Brazil’s unveiled corruption network used cryptocurrencies to operate

Brazil's Corruption Network

Bitcoin represents an innovative opportunity for all businesses… an innovation that corrupt Brazilian politicians took literally. Brazil’s corruption network has been using crypto’s to cover their tracks. 

Just a few months ago President Michel Temer (described as the most unpopular president of modern times with roughly 3 percent of approval), was in the news for being the protagonist of one of the biggest corruption scandals in Latin America as well as for his intelligent way of evading such accusations.

“In recent weeks, the president made major concessions to congressional coalitions and steered hundreds of millions of dollars in federal funding to projects favored by lawmakers in an effort to secure the support of enough of them.”

Brazil's Corruption Network

This week, however, his government is in the news again. Brazil’s corruption network – a newly discovered, multi-million dollar operation of government corruption has enhanced the way crimes are being committed in the country – cryptocurrency is being used in an attempt to cover tracks.

According to media reports, a corruption scheme investigated by the Operation Lava-Jato (also known as “Operação Pão Nosso” – which is a reference to a verse from The Lord’s Prayer) points to money laundering at the Secretariat of Prison Administration’s Securities Department, to the value of around R$ 44.7 million (13.6 million USD) between 2010 and 2015. Much more than the “little” 3 Million USD for which a new investigation is being conducted against Mr.Temer by Brazil’s Supreme Court of Justice, or STJ, Edson Fachin, in the investigation linked to the Pão Nosso Network.

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Brazil's Corruption Network

The operation started on the morning of March 13 by the Receita Federal do Estado (RFB), the Federal Police (PF) and the Federal Public Prosecutor’s Office (MPF), with the collaboration of the Public Prosecutor’s Office of the State of Rio de Janeiro (MPRJ). Search and seizure warrants were issued for 28 locals and 16 more were temporarily confined. By the beginning of the afternoon, at least seven people were arrested.

According to information from the Public Prosecutor’s Office of Rio de Janeiro, there was a millionaire fraud related to the supply of meals to the region’s prisons. This scheme mainly consisted on the use of two companies which acquired contracts fraudulently, using the works of prisoners as labor, charging the Government through two different contracts (one for food supply and the other for the purchase of raw materials for food), and unjustifiably increasing the quantities of food as the food population remained stable. According to the report, they went from 55.6 thousand snacks and morning coffees a day to 83.6 thousand, “with no correlation with an increase in the prison population.”

Similarly, they inflated prices through a typical process among corrupt Brazilians known as “superfaturamento”  – rising costs from 6 cents a snack to 63 cents.

These contracts were made using two companies which involved the former State Secretary of Penitentiary Administration, Coronel César Rubens Monteiro River (who increased his fortune by at least 10 times according to official figures), the Delegate Marcelo Martins, Director of the Specialized Police Department of the Civil Police of La Plata and Mr. Felipe Paiva.

Brazil's Corruption Network

In the Picture: Marcelo Martins 

These contracts generated a profit of 73 million Reais, which were transferred to “ghost” companies in the area of tourism and exchanges.

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According to the transactions, they were carried out in cryptocurrencies to avoid their traceability:

“We have noted, the IRS concerning this specific transaction, for the first time, appear transactions involving Bitcoin. This is a novelty; it shows that people are trying to sophisticate somehow, maybe fly under the radar of Receita Federal and the Central Bank. It was the remittances going overseas with the Bitcoin purchase over there. The idea, I have the impression, is to try to receive money abroad using this instrument, which is not regulated in most countries. So it’s something that strikes us, it’s quite interesting.”

The scheme was carried out as follows:

“The Primus Initiative was an Oscip that was intended to provide rolls for the S.E.A.P (the penitentiaries). It received the resources and transferred them to various tourism companies and digital exchanges, which would aim to divert and cool the money from the tip. Part of that tip was going to Colonel César Rubens and part to the Sérgio Cabral. Delegate Marcelo laundered money through Finder, a consulting firm he was a partner in, so he will also be liable for money laundering and other crimes that we are still investigating.”

Maybe they just didn’t know about Monero

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