Published On: November 14, 2012

Brazilian Bank President Arrested

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To the surprise of many in Brazil, the criminal justice system is working. Even with the mensalão trial not yet concluded, a new arrest was announced of the chairman and CEO of Banco Cruzeiro do Sul. A federal judge in São Paulo ordered the arrest of Luis Octavio Índio da Costa, and he was immediately taken to a São Paulo prison, Casa de Detenção de Pinheiros. According to Brazilian authorities, Mr. Índio da Costa is suspected of committing fraud. Last month Brazil’s central bank ordered the liquidation of Banco Cruzeiro do Sul and its subsidiary, Banco Prosper, after seizing the lender on June 4 due to fraud-related losses and after administrators failed to find firm takeover bids.

For months, Brazil has been holding its judicial breath waiting for the outcome of the mensalão trial in Brasília in the Supreme Court. Many Brazilians feared the worst – that as has happened in the past, everything would end “in pizza.” There were signs that this trial would be different, that politicians and powerful businessmen might actually be sentenced to prison. However, Brazilians are accustomed to being disappointed by the criminal justice system. Bribery, money laundering, and other types of fraud are so commonplace in news headlines that these “white collar” crimes elicit little more than a shrug of the shoulders.

Not only has Supreme Court Justice Barbosa pursued these men throughout the mensalão trial, handing out prison sentences of decades and not just years, but the willingness of the Supreme Court to alter the image of Brazil as a lawless country is having an immediate effect on other corrupt businessmen like Mr. Índio da Costa.

During the last two years, seven small banks have failed in Brazil, which has brought attention onto the banking industry. While Brazil’s large banks remain healthy and scandal free, investigations have turned up accounting scandals at smaller banks, which contributed to several bank failures. Mr. Índio da Costa’s bank, Banco Cruzeiro do Sul reported losses of as much as R$2.5 billion.

For years, financial analysts have been warning authorities about the dangers of wide-spread scandal at smaller banks, but it is extremely rare for these men ever to be arrested or face prison terms. Finally, this corporate lawlessness appears to have turned a corner. Brazilians like Miriam Leitão, a financial columnist, are applauding the recent turn of events.

Luis Octavio Índio da Costa, 48, a high-profile financier, is known for hosting lavish parties at his sprawling mansion in São Paulo. For authorities to investigate the huge losses at his bank is not surprising as he is no stranger to the limelight. Before his arrest, he was frequently glimpsed in gossip columns because of a romance with Daniella Cicarelli, a Brazilian TV hostess, and he was known for hosting extravagant parties featuring entertainers like Elton John and Tony Bennett.

The banker’s father, Luís Felippe Índio da Costa, a major shareholder in Banco Cruzeiro do Sul, was also put under house arrest this week in Rio in connection to the accounting fraud revealed at the bank. This prominent Brazilian family also includes an uncle of the younger Mr. Índio da Costa, who is a well-known architect in Rio, and a cousin, Antonio Pedro de Siqueira Índio da Costa, who was the vice-presidential running mate of José Serra in the 2010 presidential election.

Luís Felippe Índio da Costa and his son

Ironically, it is former President Lula who has helped inadvertently to put some of these wealthy men behind bars, including his own staff. Lula’s eight years in office witnessed great economic prosperity for the country. This prosperity, along with his personal charisma, successfully convinced the world Brazil was ready to host both the World Cup and the Olympics two years apart. As a result, today there is a great deal more international attention focused on Brazil. For example last week, The New York Times announced it would be producing an online version of its prestigious publication completely in Portuguese.

Once known on the international stage solely for soccer and the parties of Carnaval, world scrutiny is now taking a closer look at Brazil, the world’s sixth largest economy, and finding some areas in need of attention. Some of those areas, like improving infrastructure, are being addressed with government investments provided by President Dilma Rousseff. However, few people in Brazil or internationally expected to see such an immediate metamorphosis in the criminal justice system.

The court system in Brazil is still hopelessly backlogged, due to a shortage of judges and an unnecessarily complicated legal system rife with corruption as well as judges who ignore the precedent decisions of their colleagues. Nevertheless, the mensalão trial and now the arrest of a banking president point to a vast improvement and a desire by the court system, made up for the most part of honest, over-burdened civil servants, to prove it is not powerless to prosecute the rich and powerful leaders of the country.

Is it a coincidence that this new arrest of Mr. da Costa has come during the mensalão trial as several bankers have been found guilty of taking part in the mensalão scheme by laundering illegally obtained public funds? Some of those bankers are expected to go to prison when the mensalão trial finally concludes. Their proven guilt, along with the failures of several small Brazilian banks, have focused attention on additional banking scandals. Many Brazilians see this new arrest as a signal of an emphasis on holding bankers accountable for financial disasters.

{For additional information on the mensalão trial, see the CIE article “Barbosa Orders Pizza.”}

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  1. Nicholas says:

    Bravo for Brazil.
    And to be fair, how many of the bankers (fraudsters), in the United States, who knew and caused this so called “credit crisis’, but received bailouts from the leaders in the government, went to jail?

    Answer is none. So where is the justice?

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