João Paulo Batalha – Corruption in Portugal: The mighty have fallen – the elite’s day of reckoning

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A prime minister, a banker, the heads of the top telecom company, construction moguls, assorted friends and family. Portugal’s biggest corruption case ever is a veritable who’s who of the nation’s political and business elite.

João Paulo Batalha is a social activist and founding member of Transparency International Portugal


José Sócrates was the poster boy of Portuguese democracy’s success story. A charismatic leader who began his political education in the youth movements of the mainstream centrist parties following the 1974 revolution, he rose through the ranks of the centre-left Socialist Party to become Deputy Minister, then Minister for the Environment in the 1990’s, under now UN Secretary General António Guterres, before snagging the prime minister post in 2005. Unlike older leaders before him, whose political education took place in the prisons of the dictatorship, Sócrates (named in homage to the Greek philosopher) was one of Portugal’s first top rank politicians to have been bred by the European-style multi-party democracy that had taken root in the country after the revolution. He is decisive, articulate and charming, always moving with the confidence – bordering on arrogance – of those who strive to make their mark in history. And he did make his mark – just not in the manner  he hoped. This Wednesday, he became the first former prime minister ever to be charged with corruption in Portugal.

What happened to this star of the centre-left? In the 1990’s, as Environment Minister, José Sócrates closed down the last open air rubbish tips in Portugal, going against the will of the populace, which were fighting to keep the new rubbish processing plants out of their back yards. In 2005, he won the Socialist Party’s first absolute majority and became prime minister. Two years later he helped clinch the negotiation of the Lisbon Treaty that radically altered the shape of the European Union and even managed to hold on to power in 2009, as the international crisis began to negatively affect the Portuguese economy.

Nowadays, who remembers? Sócrates’ political testament will not be his achievements, but instead the 4000-plus page list of criminal charges filed Wednesday by the Portuguese Public Prosecutor’s office against him for corruption, money laundering, forgery, and tax fraud. He is not alone: “Operation Marquês” – named for the location of the luxury apartment building the former prime minister was living in, near the centre of Lisbon – is taking a network of nine companies and 19 people to court on corruption related offenses. Along with Sócrates, another one of Guterres’ former Socialist ministers, Armando Vara – who was already convicted and is awaiting appeal on a different corruption charge – will be in the dock. Also charged are Ricardo Salgado, until recently Portugal’s most powerful banker, as well as Henrique Granadeiro and Zeinal Bava, respectively the former chairman and the former CEO of Portugal Telecom, until just a couple of years ago one of the country’s largest corporations and the star of the telecom and technology sector.

The charges filed on Wednesday go well beyond the individuals and companies named in the document. It describes how, effectively, a prime minister was able to put up a “For Sale” sign on his office door from day one, used promiscuous connections with powerful companies and businessmen to enrich himself, and did so for the whole period he was in power from 2005 to 2011.

There are three basic layers to the massive corruption network the Prosecutor is bringing charges against: the first is run of the mill bribery, through which a large construction conglomerate, Grupo Lena, paid off the prime minister in exchange for public works contracts – the most egregious case was the awarding of a contract to build a high-speed railway line to a consortium including Grupo Lena and Brazilian Odebrecht (well known for its corrupt ties to the Car Wash scandal in Brazil). The multimillion Euro contract was awarded on a Saturday, just days before the Government was forced to tighten austerity measures that ended in an emergency 78 billion Euro bailout by the IMF, ECB, and the European Commission. Due to this crisis the project was indefinitely frozen and the railway was never built. Still the consortium managed to get a 139 million Euro payout from the Portuguese taxpayers for breach of contract.

Then there’s the second tier of corruption: in this one, José Sócrates is nothing more than a facilitator, taking bribes to ensure the government, which at the time had a preferred share in Portugal Telecom, made decisions about the future of the company in line with the will and designs of powerful banker Ricardo Salgado of the Espírito Santo Bank. Although only a minority shareholder in the company, Salgado and the bank still managed to dictate the appointment of its CEO and Chairman, as well as ensure Portugal Telecom invested most of its considerable assets in Espírito Santo Bank’s financial products. That also suddenly soured when, in summer 2014, Espírito Santo went bankrupt, bringing Portugal Telecom down with it, as the technology company had huge exposure to the bank’s toxic assets. Portuguese taxpayers dumped nearly 5 billion Euros in the Espírito Santo sinkhole. Portugal Telecom no longer exists.

The third axis of corruption is a melange of the previous two. It again concerns bribes accepted by Sócrates in order to direct public resources – in this case, those of the government owned bank Caixa Geral de Depósitos – into a real estate development in the Algarve in southern Portugal that also collapsed, leaving the taxpayers to foot the bill. The cost of this and other ruinous credits made by the publicly owned bank, often given to friends in the business world or political cronies, required recapitalization of around 3 billion Euros in order to plug the hole in the bank’s credit portfolio.

According to the criminal charges, Portugal’s loss was Sócrates’ gain: after losing early elections in 2011 provoked by the bailout and the suffering it brought, the former prime minister set up in lavish apartments in Lisbon and Paris, where he studied political science and lived well beyond his means. It took the Public Prosecutor’s Office over four years to uncover the network of business politicians, political businessmen, staffers, friends, family and front men that funneled illicit money through over 500 bank accounts, from Portugal to Switzerland, via Angola and a constellation of offshore havens. Alongside the shocking, there’s the ridiculous: one of the allegations is that Sócrates paid a ghost writer to produce his master-thesis – a book on torture in democracies – then distributed over 170 thousand Euros to friends so they could buy copies of that book – almost 7 thousand of them – to get it on the best seller list. There is always vanity in corruption. Most of the tax offenses cannot be prosecuted because the prime minister’s money men took advantage of a fiscal amnesty legislated by the prime minister himself, allowing people to repatriate previously undeclared sums back to Portugal, pay a minimal 5% tax, and be free of any prosecution. If so, this essentially means José Sócrates the prime minister allowed José Sócrates the crook to launder money, protected by an amnesty law by the Portuguese State which he oversaw.

Where do we go from here? Nowhere, if it’s up to Portugal’s political class. Leaders of all parties in Portugal refuse to talk about the Sócrates case, dismissing it as a judicial matter. It isn’t. In order for a cohort of powerful businessmen to be in league with corrupt politicians for over five years running, requires a lot of other institutions to be asleep at the wheel. While the prime minister was doing his deals, parliamentary scrutiny failed spectacularly, regulators were blind and deaf, the state audit institutions were busy looking at Excel sheets while rubber-stamping catastrophic contracts, such as ruinous Public-Private Partnerships and other extravaganzas. The multi-party representative pluralistic democracy that provided for the political education of José Sócrates failed in its one job: to ensure the protection of the public interest and keep citizens safe from crooks. If this doesn’t merit a serious political discussion, the whole political system needs to stand trial, not only Sócrates and his accomplices.


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