Brazil Adopts Pub­licly Funded Elec­tions to Com­bat Cor­rup­tion

Trillions - - In this Issue - Photo by An­to­nio Thomás Koenigkam Oliveira, CC

Tired of elec­tion scan­dals and the same crim­i­nal elite stay­ing in power, Brazil made a his­toric de­ci­sion last month to set up its own elec­tion cam­paign fund.

On Oc­to­ber 4, 2017, Brazil’s lower house of Con­gress put its stamp of ap­proval on a bill that re­cently passed the coun­try’s Se­nate. That bill au­tho­rizes set­ting aside 1.7 bil­lion re­als ($542 mil­lion U.S.) as a tax­payer­fi­nanced cam­paign fund. It will be used to help pay cam­paign ex­penses for the 2018 gen­eral elec­tion.

The rea­son the funds are so badly needed stems from what started out as a cor­rup­tion in­ves­ti­ga­tion into a money-laun­der­ing op­er­a­tion at a car wash. That in­ves­ti­ga­tion, headed up by lead pros­e­cu­tor Deltan Dal­lagnol, bears the name Lava Jato (Car Wash) be­cause of its be­gin­nings. Since Dal­lagnol’s work be­gan in earnest on the case, the orig­i­nally-nar­row­ly­fo­cused in­ves­ti­ga­tion has ended up with more than 70 po­lit­i­cal lead­ers, se­nior cor­po­rate of­fi­cials and lob­by­ists be­ing charged with bribery, tax eva­sion or mis­di­rec­tion of pub­lic funds. There are even al­le­ga­tions that Brazil­ian Pres­i­dent Dilma Rouss­eff ac­cepted a $5 mil­lion bribe from Petro­bras, a sta­te­owned oil com­pany.

Con­struc­tion com­pa­nies, Swiss bank com­pa­nies, a Dutch off­shore oil plat­form con­struc­tion com­pany and even con­trac­tors in­volved in the Brazil Olympics have all been ran­sacked as the jus­tice depart­ment looks for where the cor­rup­tion may lie. Those charged in the case in­clude

• An­dré Esteves, for­mer head of BTG Pac­tual, an in­vest­ment bank

• Marcelo Ode­brecht, CEO of con­struc­tion and real es­tate gi­ant Ode­brecht

• Otávio Mar­ques de Azevedo, CEO of An­drade Gu­tier­rez, a major Brazil­ian con­glom­er­ate fo­cus­ing on con­struc­tion and en­gi­neer­ing

• Re­nan Cal­heiros, head of the Brazil­ian Se­nate

• João Vac­cari Neto, trea­surer of the rul­ing Work­ers’ Party

In an­nounc­ing the ar­rests of Ode­brecht and Mar­ques de Azevedo, fed­eral pros­e­cu­tor Car­los Fer­nando dos San­tos Lima said, “We have money-laun­der­ing pro­fes­sion­als in Brazil, and we have no doubt that Ode­brecht and An­drade Gu­tier­rez headed the car­tel scheme in­side Petro­bras.” He went on to say, more gen­er­ally, “I do not see how the com­pa­nies can claim in­no­cence given how much ev­i­dence we have.”

The spe­cific scheme in­volved in­cluded an es­ti­mated $800 mil­lion in bribes and other cam­paign funds. Ode­brecht and Mar­ques de Azevedo laun­dered the money in­volved through a se­ries of se­cret bank ac­counts in Switzer­land, Monaco and Panama. They then used that money to pay bribes to Petro­bras’ se­nior ex­ec­u­tives as a quid pro quo for in­flated con­tracts and to get funds to the rul­ing Work­ers’ Party.

In the face of th­ese scan­dals, the fed­eral gov­ern­ment has banned all cor­po­rate do­na­tions from fu­ture elec­tions. With the in­ves­ti­ga­tion dig­ging very deeply into bank­ing and other money-trans­fer ac­tiv­i­ties, it is be­lieved that un­der-the-ta­ble monies go­ing to support po­lit­i­cal cam­paigns will also be tough for any group to man­age. The im­pact of this has been to pre­vent al­most all free money from the coun­try from be­ing used in po­lit­i­cal cam­paigns.

The new Brazil­ian cam­paign fi­nance law was it­self funded by an­other sort of cor­rup­tion: pork bar­rel ap­pro­pri­a­tions that the coun­try could far more eas­ily live with­out than a fair set of elec­tions. The 1.7 bil­lion re­als al­lo­cated by the law will be used to buy tele­vi­sion and ra­dio ad­ver­tis­ing and cam­paign time for par­ties. It will also only be al­lo­cated to par­ties with a mem­ber count of 35 or higher, to elim­i­nate very small groups from si­phon­ing off funds.

A Les­son from Cal­i­for­nia

If Brazil wanted to take this a step fur­ther, one idea might be to copy the po­lit­i­cal cam­paign trans­parency bill re­cently passed in Cal­i­for­nia. Last month, Gover­nor Jerry Brown signed off on As­sem­bly Bill 249, which re­quires clear dis­clo­sure of po­lit­i­cal con­tri­bu­tions in print, tele­vi­sion and on­line ad­ver­tise­ments.

That bill was driven by one of the un­for­tu­nate con­se­quences of the U.S. Supreme Court Case Cit­i­zens United vs. FEC. The rul­ing on that case said that cor­po­ra­tions could make in­de­pen­dent con­tri­bu­tions to po­lit­i­cal cam­paigns be­cause, as some have in­ter­preted the de­ci­sion, “cor­po­ra­tions are peo­ple too.” It also al­lowed for the cre­ation of su­per PACS (po­lit­i­cal ac­tion com­mit­tees), which have un­lim­ited spend­ing lim­its for ad­ver­tise­ments. That court de­ci­sion is cred­ited as be­ing one of the major rea­sons cam­paign spend­ing in the United States in­creased by more than $1 bil­lion be­tween 2012 and 2016.

Ac­cord­ing to the new Cal­i­for­nia law, not only must there be full dis­clo­sure as to where the money for a po­lit­i­cal ad­ver­tise­ment came from but it will no longer be pos­si­ble for major con­trib­u­tors to hide be­hind some un­known com­mit­tee name. For tele­vi­sion ads, the im­ages must in­clude a dis­play of the names of the top con­trib­u­tors who paid for them. For ra­dio ads, a clear spo­ken voice must cover the same con­tent. In dig­i­tal ads, the text “Who funded this ad?” must be present, hy­per­linked to a list of the spe­cific donors for the cam­paigns.

The New Con­sti­tu­tional Amend­ment Reg­u­lat­ing Rul­ing Coali­tions in Brazil

Be­sides the ar­range­ment for pub­lic money, a re­lated chal­lenge for Brazil was the need for who­ever had won elec­tions in the past to pull to­gether a rea­son­able rul­ing coali­tion to go for­ward. Those coali­tions were con­sid­ered cor­rupt and un­sta­ble as highly-contradictory self-in­ter­ests ruled the many play­ers in the even­tual win­ning com­bi­na­tions.

As a re­sult of this, the Brazil­ians also passed an un­usual con­sti­tu­tional amend­ment on Oc­to­ber 4, the day the elec­tion fi­nance law was passed. It now re­quires that the even­tual rul­ing coali­tions must be put to­gether with par­ties with sim­i­lar plat­forms. It will go into ef­fect as of the 2022 elec­tion.

Th­ese two new pieces of leg­is­la­tion may help turn Brazil around in the long run. In the near term, the bribery and money-laun­der­ing scan­dals that are now head­ing to­ward trial may show – by the con­vic­tions they even­tu­ally pro­duce – that the once crim­i­nal or­ga­ni­za­tion known as the Brazil­ian gov­ern­ment may one day ac­tu­ally serve the needs of its peo­ple in­stead of the crim­i­nal elite.

If the re­forms are suc­cess­ful, they may en­cour­age other coun­tries to es­tab­lish pub­lic cam­paign fi­nanc­ing to keep the wealthy from buy­ing elec­tions.

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