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CADE | Agency Evolves Into Cartel Hell?


Source: Valor Econômico

CADE, the Brazilian anti-trust regulator, and the federal police are working together on a mega-operation, serving search and seizure warrants on the headquarters of 13 companies suspected of organizing cartels in the São Paulo and Federal District subway and railroad systems.

The companies are accused of defrauding public tenders for concessions dealing with the construction and maintenance of metro rail lines in São Paulo and the federal capital. The companies are accused of defrauding auctions for the maintenance of metro rail systems in São Paulo and the federal district.  

The operation was dubbed Operation Linha Cruzada — “Crossed Lines.” The alleged cartel is accused of fraud involving the following public tenders: Construction of Line 5 and maintenance of trains in the CPTM’s 2000, 3000, and 2100 series; maintenance on the federal district metro rail system; Boa Viagem, the CPTM’s program for thee maintenance, modernization and maintenance of trains; and public tenders for the acquisition of CPTM train cars.

The identities of the companies were not released. They are located in Brasília, São Paulo, Diadema (Greater SP Metro Arera) and  Hortolândia (SP).

According to Cade superintendent Carlos Ragazzo, the operation was based on evidence obtained from a whistleblower, who chose to testify in exchange for a reduced sentence. “One of the participants in the cartel described his own activities and those of others in the public tenders in question.” According to Ragazzo, the fact that a witness stepped forward against the cartel “is clear evidence that people are taking Cade seriously.” “The leniency program is bearing fruit,” he said. “This is a significant case based on powerful evidence,” said Ragazzo.

According to the superintendent, the investigation indicates that the strategy of the cartel was to hold pre-auction meetings at which “the scope of the tender among the pre-qualified bidders” would be determined.  Next, they would assign a company to bid on a specific service, such as the extension of a subway line, and another to bid on other services, such as the installation of electrical lines. At the end of the process, the participants would profit from a public tender that was fraudulent from the beginning.

According to the Agência Estado — the only news organization reporting substantially on the case:

It is suspected that the companies met to decide beforehand the results of the auction, padding the income of cartel members by some 10% to 20% over the correct price

In 2010, the Folha de S. Paolo accurately published the results of one such auction two days before the auction was held.

Returning to the press release:

The case shows, finally, that the anti-trust agency is undertaking investigations in important sectors of the economy. In recent weeks, Cade acted against long-standing cartels in gas stations and bakeries.

It is turning now to more significant cases in such sectors as transport and construction, involving high-profile companies. “We are focusing on indications of cartel formation on a larger scale. This is an investigation into an important sector of the economy, with a direct impact both on the government and on people’s lives.”

No date has yet been set for Cade to try the case of the alleged cartel.  After carrying out the operation, the companies involved have the right to defend themselves and to challenge the evidence collected by Cade and the PF.

The Estado closes with an intriguing caveat:

The superintendent of  Cade has the right to investigate companies, not people. For that reason, it cannot say whether any suspicion fell on members of the State government in the alleged fraud.

The scheme might explain an issue that hits close to home here in the Vila Maddá, where

one of the suspects is Line Two-Green Line. Evidence of fraud is found in contracts for the implementation of operating systems between Ana Rosa and Alto do Ipiranga stations, as well as complementary systems linking Ana Rosa and Vila Madalena.