Overbilling of R$425 million in São Paulo subway system.

247 - A cover story in Istoé magazine reports that, based on documents from Siemens, a company that was part of the cartel that drained resources from the São Paulo Metro and train system, the CADE (Administrative Council for Economic Defense) and the Public Prosecutor's Office concluded that São Paulo's coffers were defrauded of at least R$ 425 million by the scheme set up by rail transport companies to win and profit from public tenders during successive PSDB (Brazilian Social Democracy Party) governments over the last 20 years. Read more:

Trains and subways overpriced by 30%

Upon analyzing documents from Siemens, a company that was part of the cartel that drained resources from the São Paulo Metro and train system, the Administrative Council for Economic Defense (Cade) and the Public Prosecutor's Office concluded that the São Paulo state treasury was defrauded of at least R$ 425 million.

Alan Rodrigues, Pedro Marcondes de Moura and Sérgio Pardellas

Last week, ISTOÉ published previously unpublished documents and brought to light the voluntary testimony of a former employee of the German multinational Siemens to the Public Prosecutor's Office. According to the revelations, the scheme set up by rail transport companies in São Paulo to win and profit from public tenders during successive PSDB governments over the past 20 years involved the participation of authorities and public servants and fueled a multi-million dollar bribery pipeline that diverted money from public works to PSDB politicians. All the documentation, including a report of what was revealed by the former employee of the German company, is in the possession of the Administrative Council for Economic Defense (Cade), to whom Siemens – a confessed defendant for cartel formation – has been denouncing the fraudulent activities in the São Paulo Metro and trains since May 2012, in exchange for civil and criminal immunity for itself and its executives. Until last week, however, it was unknown how profitable this cartel was.

In recent days, as members of the Administrative Council for Economic Defense (CADE) and the Public Prosecutor's Office delved deeper into the paperwork and testimonies gathered so far, they were surprised by the number of irregularities found in the agreements signed between the São Paulo state governments (led by the PSDB party) and the companies responsible for the maintenance and acquisition of trains and the construction of subway and train lines. One of the authorities involved in the investigation even referred to the scheme as a fabulous story of extortion of public funds, in a plot involving key figures in the administration – including directors of the subway and the Companhia Paulista de Trens Metropolitanos (CPTM) – with the special participation of PSDB politicians, the main beneficiaries of the scheme. During the investigation, it became clear that the outcome of this plot is bitter for São Paulo taxpayers. The investigation reveals that the cartel overcharged each project by 30%. This is the same as saying that the PSDB governors threw R$3 out of every R$10 spent with tax money onto the rails. Sixteen contracts corresponding to six projects were analyzed. According to the Public Prosecutor's Office and the Administrative Council for Economic Defense (Cade), the losses to public coffers in these deals alone reached R$ 425,1 million. Sources linked to the investigation, speaking to ISTOÉ magazine, say these figures are expected to increase further with the detailed analysis of other bids won in São Paulo by the cartel's member companies in these and other projects.

Among the contracts in which CADE (Brazil's antitrust agency) detected blatant overpricing is the one for the supply and installation of rail transport systems for phase 1 of Line 5 Lilás of the São Paulo metro. The bidding was won by the Sistrem consortium, formed by the French company Alstom, the German company Siemens together with ADtranz (from the Canadian company Bombardier) and the Spanish company CAF. The services were budgeted at R$ 615 million. According to testimonies offered to CADE and the Public Prosecutor's Office, this contract yielded a 7,5% commission to politicians from the PSDB party and directors of the state-owned company. This means something around R$ 46 million in bribes alone. "Alstom coordinated a large agreement between several companies, thus enabling an overpricing of the project," revealed a Siemens employee to the Public Prosecutor's Office. Before the bidding, Alstom, ADtranz, CAF, Siemens, TTrans and Mitsui defined the strategy to obtain the highest possible profit. The companies that colluded to commit the criminal act are the main holders of the technology for the contracted services.

The person responsible for establishing the scope of supply and the prices to be charged by the companies in this contract was executive Masao Suzuki, from Mitsui. His company, however, was not the main beneficiary of the bidding process. The company that received the largest share of the funds from the Phase 1 contract for Line 5 Lilás of the São Paulo Metro was Alstom, which led the cartel's actions during the bidding. But all participants contributed to the kickback scheme. Each company had its own way of paying the commission, agreed upon with members of the PSDB party in São Paulo, according to the testimony of the whistleblower and former Siemens employee revealed by ISTOÉ in its latest edition. In this specific contract, the French multinational Alstom and the German Siemens resorted to the consultancy of lobbyists Arthur Teixeira and Sérgio Teixeira. Documents presented by ISTOÉ last week showed that they operate through two offshore companies located in Uruguay, Leraway Consulting S/A and Gantown Consulting S/A. To avoid leaving a trace of the bribery, both also use bank accounts in Switzerland, according to the investigation.

In the Line 2 Metro contract, the overbilling identified so far has caused an estimated loss of R$ 67,5 million to the São Paulo state treasury. The investigated bids were won by the Alstom/Siemens duo and the Metrosist consortium, of which Alstom was also a part. The executed contract stipulated the provision of engineering services, the supply, assembly, and installation of systems for the western extension of Line 2 (Green Line). Initially budgeted at R$ 81,7 million, this contract alone has received 13 adjustments since it was signed in October 1997. The French and German multinationals were responsible for the executive project for the supply and implementation of systems for the Ana Rosa/Ipiranga section. Alstom and Siemens received at least R$ 143,6 million to perform this service.

The 30% overpricing was also established in contracts signed between companies belonging to the cartel and the São Paulo state-owned company CPTM. Among them was the contract signed in 2002 for preventive and corrective maintenance services for ten trains of the 3000 series. Siemens won the bid for an original value of R$ 33,7 million. Subsequently, the German conglomerate subcontracted MGE Transportes for services that were never performed. MGE, in fact, served as a conduit for Siemens to pay the 5% bribe agreed upon with authorities and directors of the Metro and CPTM. The commission money – about R$ 1,7 million in this deal alone, according to investigators – once again had as its final destination the top management of the state-owned company and politicians linked to the PSDB party. The bribe would be distributed, according to testimony to CADE (Administrative Council for Economic Defense) to which ISTOÉ had access, by the director of CPTM, Luiz Lavorente. Besides MGE, Siemens also used the Japanese company Mitsui to mediate bribe payments in other transactions. This once again demonstrates how close the relationships were between the companies in the cartel, which, in theory, should have been competing with each other for multi-million dollar public contracts in the rail transport sector. The result of the criminal partnership between the industry giants became clear in another 12 contracts signed with CPTM (São Paulo Metropolitan Trains Company) related to the maintenance of the 2000 and 2100 series trains and the Boa Viagem Project, which have already been analyzed by CADE (Administrative Council for Economic Defense). In these contracts, an overpricing of approximately R$ 163 million was recorded.

It is no coincidence that the authorities responsible for investigating the case refer to the scheme involving PSDB governments in São Paulo as a "fabulous story." The overpricing found in service and product supply contracts with the São Paulo state-owned companies Metrô and Companhia Paulista de Trens Metropolitanos [CPTM] even surpasses the average rates calculated internationally during the practice of this crime. Calculations by the Organization for Economic Cooperation and Development – ​​OECD, for example, indicate that cartels cause losses to public coffers of 10% to 20%. In the case of these 16 contracts, the price fixing and favoritism carried out by the companies participating in the criminal practice led to a surprising 30% loss to São Paulo's public coffers.

In light of the allegations, last week the PT (Workers' Party) and other opposition parties in São Paulo began to mobilize to try to approve the establishment of a Parliamentary Commission of Inquiry (CPI). "Governor Geraldo Alckmin says he wants the allegations regarding the Metro and CPTM (São Paulo Metropolitan Train Company) to be investigated. So, he should instruct his party to file the request for a CPI, at least this time," proposed the PT leader in the São Paulo Assembly, Luiz Cláudio Marcolino. "It's clear that the contracts need to be reviewed. We must have transparency with public money, regardless of party affiliation," he says. If the PT's state caucus fails to approve the request, due to being in the minority, the party will try to open an investigation in the Federal Chamber of Deputies. "We cannot leave a matter of this gravity without clarification. Even more so when dealing with such strong accusations of misappropriation of public funds," stated Deputy Devanir Ribeiro (PT-SP). What is known so far is already sufficient to warrant an inquiry. Ultimately, this involves the embezzlement of millions of dollars from one of the main public works projects in the country's most populous city, which also has the largest national budget. If thoroughly investigated, the story of the 30% extortion from public funds could reveal even more astonishing facts.

File burning

A yellow folder containing approximately 200 pages, kept in the 1st Criminal Court of the Itu city forum in the interior of São Paulo state, exposes an even darker side to the investigations into the multimillion-dollar embezzlement of funds from subway and commuter rail construction projects during PSDB governments in São Paulo over the last 20 years. This refers to court case number 9900.98.2012, which investigates an arson fire that consumed 15.339 boxes of documents and 3.001 tubes of technical drawings over five hours. The paperwork was part of the subway archives, stored for three decades. Among the documents that turned to ashes are contracts signed between 1977 and 2011, technical reports, contracting processes, incident reports, proposals, commitments, as well as contract monitoring reports from 1968 to 2009. Under judicial secrecy, the investigation, which may be reopened by the Public Prosecutor's Office in light of new revelations about the case made by ISTOÉ, adds new elements to the already compelling accusations made to CADE (Administrative Council for Economic Defense) by Siemens executives regarding the São Paulo subway scandal. After all, the actions of the criminals may have covered up the distribution of bribes, overpricing of works and services, and the purchase and maintenance of equipment for the São Paulo subway.

According to the case file, in the early morning of July 9th of last year, nine hooded and armed men broke into the warehouse of the company PA Arquivos Ltda, in the city of Itu, 110 km from the capital of São Paulo, overpowered the two security guards, stole 10 used computers, spread gasoline throughout the 5 m² building and set it on fire. Nothing was left. Four months after the police report, No. 1435/2012, was filed, the São Paulo police concluded that the fire was nothing more than a common crime. "The investigations yielded nothing," admits Civil Police delegate Milena, who insisted on being identified only by her first name. "The men were hooded and were not identified," says the policewoman. Investigated primarily as the disappearance of old papers, the fire now takes on the appearance of a cover-up. The incident occurred 50 days after the Access to Information Law came into effect, which obliges public bodies to provide copies of any document not covered by legal secrecy to anyone who requests them, and four months after negotiations began between CADE (Administrative Council for Economic Defense) and Siemens for the signing of a leniency agreement, which has been denouncing the fraudulent activities in the São Paulo subway and train systems. "We cannot rule out that the intention of this crime was to hide evidence of corruption," believes Deputy Luiz Cláudio Marcolino, leader of the PT (Workers' Party) in the State Legislative Assembly.

In addition to the highly suspicious circumstances of the fire, official government documents, prepared by the Audit and Information Security Management (GAD), No. 360, dated September 19th, make it clear that the warehouse where the entire subway archive was taken lacked the minimum conditions for storing the material. Located in the middle of the rural area of ​​Itu, between a rabbit farm and a pasture with cattle sheds, the warehouse where the documents were stored had no security whatsoever. It could be easily accessed from the sides and back of the building.

According to documents obtained by ISTOÉ, the state government was fully aware of the precarious state of the building when it transferred the archives to the location. The audit report states that on April 20, 2012 – three days after the contract between PA Arquivos and the government of Geraldo Alckmin was signed – the warehouse was still under construction and "the company was not prepared to receive the Metro's boxes." Internal government communications further state that, according to the GAD technical report, "the company did not have adequate facilities to guarantee the preservation of the documentary collection." There wasn't even air conditioning, a fundamental requirement for this type of service.

The building was set on fire a few days after the material was moved there. "I don't want to talk about this crime," said one of the company's owners at the time of the fire, Carlos Ulderico Botelho. "I had a fight with my partner, left the partnership, and suffered a lot of losses. This fire was strange. That's why I prefer to remain silent." Another eccentricity of the crime is that the fact was only officially confirmed by the government six months after it occurred. In 16 pages of the Official Gazette, there was mention of the "disappearance" of the paperwork. Soon after the incident was publicized, the state deputy from the PT party, Simão Pedro, now Secretary of Services for the City of São Paulo, filed a complaint against the State Government with the State Public Prosecutor's Office. "It is believed that the criminals started the fire because the place housed several documents." For the parliamentarian, "this fact would move from the hypothesis of the crime of robbery with the aggravating circumstance of causing a fire to another crime, that of the deliberate destruction of public documents," said Simão last December. Contacted by ISTOÉ, São Paulo Metro executives declined to comment.