When beef tycoons Joesley and Wesley Batista sat down with Brazilian prosecutors last month and told them all they knew about the corruption scandal known as Carwash, they also let the world in on a family secret.
The decade-long rise of the Batistas' global meat powerhouse -- JBS SA, a company founded by and named for the Batistas' father, Jose Batista Sobrinho -- wouldn't have been possible without a top politician on the take, hundreds of millions of dollars in bribes and a series of sweetheart deals with Brazil's state development bank.
"It wouldn't have worked," Joesley Batista told prosecutors, according to videos of his testimony. "It wouldn't have been so fast."
Not since a former oil executive-turned-state witness kicked off Carwash three years ago has testimony in the case been so explosive and threatened to do so much damage to Brazil's economy and its political institutions. The fraud that the brothers described in at least seven hours of testimony is so pervasive that it has tipped Brazil back into political chaos less than a year after the nation's last president was impeached.
In addition to handing over documents believed to implicate more than 1,800 politicians, the beef magnates also provided prosecutors with an audio recording in which President Michel Temer appears to be endorsing Joesley Batista's payment of hush money to a jailed former lawmaker. S&P Global Ratings said May 22, five days after the testimony went public, that it may cut Brazil's sovereign-credit rating even further into junk territory amid concern that the allegations put Temer's ambitious agenda -- and even his presidency -- at risk. Temer has denied any wrongdoing.
The Batistas, led by the 45-year-old Joesley and older brother Wesley, shot into the global spotlight during the decade-long, $20 billion series of acquisitions that turned their family-owned slaughterhouse into the world's biggest meat producer.
When the two Batistas approached Brazil's prosecutor general last month offering to trade all the evidence they'd collected in exchange for immunity, the official had "no other alternative" but to give them what they wanted, he recently recalled.
The revelations raise questions about unfair competition abroad as the company gobbled up more than 40 rivals on four continents between 2007 and 2017. According to Joesley Batista, the state-run Brazilian Development Bank played a crucial role in JBS's expansion in the U.S. The lender injected about $3.2 billion in capital for the acquisition of Swift & Co. in 2007, the beef-producing units of Smithfield Foods Inc. in 2008, and the chicken producer Pilgrim's Pride Corp. in 2009.
In his testimony, Joesley Batista recounted how the decade-long scheme all started with a 2005 meeting with Guido Mantega, who served as the president of the Brazilian Development Bank from 2004-06 before taking over as Brazil's finance minister from 2006-14. JBS was then just a privately held slaughterhouse, but it had plans to be much more. While other Brazilian Development Bank executives present at the meeting in the bank's Rio de Janeiro headquarters appeared skeptical, Mantega showed "strong" signs of support, Batista said.
Mantega's lawyer didn't respond to email and phone requests for comment. The Brazilian Development Bank's press office and a JBS spokesman also didn't respond to requests for comment.
Joesley Batista said that with Mantega's blessing, JBS started looking for opportunities abroad. It quickly found one, and in September 2005 it made a $200 million offer to buy Swift Armour SA in Argentina. The state-run bank agreed to lend the company $80 million, and the Batistas allegedly paid 4 percent of the value, or $3.2 million, as a bribe to an associate of Mantega, Batista said.
Even with the bribe, Batista remembers thinking the terms of the loan were steep, but it was all they could get. "That's what it took for us to get the deal done," he told prosecutors.
The brothers claimed to have continued paying kickbacks to that associate until 2009, when they started negotiating directly with Mantega, Batista said. Batista said they paid $220 million in bribes overall, with most of the money being funneled into political campaigns. JBS and other companies under the umbrella of family holding company J&F Investimentos SA were the biggest campaign contributors in the 2014 elections, in which President Dilma Rousseff won her bid for a second term, according to Brazil's electoral tribunal.
In a letter last week, Joesley Batista said they were wrong to have participated in the scheme and apologized. "While we have explanations for what we did, we have no justification," he said. Batista said Brazil's "system" often creates barriers for businesses that want to carry transactions, and because of that, they opted to pay the bribes instead. "In other countries outside Brazil, we were able to expand our business without violating ethical values."
Bill Bullard, the chief executive of R-Calf, a cattle industry group in Billings, Mont., that's long been critical of big meatpacking companies, recalls when JBS first broke into the market.
"Not only was JBS able to make purchases for loans secured with bribes, they were able to jump into the U.S. cattle market and outbid potential U.S. investors for these assets," he said. "Through ill-gotten means, JBS has been able to gain control of a large portion of the U.S. cattle industry."
Business on 05/27/2017