WorldPaulo Guedes' company in tax haven exposes public ethics in limbo

Paulo Guedes’ company in tax haven exposes public ethics in limbo

Activists decorate the entrance of the Ministry of Economy with chicken feet and ‘dollars’ with the image of Paulo Guedes in a protest against the minister’s company in a tax haven this Friday, in Brasília.Joédson Alves (EFE)

The investigation Pandora Papers took out of the shadows companies offshore of important Brazilian public figures and showed, as a side effect, a relaxation of the controls on ethics in the Bolsonaro Government. Economy Minister Paulo Guedes is not the first minister of state to undergo public scrutiny in relation to his business. Perhaps the most emblematic case in this regard is that of former Sports Minister Orlando Silva, who had to resign from the government of Luiz Inácio Lula da Silva in October 2011 after being accused of being involved in a scheme to embezzle resources public. The investigation against him ended up being shelved almost a year later for “absolute lack of evidence”, according to the lawyer Sepúlveda Pertence, then president of the Public Ethics Commission (CEP), said at the time. It was the end of a crusade against the minister that had started in 2008, when he even had to justify the purchase of a tapioca worth 8.30 reais on the corporate card.

Guedes’ alleged misconduct ―by keeping his money protected in dollars, while negotiating facilities for those who have offshore in the tax reform―, on the other hand, were received with greater indulgence. “The discussion on public morality is cyclical and appears and disappears as a central theme of Brazilian politics from time to time,” says Oscar Vilhena Vieira, director of the São Paulo Law School of the Getulio Vargas Foundation. Sometimes, this issue is going through a period of greater intensity, as happened in the Mensalão and in the beginning of the Lava Jato, which had as a rebound an intensification in the legislation against corruption, with the transparency law and criminal organizations.

According to Vieira, however, the country is now experiencing a moment of regression in relation to the issue of public integrity. “The administrative improbity law that was approved after the Collor Government scandal, for example, is being dismantled. There is a certain relaxation [dos gestores públicos], who have the feeling that everything is allowed”, he says. “What we are seeing now is the result of a perception that the guard has been lowered and that, therefore, it is not so important to demonstrate that it behaves correctly.”

Not everyone is oblivious to Guedes’ business. A modest demonstration outside the Ministry of Economy on Friday tried to convey the message that, at the moment when photos of Brazilians having to content themselves with the remains of bones to cure hunger are in the media, it is at least immoral for a minister profit from protecting itself from fluctuations in the economy abroad. The phrase “Guedes in paradise and the people in hell” was painted on the entrance to the agency in Brasília, where activists threw chicken feet and bones, along with counterfeit $100 bills bearing the minister’s image.

The State Careers Forum (Fonacate) filed a complaint against the Minister of Economy for violations of the Code of Conduct for the High Federal Administration and the Code of Professional Ethics for Civil Servants. They claim that there is, yes, a conflict of interest in maintaining a offshore in tax haven by Guedes. “In addition to being illegal, it is immoral and dishonest that the Minister of Economy, who has already accused public servants of being parasites of the State, maintain the management of millionaire assets in accounts of tax havens abroad and, also, which are instantly valued by exchange variations directly influenced by your decisions as a public agent, thus allowing you to profit millions of reais without any effort”, states the document prepared by the forum’s legal advisors.

Senator Randolfe Rodrigues (Rede-AP) and the Brazilian Association of Economists for Democracy (Abed) even asked the Federal Supreme Court (STF) to request the Attorney General’s Office (PGR) to investigate the existence of offshore de Guedes and the president of the Central Bank, Roberto Campos Neto, since both are members of the National Monetary Committee (CMN) responsible for the country’s exchange and credit policies and kept the companies after taking office. But the requests were filed by Minister Dias Toffoli, who understood that it is not the role of the STF to request “the opening of an investigation”. In a statement, Guedes’ lawyers said this Saturday that the filing “is another unequivocal demonstration that there is no illegality in keeping an investment vehicle abroad, declared to the Revenue and other competent bodies.” Guedes’ defense alleges that the documents presented to the PGR show that the minister stepped away from the company’s management and “never benefited, in any way, from the position he holds.”

Guedes doesn’t seem the least bit bothered by the criticisms. At an Itaú BBA bank event on Friday, he justified only that his offshore It’s cool. “It was declared, there was no movement across borders, bringing in money from abroad or sending money abroad,” he said. The minister, who until then had spoken about the case only through his lawyers, made a point of informing that he “lost a lot of money” since taking public office, and that his investments in Brazil are managed by a blind trust, a fund where external managers have full control over the assets, in order to avoid conflicts of interest for the true shareholders. The minister’s posture is that of someone who doesn’t seem interested in giving explanations. Guedes did not present documents to prove his words and limited himself to saying that the competent bodies have already been informed.

public ethics

The Public Ethics Commission itself, which analyzed Guedes’ business in May 2019, ended up supporting the minister’s stance. The body created in 1999, whose function is to serve as an advisory body to the President of the Republic and the ministers of State in matters of public ethics, reported in a note that, after analyzing the documentation sent by Guedes, it was found that the minister himself would adopt “measures to mitigate or prevent the occurrence of conflicts of interest”. Questioned by the report about what these measures are, the CEP limited itself to stating that “among the measures usually determined and accepted by the Commission, there is a recommendation to keep the positions of its investments unchanged throughout the term of office”.

It wasn’t always like this. At other times, ministers with similar positions had stricter responses from the CEP, as happened with Henrique Meirelles, then finance minister under Michel Temer. In August 2016, CEP released the report on the case of a potential conflict of interest by Meirelles upon receiving dividends from a company of which he was a partner. Consultation to the body was requested by the minister himself, at a time when the government was at odds with part of public opinion. The CEP opinion recommended that Meirelles could only receive profits accumulated by his company until April 30, 2016, in a period prior to his inauguration, even if the minister stated that the investment decisions of his company were up to an administrator, in a model similar to blind trust.

Attorney Mauro Menezes, who was an advisor to the agency between 2012 and 2018, and reporter for Meirelles’ case, explains that confidentiality is an important part of the CEP’s work. However, when the public interest demands greater transparency, he argues that documents should be shared. “The Ethics Committee is not a black box”, he explains. EL PAÍS asked the CEP to make public the report of the initial analysis of the Guedes case, from 2019, but, until the publication of this report, there was no response. The agency only informed that it cannot reveal anything about new investigations, since the law says that the investigation of ethical violations must have the seal of “reserved” secrecy. This means that the case cannot be made known to the general public until it is concluded. The body also highlighted that “any complaints, representations and new information will be investigated”, as provided for in the Code of Conduct of the High Federal Administration.

There is no carte blanche in the Government

Menezes explains that it is not enough for Guedes to be accountable to the CEP at the beginning of his term to say that there is no conflict of interest, as the control model has to be permanent. “The mere fact that there was this information does not give the authority a carte blanche to make decisions as it wishes throughout its position”, explains the former adviser. He admits that just being a shareholder of a company in a tax haven, in principle, is not an obstacle for someone to exercise a public function. However, this does not exempt the minister from accounting for acts that eventually benefited him in his private business, such as the tax reform. “While it’s not illegal to have a offshore, it is quite questionable that authorities, especially in the monetary area, who must ensure economic stability and stimulus of the country’s revenue, keep their investments safe from instability and still with tax burden”, he says.

Menezes also recalls that the CEP does not have the prerogative to fire anyone, but it can suggest the removal of authorities. This is what happened in the Dilma Rousseff government with the dismissal of Carlos Lupi from the position of Minister of Labor and Employment. At the time, the explanations given by the minister about the allegations of irregularities in the Ministry were not considered convincing by the Ethics Committee. The six councilors who make up the body, and are appointed by the Presidency of the Republic, voted unanimously for the removal of the minister. Parallel to the investigation to be carried out at the CEP, Guedes will also have to explain himself to the Chamber of Deputies. The hearing does not yet have a date, but it could take place as early as next week.

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