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By Staff | Jul 22, 2016

I have to admit that I am impressed by how tenacious and committed that the Brazilian legal authorities have been over perusing their campaign called, “Car Wash,” identifying and prosecuting political corruption in Brazil.

In the past, the Brazilian legislature voted itself immunity from the law and payoffs and political commercialism was business as usual in Brazil. The politicians collected graft with impunity.

Politicians would continue to serve and be re-elected even when indicted. Voting is a requirement in Brazil in order to receive government services so the government essentially buys the votes right down to the municipal level.

You can’t get legal documents, passports or welfare without proof you have voted.

You can call that democracy, but frankly, there are 30 to 40 percent of most populations that are not competent or well-informed enough to be able to cast a worthwhile intelligent ballot. The requirement to vote contributed to the corruption in Brazil.

Political corruption is so imbedded in Brazil that virtually any large transaction between the government and the private sector is suspect of graft. Brazilian bureaucracy is so intense that the assumption is that somebody got paid something if anything gets done.

When it was announced that Rio would host the Olympics the local response there was that this windfall would make politicians and companies rich while the people got screwed.

While the “car wash” investigation was focused on bribes and payoffs from the Brazilian government-controlled energy company Petrobras, the further investigators look, the more they will find graft through-out the entire Brazilian private sector wherever it interacts with the state.

Why did Brazilian voters keep re-electing politicians that they knew were corrupt? Well, why do we keep re-electing 90 percent of a Congress that we all know is dysfunctional and we profess to despise.

Typically when a corrupt politician was voted out of office in Brazil, that would just create the opportunity for the next corrupt politician to be elected in his stead.

Former Presidents Lula de Silva and Dilma Rousseff were both elected to clean up corruption and investigators have found that the opposite was occurring during their terms in office. Elections were just a matter of who was getting paid rather than whether the corruption was perpetuated.

Brazil reportedly has good laws and the judicial institution, at least at the highest levels, is not considered to be corrupt. That is the last vestige of competent, moral government left in Brazil fighting to take down what otherwise is a corrupt system.

They have charged a previous president, forced the speaker of the house to resign and impeached the current president.

Even the vice president now serving as temporary president is under suspicion. There will be a limit to how successful this purge of corruption can be as this is ingrained in their culture, but it has gone further than most expected in prosecuting the guilty.

BNDES is Brazil’s state development investment bank. The WSJ noted, “During Mr. da Silva’s two terms in office, JBS received a series of subsidized loans from the state development bank BNDES, which also holds a 20.4 percent stake in the meatpacker.

The borrowing financed the rapid growth through acquisitions, at home and abroad, that turned it into the world’s biggest animal protein producer.”

I have pointed out in this report that the U.S. packing industry was essentially competing against the Brazilian government who was financing JBS. The JBS parent company moved its corporate headquarters to Ireland for special tax protection as well as, in my opinion, to separate itself from Brazil where it was increasingly coming under investigation.

Brazilian Federal Police raided the home of JBS South American Chairman, Joesley Batista, and searched the Sao Paulo headquarters of his holding company. They are drilling down on information gleaned from “Operation Car Wash,” implicating the Batistas for graft to politicians paid to secure the subsidized state-sourced loans.

In January, Batista was accused by Brazilian prosecutors of violating banking laws.

For anyone experienced in Brazil, the shock would be if there were not bribes paid for these loans. It is the way that their system worked. Corporations found political allies who made things happen for them for “commissions.”

The WSJ reported JBS shares were down 20 percent this year. The Batistas had some kind of a close relationship with powerful people in the government to get those loans. They just don’t hand them out to everyone.

The WSJ confirmed JBS’ link with “Brazil’s political elite and contributions made to da Silva’s Worker’s party, PT and other political parties.”

I think that it is a reasonable expectation that the Batistas benefited from the business culture that used political influence for private gain.

What laws were violated, if any, is of course up to the Brazilian legal system. It looked bad for Hilary here and she got off. The Batistas may get the same treatment in Brazil.

What bothers me was that essentially the U.S. packing industry has been competing against a Brazilian state-financed enterprise that has rolled up significant market share of the U.S. animal protein industry.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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