Bombastic reporting, at a critical moment for the state of Rio
Most Rio citizens make it a habit to mistrust politicians. It’s no small task to find and publish proof of fraud, traces of possible illegal monetary gain, collusion. And even when the media brings such information to light, rarely does it have far-reaching, lasting impact.
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Could this be about to change, in the context of the Lava-Jato investigations, the recession and national political instability?
This would be good for Rio — if the state Attorney General’s office accepts the new accusations and they’re proven in court. Impoverished by recession and reduced oil royalties, the state urgently needs revenues allegedly embezzled or forgone for reasons that don’t serve society as a whole. Health units are closing. Public servants await delayed wages. Police officer no longer earn overtime and are also paid late.
Governor Pezão is on leave, in treatment for a non-Hodgkins lymphoma; the vice-Governor, Francisco Dornelles, has taken up his desperate search for funds, at a time when Brasília itself has nothing to offer. Dornelles is eighty years old; the next in the line of succession for the state executive is state representative Jorge Picciani, the very focus of O Globo newspaper’s reporting, summarized further down.
We’ve now seen a direct accusation related to Olympic construction here. The Attorney General’s office says there was fraud in the earth moving work at the Deodoro Complex, the location for radical sports competitions.
With low morale and empty pockets among security forces, will the Games have sufficient policing? Whether the Metro extension to Barra da Tijuca will be ready in time to serve Olympic tourists depends on a Bank of Brasil loan, as yet unsigned. And the funds to remodel the Leblon Tourist Police offices (one hopes it will stay fairly empty during the Games), according to today’s”Gente Boa” column in O Globo, will come from the Brazilian Hotels Association.
The state’s liabilities — i.e., taxes owed but not paid — come to R$ 66 billion, according to O Globo. This amount is more than three times the state’s 2016 budget deficit of R$ 20 billion.
The paper published long reports, today and yesterday, in the Rio section, detailing suspicious meetings, unusual real estate deals, strange tax breaks, family and friendship ties, cattle purchases by state contractors — and questionable campaign donations. Beer manufacturers’ freedom to set the rules of the game, on one hand, and on the other, their close relations with government officials, bring to mind relationships between the Manguinhos Refinery and the state and also, Rio de Janeiro bus companies and City Hall.
The articles center on Jorge Picciani, of the PMDB party, president of the Rio state legislature and patriarch of an expanding political family. Picciani is the father of Leonardo, PMDB federal congressman; Rafael, state rep on leave to head up the Rio municipal transportation secretariat; Felipe, who runs the family cattle business; and little Artur, born in 2011.
The Globo reports lead the reader to wonder if all Rio business is run as described, if governance is always so irregular, and if official technical analyses are usually ignored.
The articles are tough to digest, full of information. A summary follows. Let’s see if the hard work of reporters Chico Otávio and Gustavo Schmitt have any effect on local public finances and politics. At very least, the reader will think twice before ordering an Itaipava brand beer.
- Repeated visits, in 2014 and 2015, of three ICMS (value-added tax) inspectors to Agrobilara, Jorge Picciani’s family’s business. Some of these visits coincided with the visits of the Itaipava brewery accountant. None of the inspectors are responsible for cattle businesses; they work in beverages and “tax substitution.” The State Revenue Internal Corrections Office doesn’t condone “out-of-office meetings between auditors and inspectees,” according to the paper.
- Jorge Picciani and Walter Faria, owner of the Grupo Petrópolis, which brews Itaipava beer, are friends and business partners, according to the report. Faria’s name appears, in fact, in the “Panama Papers”, in a report published yesterday, part of an international effort to analyze leaked information about offshore companies. Faria is a partner of Picciani’s Agrobilara in the Mineradora Tamoio, a gravel supplier for Olympic construction.
- One of the inspectors who visited Agrobilara owns a large and valuable real estate portfolio, part of which was purchased from the owner of a supermarket chain accused of tax fraud. The inspector is responsible for inspecting the supermarket chain. Another inspector is also a big real estate investor.
- The Itaipava accountant was accused of corruption-related crimes in the state of Mato Grosso.
- The Itaipava beverage distributors owed more than R$ 1 billion to the state in 2015. Nevertheless, the state of Rio awarded them a tax break of R$ 687 million that year, despite an official opinion against giving the break, from the state Economic Development Secretariat.
- In November 2015, state Finance Secretary Julio Bueno removed a trigger mechanism which allowed the state to update taxes due on beer prices, to keep up with inflation and seasonal factors. Also last year, the Finance Secretariat barred the state Attorney General’s office from accessing tax data.
- Every time the state took the Grupo Petrópolis to court for its unpaid ICMS, between 2010 and 2015, the company won on appeal. This was apparently not the case for competitor Ambev, which is on the state’s list of top liabilities, with a tax debt of R$ 525 million (having lost appeals related to this sum).
- The Grupo Petrópolis donated a total of R$ 101 million to campaigns in the 2014 elections. Of this, R$10,8 million went to the state office of the PMDB. The campaign of Luiz Fernando Pezão, now on medical leave, received R$ 1 million from the Grupo.
- The Grupo Petrópolis’ distributors form a complex web that exists to illegally reduce the group’s tax burden, according to the Attorney General’s office, the Globo reports say.
- State contractors participate in Jorge Picciani’s family’s Agrobilara cattle auctions. Here is a list of buyers and animals purchased, including R$1 million paid for half a cloned animal. According to the Dinheiro Rural magazine, the sale was one of the first for such a large amount.
The Globo reports include responses from individuals and government agencies involved in the accusations.
Julia, I’d be careful on the tax issues involving beer. The “tax substitution” you mention is what ICMS does for beer, soft drinks, cigarettes and other products sold at small retail stores which are impossible to “fiscalizar” because they’re almost entirely cash businesses. Basically, under the “substituted tax” regime, the original manufacturer pays all the ICMS tax, and none of the distributors, jobbers, wholesalers or retailers or anyone else in the chain owe that tax. The amount the manufacturers pay in ICMS is calculated according to a formula which, generates huge disputes. Those disputes go to court. If Itaipava is winning those court cases, it’s a court issue, not a tax avoidance issue, and (we sincerely hope) not a corruption issue.
As to granting tax breaks, that’s in line with standard Brazilian government policy, federal state and local, where the idea is to foment investment which foments jobs. Or so the theory goes. The State of Rio has actively sought manufacturing businesses and that’s the way they do it. Formerly, with the huge offshore oil royalty revenue, the State didn’t need the income. Now it does.
If you read the original reporting Michael, you feel like never cracking open another Itaipava. Course we need to be sure, to have proof. And the State Attorney General must now work on this.