Lawyer, Jurist and legal advisor in São Paulo, Brazil
The Corruption Scandals in Brazil and the Impeachment Proceeding against the President of the Republic.
This brief article is intended to report on a political and social practice developed in Brazil as of 2015, and demonstrate that allegedly impeachable offenses have been committed by the President of the Republic, Dilma Rousseff.
In Brazil, the years 2015 and 2016 were marked by several political and economic crises, which were the fruit of problems taking root far earlier or, at least, as of 2014. One of these crises was known as the discussion of the so-called “manipulation of public accounts” (taking out unauthorized government loans from public banks to hide the depth of the recession and to boost public spending), which could provide the grounds to impeach Brazil’s current President, Dilma Rousseff.
But what are these “manipulation of public accounts” [which, in Portuguese, uses the verb “to pedal” or “pedalar”]? In the language adopted by government budget pundits, the term “pedaling” has always been used [in Brazil] to define a delay in payment, when a government expense to be due on a given date ends up being postponed, one way or another. The State, or government duty remains the same; however, putting it off allows for temporarily reducing expenses and creating a brief effect of primary surplus.
In Brazil this is possible because the tax result is calculated by the Central Bank on the so-called cash basis, i.e., the expense is computed on the date it was withdrawn from public treasury.
In many countries around the world, such as the USA, the United Kingdom, Canada and France, it is not common practice for the monetary authority to be in charge of measuring major tax indicators.
Even less usual is for public accounts not to follow the accrual basis accounting, such as is the case with companies, where one enters the obligation at the time it is incurred, rather than on the date payment is made.
In 2014, to artificially improve the so-called “primary surplus” the federal government resorted several times to “postponing” payment relative to such expenses.
A specific manner to so do was to take out unauthorized government loans to hide the depth of the recession.
Public banks have paid the expenses of the National Treasury for it, especially the social programs benefits (such as the unemployment compensation and welfare program [referred to as “Bolsa Família Program” in Portuguese]).
The Federal Accounting Court (or TCU) has shown significant amounts in overdrafts in 2014 for an unprecedented period in the case of payments of benefits made by the Brazilian federal savings bank Caixa Econômica Federal, Banco do Brasil and BNDES (financial institution owned by the Federal Government) without the immediate repayment thereof by the National Treasury.
According to a report issued by the Federal Accounting Court (TCU), in late August 2014, the Brazilian federal savings bank Caixa Econômica Federal (CEF) stated assets in the amount of R$ 1,740.5 million to be paid by the Federal Government, relative to payments concerning social programs.
The same report shows that in the fiscal years of 2013 and 2014 the balance of the accounts concerning several social programs was negative between fifteen and sixteen months overall.
The Bolsa Família Program, which is the federal government’s most important social program, showed a negative balance of over R$ 2 billion on July 31, 2014.
As is the case with any account holder, when the bank account is negative, the financial institution charges interest, which causes such transaction to become a credit transaction.
The CEF even filed suit to collect the interest owed. It claimed to the Office of the General Counsel for the Federal Government and through arbitration the interests owed as a consequence of late payments of the loans taken out by the federal government.
On the other hand, the Fiscal Accountability Act (Federal Law 101/2000, Article 36), prohibits the government from taking out loans with a bank controlled by it.
Also, the White Collar Act (7492/86) states that if the controlling owner “takes out or receives, directly or indirectly, a loan or advance payment” from its own bank, it commits a crime.
The Federal Government, initially, and implicitly, acknowledged a “mere” irregularity in these transactions and affirmed that this has been common-practice in Brazil in recent years, and that delay payments should bring no severe consequences.
The government also asserted that nothing but a technical mistake had occurred and that, eventually, public funds had not been affected.
Afterwards, the Federal Government finally acknowledged (at least implicitly) said irregularity, as it paid the overdue amounts and upon the issuing of Executive Order no. 8535, of October 1st 2015.
On the other hand, one alleges that one thing is a few days delay payment for small amounts, whereas another, quite different situation is delay payment for a long period of time and for high amounts.
This second situation may amount to a true loan transaction which, besides prohibited under Brazilian law, has the effect of enabling concealment of more serious budget problems to pretty up official public accounts.
It is unquestionable that the Federal Government has been in default (not paying on due date) as to several Banks and Public Institutions, such as Banco do Brasil and the Brazilian federal savings bank Caixa Econômica Federal, as it would be failing to inform what were the contractually stated amounts.
Contractual breach may give rise to civil liability by the Federal Government (i.e., the legal entity representing the Federal Government).
The prerequisites for contractual civil liability are present: a) a valid contract; b) a breach by the Federal Government; c) a contractual unlawful act; d) damages affecting the Public Financial Institution’s cash flow.
As stated by several specialists, this measure could be characterized as “abuse of power by the controlling owner” under Article 117 of the Brazilian Corporations Act, because such owner would be using its controlling power to serve its own interest, or the party interest to increase, for the moment, the “primary surplus” to the detriment of the public function that should be exercised by Official Banks.
In view of the abuse of power by the controlling owner; of the amount of the damage resulting from it; and of the causal relation between the conduct and the damage, the civil liability of the controlling owner is characterized, with the consequent duty to indemnify the injured company.
At the time the movement for the impeachment of the President arises, the country divides into at least two large chains.
Those in favor of an impeachment understand that there are sufficient legal grounds for incepting proceedings. According to this understanding, the following provisions have been violated: Article 9, item 3 of Law 1079/50; Article 9, item 7, Article 10 item 4; Article 11, item 5, and Article 11 of Law 8429/92.
On the other hand, there are those against Dilma Rousseff’s impeachment, on the grounds that such proceedings would constitute a coup against democracy. They allege that during her current term of office the President has committed no offense, a necessary requirement for inception of impeachment proceedings.
They also state that such an action constituted nothing but retaliation by the House Speaker (Eduardo Cunha), as her political rival, as a response to the lack of support by the Executive and the President in respect of the investigations on irregularities and crimes allegedly committed by him. Eduardo Cunha is under investigation by the Federal Prosecution Office and accused of illegal transfer of funds abroad, money laundering, corruption in Petrobrás, holding of accounts abroad (Switzerland), without justifiable source, bribe-taking, etc.
Furthermore, one must note that there is still a risk that judicial consequences unfold before the Superior Electoral Court (TSE) against President Dilma because the Reporting Justice of the accounts Proceedings on her electoral campaign, Justice Gilmar Mendes, kept the proceedings open for examination of circumstantial evidence of irregularities as a result of the Federal Police’s so-called “Car Wash Operation”. Said operation investigates whether the financial resources from Petrobrás have been used as corruption currency, including in electoral campaigns.
By Marcelo Figueiredo. Lawyer, jurist and legal advisor in São Paulo, Brazil. Associate Professor of Constitutional Law at the Pontifical Catholic University of São Paulo Law School (PUC-SP). President of the Brazilian Association of Democrat Constitutionalists (ABCD), the Brazilian chapter of the Iberian-American Institute of Constitutional Law headquartered in Mexico. Vice-President of the International Association of Constitutional Law