For Paraguay’s current economic growth to be sustainable, it must be accompanied by strong and transparent institutions, as well as structural reforms in the judicial system that prevent political interference, so that judges can act with true independence and ensure legal certainty in the country.

In this bleak situation we are currently facing—which, at the same time, offers a glimmer of hope and anticipation—it is worth recalling the words of our distinguished compatriot Augusto Roa Bastos: “The infectious power of corruption is more deadly than that of plagues”. At the end of the day, as Paraguayans, we have a duty to learn from the lessons of history and from the experiences of our Latin American brothers and sisters, and to understand that corruption is so powerful and harmful that it is capable of bringing down great governments and civilizations, just as the “invincible” Roman Empire.