Former Peruvian President Toledo Targeted in Odebrecht Investigations

Peruvian authorities issued a preventive detention warrant on February 9 against former President Alejandro Toledo. The warrant pertains to the Odebrecht scandal, which has spread to several Latin American countries. Toledo is now in California and being charged for accepting up to $35 million in bribes during his administration.

The Odebrecht case, which has become known as the car wash scandal, involves a Brazilian conglomerate under investigation for mass bribery and money laundering throughout Latin America. In December of 2016, the company pleaded guilty in U.S. federal court to paying $788 million in bribes to government officials throughout Latin America in order to secure lucrative construction contracts. The investigation uncovered a department in the firm specifically dedicated to distributing bribes, using “shell corporations and tax havens to avoid detection.”

In the past two months, the scandal has engulfed the entire continent, with ongoing investigations in 10 countries as far-reaching as Angola. Shannon K. O’Neil, an analyst at the Council on Foreign Relations, describes the situation as a “Pandora’s box [that] could go on for years.” On February 16, national prosecutors and attorneys general of 11 countries signed an agreement for international cooperation and the creation of joint teams to carry out investigations into the corruption of the car wash scandal that has become the largest bribery scandal in the continent’s history.

Since the beginning of 2017, state prosecutors and journalists have uncovered Odebrecht’s deep reach in Peru. While the administrations of three former presidents are under investigation for ties to the scandal, former President Alejandro Toledo has borne the brunt of media attention.

Serving from 2001 to 2006, Toledo ran on an anti-corruption platform and infrastructure development, but his administration became infamous for its many scandals. These ranged from personal scandals involving prostitution and an illegitimate daughter to financial corruption charges. He is now being charged for influence peddling, money laundering, and favoring Odebrecht for the construction of the Interoceanic Highway, which connects Brazil to Peru’s ports.

Odebrecht has had a large impact on Peruvian development and its economy over the last 40 years. It has participated in 52 projects with the Peruvian state since 1990, and its operations since 1979 have resulted in the creation of no fewer than 27 companies, all of which will be investigated by the Peruvian Congress. The Interoceanic Highway was an infrastructure project begun under Toledo’s administration and approved by officials also under investigation that went more than four times over budget at $4.5 billion. Construction of a natural gas pipeline that began under President Ollanta Humala, who is also under investigation, remains unfinished, with a projected cost of $7 billion. The subway line in Lima constructed under President Alan García’s administration also entangles several officials from his administration.

The Peruvian state now faces the challenge of finding new contractors for existing infrastructure projects, most notably the Gasoducto Sur Peruano (GSP), a gas pipeline meant to connect the country’s Amazonas region to the southern coast. Construction of the pipeline was only ten percent complete before the government suspended it on January 23. Current President Pedro Pablo Kucynzski, who is struggling with a persistent fall in the polls despite managing to remain removed from the investigations, must now face the hit from the immediate economic cooling effect of this scandal. Reduced foreign investment and a delay in massive infrastructure schemes may cost as much as one percent of Peru’s economic growth, which is bad news for the president, as he relied on the economic stimulus from these projects to rejuvenate his support.

Toledo has staunchly denied the charges, claiming that he left the country before they were filed against him and insisting that the government provide proof for their accusations. His lawyer has stated that he will return to the country if he is guaranteed a fair trial. President Kucynzski, who has demanded that Toledo return to the country and face prosecution, has insisted that the United States extradite Toledo, but his legal entry and the insufficient evidence against him make it difficult to present a legal case for deporting him.

Lima was shut down by massive anti-corruption protests on February 17. Demonstrators gathered in front of the Palace of Justice to demand that judicial authorities properly try the charged officials and not turn this scandal into another example of Latin American impunity. Multiple trade unions and various social and political groups organized the rallies. Responding to their concern, Minister Marisol Pérez Tello cited the need for legislative measures to prevent corruption, insisting that “Odebrecht is a symptom, the great sickness is impunity.”

Despite Martin Santivanez,  a political scientist at San Ignacio de Loyola University in Lima, describing the scandal as a “moral catastrophe” for Peru, it could be a sign of increasing scrutiny and higher demands for good governance from citizens, media, and prosecutors. The fallout from this scandal could further push Kucynzski’s administration in the direction of significant anti-corruption reform on a continent that has a tradition of corruption reaching back into its colonial past.