SÃO PAULO (WALL STREET JOURNAL) – Brazil’s Federal Police said they arrested the chief executives of construction giants Odebrecht SA and Andrade Gutierrez on Friday morning, in the latest phase of the continuing investigation into what prosecutors and the police allege was a corruption scheme involving contracts signed by state run oil company Petróleo Brasileiro SA, or Petrobras.

Friday’s arrests are an exclamation point to a wide-ranging graft probe that has shaken Brazil’s business and political establishment for more than a year, now ensnaring the chiefs of Odebrecht SA and Andrade Gutierrez, who stand accused of money laundering and corruption.

Odebrecht is Latin America’s largest construction conglomerate, with business in the U.S., Europe and Africa, and whose head, Marcelo Odebrecht, is a household name in Brazil. Andrade Gutierrez has business in 40 countries. The privately owned companies are deeply involved in the development of stadiums and infrastructure for the 2016 Summer Olympics in Rio de Janeiro.

The scandal has crippled Brazil’s most important company, Petróleo Brasileiro SA (Petrobras), damaged the nation’s economy and weighed heavily on the administration of President Dilma Rousseff. But it has also spurred Brazil’s law-enforcement and judicial organs to emerge as independent institutions in a nation where the rich and powerful have long escaped punishment.

Reflecting that, Brazilian police called Friday’s arrests “Erga omnes,” Latin meaning “towards all.”

“The Brazilian authorities today have made tremendous advances in the fight against corruption,” said Fernando de Magalhaes Furlan, a partner at the consultancy Furlan Associados who formerly led Brazil’s antitrust agency. “Ten years ago it was unthinkable to see someone of this magnitude go to jail. But now you can say that no one is safe.”

Mr. Odebrecht’s arrest, in particular, is a major step in an investigation that has already ensnared former Petrobras executives and damaged the credibility of Ms. Rousseff’s ruling Workers’ Party, under whose watch the alleged crimes were committed during a decadelong period until 2014, prosecutors say.

The arrests, which include nine other of the companies’ employees, also bring the case closer to Ms. Rousseff’s mentor, former President Luiz Inácio Lula da Silva. Last month Brazilian prosecutors opened a preliminary probe into Mr. da Silva for “influence peddling,” a crime in Brazil. They are investigating allegations that he helped Odebrecht win contracts in Cuba and Angola, among other countries, during a time when Odebrecht was contributing to a foundation that Mr. da Silva runs and the former president was paid by the company to give speeches.

Representatives for Messrs. Odebrecht and Andrade Gutierrez’s CEO Otávio Azevedo, who haven’t been charged, couldn’t be reached for comment.

Neither Ms. Rousseff nor Mr. da Silva have been accused of wrongdoing in the Petrobras case. A Rousseff spokeswoman declined to comment. A da Silva spokesman defended the former president’s actions as appropriate and legal.

Both Ms. Rousseff and Mr. da Silva have previously denied any involvement in the alleged scheme. The Workers’ Party didn’t respond to a request for comment.

Odebrecht said its offices in São Paulo and Rio de Janeiro were searched by police, but it didn’t confirm the arrests. The company said that the police operation was unnecessary, since it was cooperating with the investigation. Odebrecht officials have previously denied any involvement in the alleged scheme.

Andrade Gutierrez on Friday denied any involvement in the alleged corruption and said it was cooperating with the investigation.

Petrobras has said it is a victim in the case and is cooperating with investigators.

“We have no doubt that Odebrecht and Andrade Gutierrez headed the cartel scheme within Petrobras,” said Brazilian federal prosecutor Carlos Fernando dos Santos Lima at a news conference. The companies “cannot pass themselves off as innocent given how much evidence we have.”

The arrests are part of “Operation Car Wash,” in which Petrobras, along with Brazil’s biggest construction firms and about 50 current and former politicians are alleged to have inflated the price of contracts and shared some of the ill-gotten gains, paying along the way $2 billion in bribes. Petrobras has written off more than $16 billion to losses related to the scheme.

“The idea of the name is to send a clear message that the law applies to everyone, that it doesn’t matter how big your company is, your standing in society, your influence, your economic power,” Igor Romário de Paula, a police chief in Curitiba, said during the news conference. “That there will never be a prerogative to allow these people in these companies to commit crimes with impunity.”

Odebrecht’s parent company, which oversees units involved in everything from oil and gas exploration to defense contracting to shipbuilding, had 2014 revenues of $46 billion.

With a presence in 21 countries, Odebrecht has footprints across Latin America, Africa, and the U.S., and is a major political donor in Brazil. In 2014 the company gave at least 5.3 million reais (about $1.7 million) Ms. Rousseff’s re-election campaign and the Workers’ Party, according to Brazil’s Superior Electoral Court.

The company’s Odebrecht USA unit has established deep roots in the southern U.S. and won dozens of government contracts. It has built or is building an expansion of Miami International Airport; the American Airlines Arena, where the Miami Heat basketball team plays; and highway projects in Texas and Louisiana.

Odebrecht USA, like its parent company in Brazil, has been politically active. The company gave $15,000 as of February to a political-action committee associated with Miami Mayor Carlos Gimenez, among other political groups, according to campaign finance disclosures.

Odebrecht has also flexed its muscles throughout Latin America with high-profile, multibillion-dollar deals, often sealed with the help of Mr. da Silva.

In Cuba, Odebrecht built the Mariel port, Cuba’s biggest-ever construction project. Marcelo Odebrecht cited Mr. da Silva’s support in press reports when explaining how Odebrecht got the port project.

In Venezuela, Odebrecht has an estimated $20 billion worth of contracts in construction, energy and agriculture, among others.

Odebrecht and Andrade Gutierrez are also heavily involved in construction projects for the 2016 Summer Olympics in Rio.

Rio’s main Olympic Park is being built by a consortium including both Odebrecht and Andrade Gutierrez. The Olympic Athletes’ Village, a complex of 31 high-rise apartment towers, is being co-built by Odebrecht.

The company is also helping to build a new Metro line for the Olympics as part of a consortium led by Queiroz Galvão, another company implicated in the alleged corruption scheme.

While Odebrecht and Andrade Gutierrez had been mentioned in the Petrobras probe, the arrests of their chiefs come months after the heads of other construction companies were detained by Brazilian authorities.

“The prosecutors are very careful,” said David Fleischer, a Brasília-based political analyst. “If you’re going after big fish you want to make sure you can take them down.”

Mr. Lima, the prosecutor, said executives from the two companies hadn’t been arrested earlier because the companies “had a more sophisticated system” for making the alleged bribe payments, using foreign bank accounts in Switzerland, Monaco and Panama, so it took longer to prove their case.

 

Source: WSJ