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«How the numbers rackets use Rio samba societies to skim public funds and launder illegal gambling money»

BICHO

Here is that clipping I promised you about the complex economics of the mighty and magnificent Carnaval celebrations of Rio de Janeiro:

As I mentioned in a previous note, it is not so shocking to find organized crime thriving in an atmosphere oxygen rich with private and public subsidies.

ÉPOCA magazine reports — from its November 11, 2012 issue — and I translate a selection:

Edson dos Santos is the managing partner in a company with an imposing name — Alumilax — that ostensibly fabricates and sells metals. One look at Edson’s home is enough to realize that the pomp and circumstance suggested by the company’s name is nothing more than a piece of paper bearing his name and a CNPJ.

Edson is nothing more than a front man who lives in the Preventório shantytown in Niterói, Rio de Janeiro.

Alumilax is nothing more than a shell corporation.

Edson and Alumilax are part of an intriguing scheme set up by the Rio numbers rackets to conceal the origin of stolen public funds, or launder dirty money through accounts used to mount Rio’s Carnaval celebration.

Or perhaps both at once.

ÉPOCA magazine has obtained exclusive access to an investigation by the Rio state prosecutor into the financing of Carnaval celebrations and their escolas de samba.

During Carnaval 2010, shell companies issued 14 falsified receipts worth R$ 1.25 million and made payable to such samba schools as Mangueira, Imperatriz Leopoldinense, Mocidade Independente de Padre Miguel, União da Ilha do Governador and Viradouro.

Among the papers discovered were four promissory notes executed by Alumilax.

Rio de Janeiro’s carnival societies are the prime mover of some R$ 1.5 billion per year in tourism revenues.

To bring “the greatest show on earth” to the avenue — and the world stage — Rio has recently begun to follow positive examples drawn from the business world — pitching to sponsors and selling rights to its brands to companies desirous of associating themselves with the wildly popular celebration.

But more and more funding is still needed for the increasingly expensive spectacle, and so the Carnaval establishment of Rio de Janeiro continues to use underhanded practices that stray far from the sort of benevolent capitalism that creates revenues, taxes, income, and jobs.

Falsified receipts are commonly used to justify expenditures that never existed and were never paid. The goods were never sold, the price was never paid, but even so, the transaction was accounted for.

This is how one creates an artificial profit margin that can be used to wash dirty money, such as the earnings of the bicho-bankers of Rio de Janeiro.

In the case just discussed, it is as though the bicho bankers received a clean R$1.25 million check in exchange for the same amount in dirty cash.

The same logic applies to the misappropriation of public funds. The samba schools simulate expenditures funded with public money from the city government, but never spend the amounts declared on the phony receipts they supply.

In this way, money can be spent for other purposes than for the financing of a carnival society.

Here the article sidebars off into an interview with prominent anthropogist Roberto da Matta. The article dates from November 11 of last year.

Roberto da Matta: What does Carnaval say about Brazil?

In an indirect confession, the president of LIESA, Jorge Luiz Castanheira, admits to practices akin to money laundering.

During a public audience held last Wednesday, when asked to explain the allocation of public funds to Carnaval, Castanheira hinted that the samba schools buy materials all year long with money not duly accounted for. Only after receiving funds from the city government do the samba schools begin to issue notes to justify their expenses.

In an indirect confession, the president of LIESA, Jorge Luiz Castanheira, admits to practices akin to money laundering. During a public audience held last Wednesday, when asked to explain the allocation of public funds to Carnaval, Castanheira hinted that the samba schools buy materials all year long with money not duly accounted for. Only after receiving funds from the city government do the samba schools begin preparing receipts to justify their expenses.

Castanheiro would not, however, say where the money to support the samba schools in the interim comes from. “This year’s budget will not go into affect until the second quarter. We will receive the money before the end of January. In January, we have at least a month of Carnaval. How am I going to get a proper receipt for wood, carpentry services, fabrics, and all the other stuff we are currently buying? I must tell the truth,” said Castanheira, who was unaware that an ÉPOCA reporter was in atttendance.

Sought out after the hearing ended, Castanheira said he had misspoken and that he defends the allocation of municipal funds to the samba schools several months before Carnaval begins. He says that Liesa is no longer associated with the bicho bankers and has taken steps to audit its finances.

Castanheira is a relatively unknown quantity whose election in 2007, however, ended the run of a bicho-controlled leadership that began in 1984. LIESA continues to list legendary bicheiros as members of its advisory council:

  1. Ailton Guimarães Jorge
  2. Aniz Abrahão David
  3. Luiz Pacheco Drumond

«Capitão» Guimarães was a notorious torturer during the dictatorship.

Castanheira added, however, that the samba schools should be questioned individually about the issuing of false receipts.

The LIESA Web site is not exactly a Vesuvius of financial forthrightness. Neither is the Rio Junta Comercial — roughly equivalent to the corporation registry of a U.S. state where you can look up corporations. In Brazil, you most often have to go to where the dusty boxes are stored, it seems to me.

State prosecutors are categorical in stating that Carnaval is being used to launder dirty money.

With that in mind, it recommends that the public administration take the proper precautions before joining the festivities.

“The public and notorious fact, that the bicho-bankers fund the samba schools in order to launder money, draws attention to the fact that millions allocated by the Rio city government to Carnaval were used to purchase goods and services at commercial establishments belonging to persons with ties to the rackets,” the state prosecutors said, in a joint communiqué.

Castanheiro would not, however, say where the money to support the samba schools comes from. “This year’s budget will not go into effect until the second quarter. We will receive the money before the end of January. In January, we have at least a month of Carnaval spending. How am I going to get a proper receipt for wood, carpentry, fabrics, and all the other stuff we are currently buying? I must tell the truth,” said Castanheira, who was unaware that an ÉPOCA reporter was in the audience

Sought out after the hearing ended, Castanheira said he had misspokien and that he defends the allocation of municipal funds to the samba schools several months before Carnaval begins.

He says that Liesa is no longer associated with the bicho bankers …

He has three of the biggest bicheiros ever on staff in an advisory capacity!

and has taken steps to audit its finances. Castanheira added, however, that the samba schools should be questioned individually about the issuing of false receipts.

The state prosecutor is categorical in stating that Carnaval is used to launder dirty money. He recommends that the public administration take the proper precautions before joining the festivities. “The public and notorious fact that the bicho bankers fund the samba schools in order to launder money draws attention to fact that millions allocated by the Rio city government were used to purchases goods at commercial establishments belonging to persons with ties to the rackets,” the state prosecutors said, in a joint communiqué.