Ben Hills investigates
By Brazilian standards, Operation Jackal was carried out with clockwork precision. On a steamy spring day, 90 agents of the elite Policia Federal burst into a dozen homes and offices in four cities, seizing documents and computer hard drives, and arresting some of the country’s most prominent businessmen.
The raids last October were the climax of a seven-month investigation into the activities of Kroll Inc, the largest and most flamboyant of the world’s “risk management” companies, whose activities range from rescuing hostages to tracking down stolen treasure – and, so the police allege, illegal industrial espionage.
As the story unfolded, some of the biggest names in Brazilian business and politics were dragged into the affair – the head of the country’s central bank, the minister for communications, the boss of the country’s third-largest telecommunications company, an investment banker with links to America’s giant Citigroup.
As the investigation widened, more than a dozen people were arrested, including executives and employees of Kroll who were initially accused by the police of crimes including conspiracy, illegal phone-bugging, and bribery. They included its joint chief executives, Eduardo Gomide and Vander Aloisio Giordano.
The boss of Kroll’s Brazilian operations, its president, a 35-year-old US-educated businessman named Eduardo Sampaio, escaped the dragnet. Not long after news of the police investigation had broken four months earlier, Sampaio left the country and – to the surprise of Australia’s risk management community – arrived in Sydney to take up a position as head of what is now called the Marsh Risk Consulting Group, Kroll having been taken over in the meantime (see story page 46).
However, two weeks ago, charges were formally laid against Sampaio, six other Kroll executives and contractors, and 19 other people in what has blown up into the Brazil’s biggest corporate scandal.
Sampaio refused to discuss the case with the Herald on three occasions, but the worldwide boss of Marsh/Kroll consulting, Andrew Marshall, confirmed that criminal charges had been laid against Sampaio and other Kroll executives. The charges included breaches of data privacy laws, and paying public officials to obtain information – but not wire-tapping. The charges will be vigorously defended, Marshall says.
Sampaio was a high-flyer in the Brazilian business community, known on the lecture circuit as a campaigner against fraud and corruption.
He graduated with an MBA from Baruch College City University in New York and, after internships with Wall Street firms, including Merrill Lynch and PaineWebber, joined Kroll and was appointed Brazilian president in 1998.
In Sao Paolo, South America’s biggest city and Brazil’s commercial capital, he was a member of the British Chamber of Commerce ethics committee and of Transparencia Brasil, an NGO dedicated to combating corruption.
Sampaio arrived in Australia in August, two months after the scandal broke, to take up his new job running the risk management division of Marsh Ltd, a wholly-owned subsidiary of the American Marsh & McLennan corporation, and Australia’s largest insurance broker with 1100 employees, and branches in every state.
The seeds of the complex scandal were planted seven years ago when the Brazilian Government broke up and privatised the old government telephone monopoly, Telebras, with riot police firing rubber bullets and using tear gas on protesters in the streets of Rio de Janeiro.
One of the companies spun off from the privatisation was Brasil Telecom, the country’s third-largest fixed-line operator, headed by feisty Italian chief executive Carla Cico, who is among those charged.
For several years, Brazil’s biggest corporate battle has been fought for control of Brasil Telecom between its controlling shareholder, CVC/Opportunity Partners (a $700 million venture capital fund registered in the Cayman Islands, in which Citigroup had a stake) and the Italian telecommunications company, Telecom Italia, which has been trying to increase its stake in the company.
Cico says Brasil Telecom suspected Telecom Italia had sabotaged its share price by forcing it to pay too much for a takeover target, and around 2001 hired Kroll to get the evidence to support a court case. And here the plot thickens and the stories diverge dramatically.
The police stumbled into the scandal during an unrelated investigation into suspected corruption in the Brazilian subsidiary of the collapsed Italian dairy giant Parmalat. Last March, they were bugging the phones of two former Kroll investigators – Tiago Verdial and William Goodall, a former agent of the British secret service, MI6 – who had been probing Parmalat.
During their discussions, police say they taped references to illegally intercepted emails and other communications obtained in Kroll’s other investigation into Telecom Italia. Goodall fled, Verdial was flown from Rio de Janeiro, imprisoned in Brasilia, and is awaiting trial – and the police began investigating Kroll’s investigators.
Last July, the story was leaked to Brazil’s biggest newspaper, Folha de Sao Paolo.The dynamite was in the names on the emails, because they included two of the most senior political allies of Brazil’s left-wing president for the past three years, Luiz Inacio Lula da Silva – a former shoe-shine boy and trade union leader known to his supporters as “Lula”.
One is Luiz Gushiken, now Brazil’s Communications Minister, a close confidant of Lula for 35 years and – when the spying allegedly took place three or four years ago – a senior official in Lula’s Workers’ Party. Gushiken told reporters that email correspondence between him and Telecom Italia had been illegally obtained and “showed flagrant disregard for Brazil’s constitution”.
The other alleged victim was Cassio Casseb Lima, now the president of the Brazilian central bank, Banco do Brasil. When his emails were intercepted he was an adviser to Telecom Italia.
Romero Menezes, the high-ranking federal police official who co-ordinated Operation Jackal, says that during the raids in Sao Paolo, Rio de Janeiro and the political capital, Brasilia – including one on Kroll’s headquarters – a large amount of material was seized.
This included “sophisticated electronic eavesdropping equipment”, along with records including computer hard drives containing thousands of emails which had allegedly been “purchased” from junior employees of banks and other institutions for $100 to $200 a time.
Kroll – which was in the throes of being taken over by the US insurance broking giant Marsh & McLennan at the time – said the raids on its offices had been done in “a climate of panic and total intimidation”. It took out advertisements in Brazil’s leading newspapers to deny the police allegations that it was involved in bugging and hacking – the company says that it was, in fact, anti-bugging equipment that was seized.
Company spokeswoman Jodie Rosenbloom said: “We categorically deny we have done anything wrong. We always act within the laws of Brazil and all of the countries in which we do business … the allegations against [Kroll’s employees] and our company will eventually be proved false.”
In response to the Herald’s inquiries, Kroll’s Andrew Marshall says Sampaio played no part in the Telecom Italia investigation – although he was president of the company at the time. He says Sampaio’s transfer to Australia was planned before the police raids.
Marshall says that no arrest warrant has been issued for Sampaio. “The Brazilian authorities are simply requesting that Eduardo and the others come in and make statements,” he says. “He may go back to Brazil to contest the matter – that is something that is up to him.”
Marshall says he does not believe the charges will affect Sampaio’s ability to run Kroll in Australia: “In the UK or the US or Australia, if charges are hanging over your head, it is a very big, bad thing,” he says. “But it doesn’t work the same way in Brazil, although it is very stressful for Eduardo. I realise that it sounds deeply bizarre, but it could take a decade to go through the Brazilian court system.”
If an arrest warrant is issued – the case is before Federal Judge Silvio Luiz Ferreira da Rocha in the Fifth Criminal Court in Sao Paolo – Sampaio will have the option of returning to Brazil to contest the charges in court, or extradition. Brazil and Australia signed an extradition treaty in 1996.
In April, the scandal claimed another high-profile victim when the federal police arrested banker Daniel Dantas, president of CVC/Opportunity Partners and controlling shareholder of Brasil Telecom, accusing him of criminal conspiracy, breach of confidentiality and corruption. He has also now been charged.
Citigroup announced that it had fired Dantas and was suing him for $US300 million ($389 million) in the New York District Court, alleging fraud and deception in the operation of the venture capital fund.
The extraordinary case even threatened to damage US-Brazil relations – already strained because of US mistrust of Lula’s populist policies – when Gushiken and other senior government officials suggested Kroll’s alleged spying may have had a political dimension, and threatened to shut down the company’s local operations.
Pub: Sydney Morning Herald
Pub date: Saturday 25 June 2005
Word count: 1454
Classification: Crime/Corporate Company/Marsh & McLennan
Geographic area: Brazil Sydney
Photographs: Alexandre Campbell/Folha Imagem, Greg Sailibian/ Folha Imagem
Digital manipulation: SMH Design
Caption: Blame it on Sao Paolo …
1. Eduardo Sampaio transferred from Brazil to Sydney shortly after the country’s biggest corporate scandal engulfed his company.
2. Day of the Jackal … Brazilian police raid venture capital group CVC/Opportunity Partners in Rio during Operation Jackal.