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Pension Fund Probe is Brazil’s Latest Corruption Scandal

Pension Fund Probe is Brazil’s Latest Corruption Scandal

An unfolding federal inquiry is revealing new details about a corruption scandal involving state-run companies. But this time, the news is not about Petrobras. Government officials have come forward with details about their investigation into allegations of fraud at Brazil’s four largest pension funds. The alleged fraud has been valued at $2.5 billion.

The investigation, code-named Greenfield, is looking into allegations of fraud at the pension funds Funcef, Petros, Previ, and Postalis. All of the funds are related to state-run companies. According to a police statement cited by Bloomberg News, investigators say they have evidence of alleged organized criminal groups operating within the leadership of the companies.

The inquiry began with ten cases that were found as part of a probe into recent pension fund deficits. According to Bloomberg, eight of those cases are linked to allegedly fraudulent or reckless investments made by the private equity investment arms of the funds.

As part of the investigation, a federal judge has frozen assets including 90 properties, 139 cars, a plane, bank accounts, and shares, the Wall Street Journal reported. All told, the assets of more than 100 people and companies were frozen. In addition, arrest warrants were executed for seven individuals and another 33 people were sought for questioning.

According to court documents, the alleged fraud involved the pension funds paying too much for their stock and bond purchases. In some cases, the “unreal and technically irregular” valuations were based on information provided by the companies that were actually seeking the investments.

The role of pension funds in the Brazilian economy cannot be understated. According to Reuters, last year these funds controlled assets valued at 280 billion reais. However, their economic influence is now in question. A federal judge recently ordered 40 people under investigation – including pension fund officials and executives at companies that received investments – to turn in their passports and refrain from any activity in the financial markets. The investigation is now cutting off the ability of these funds, or the principals at these funds, to pursue new financial activity.

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