Dec. 17, 2015 9:38 p.m. ET
RIO DE JANEIRO—Brazilian building magnate
Marcelo Odebrecht
was a natural choice to deliver a keynote speech at the international business school he had attended in Lausanne, Switzerland. As chief executive of Odebrecht SA, he ran Latin America’s largest construction firm with a global portfolio that included the $200 million Miami Heat stadium, a $1 billion port project in Cuba and one of Africa’s largest hydroelectric dams in Angola.
Two days before the June event, Brazilian authorities upended Mr. Odebrecht’s travel plans, arresting him on suspicion of skimming money—now estimated as much as $1.8 billion—from Brazil’s state-run oil firm,
Petróleo Brasileiro
SA
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. Prosecutors have charged him with money laundering, corruption and organized crime.
Mr. Odebrecht, who remains in custody, has denied wrongdoing. The company, which also denied wrongdoing, said Mr. Odebrecht’s arrest was “unnecessary and illegal” since it was cooperating with investigators.
Mr. Odebrecht, 47 years old, joined the cast of an international drama rocking the highest levels of Brazilian business and government. His firm is among a select group of Brazilian multinationals that have prospered globally by parlaying government connections into public contracts, state financing and taxpayer subsidies, according to analysts and former company executives.
Odebrecht last year had revenues of $46 billion—nearly half from outside Brazil—and employed 170,000 people. In Brazil, the company has built highways, shipyards, airports, subways and venues for the 2016 Olympics in Rio. Globally, the company has landed projects on four continents.
“They are more than a company, they are a symbol of modern Brazil,” said Thiago de Aragão, a consultant at Brasilia-based consultancy Arko Advice.
Prosecutors allege that for at least a decade, beginning around 2003, some of Brazil’s largest construction firms, including Odebrecht, formed a cartel to divvy up work and inflate the price of Petrobras contracts. The companies allegedly bribed Brazilian politicians, political parties and Petrobras insiders, frequently using offshore banks to hide their tracks, according to investigators.
Petrobras said it was a victim of the scheme and has been cooperating with authorities.
The case, nicknamed Operation Car Wash, has yielded more than 100 arrests and more than 30 convictions. Four former Petrobras executives and roughly 50 current and former politicians are under investigation, including the head of Brazil’s senate and speaker of the house. Some defendants are cooperating; others have denied the charges.
Andre Esteves,
chief executive of Brazil’s largest independent investment bank, was arrested alongside a ruling party senator in November and charged with conspiring to bribe a key witness in the case. Mr. Esteves, who has denied any wrongdoing, was released from jail Thursday to house arrest.
The corruption case has helped drive down approval ratings of Brazil President
Dilma Rousseff,
who now faces impeachment for allegedly trying to disguise the government’s poor fiscal performance.
Mr. Odebrecht—the third-generation scion of a billionaire family, dubbed “The Prince of the Contractors” by Brazilian newspapers—is one of the most high-profile defendants. His arrest has triggered broad scrutiny of the company’s government relationships and public contracts. Investigations of Odebrecht are under way in Switzerland and Portugal, and potential probes loom in Panama, Peru and Ecuador, officials said.
Through his attorneys, Mr. Odebrecht declined to respond to multiple requests for comment.
The problems facing Odebrecht, one of Brazil’s largest employers, have exacerbated the country’s downturn, analysts said. Construction output tumbled 8.4% in the first nine months of the year, contributing to Brazil’s worst recession in 25 years.
While current projects should keep the firm’s revenues steady, the future is uncertain. Petrobras has barred new contracts with Odebrecht, and Brazil’s government has halted new business until the investigation is completed.
The company said just 6% of its construction unit’s sales are to the Brazilian government; it declined to disclose the proportion of sales for other parts of the company or detail its revenues from projects abroad.
In June, Standard & Poor’s Ratings Services cut Odebrecht’s construction unit to the lowest investment-grade rating, citing “higher reputational risks.” The company’s dollar bonds due in 2025 fell Wednesday to an all-time low of 52.85 cents on the dollar.
Prosecutors allege that Odebrecht businesses used Swiss bank accounts to launder nearly $270 million in bribes to secure Petrobras contracts from 2006 to 2014. The judge overseeing the case,
Sergio Moro,
depicted Mr. Odebrecht as one of the masterminds who was “directly involved with the practice of these crimes, and guided the work of others.”
Police found eight cellphones at Mr. Odebrecht’s home that Brazilian authorities said contained electronic notes incriminating him. For example, in writing about two company executives,
Márcio Faria
and
Rogério Araújo,
accused of money laundering and corruption in the scheme, police allege Mr. Odebrecht wrote, “Don’t transfer anything and we will reimburse everything and give assurances to family. We are going to hang on until the end.”
In another note, police said, he wrote about the need to “Clean MF and RA’s accessories.” Mr. Faria and Mr. Araújo have denied any wrongdoing.
Police investigators wrote in a report to the court, “We have here the clear intention of Marcelo to protect Márcio Faria and Rogério Araújo.”
The company said police interpretations of Marcelo Odebrecht’s personal notes are “distorted, out of context and lacking any temporal logic.”
Some construction executives at other companies have confessed to roles in the scheme in exchange for leniency. In September, Mr. Odebrecht told a congressional panel examining the scandal that he had nothing “to snitch.” He said that in raising his two children, he would be more upset with one who tattled than one who erred.
Mr. Odebrecht declined to answer questions during his first appearance before the judge overseeing the case in October. Instead, he submitted a document that he said explained “absolutely all” of the accusations. The judge said the document didn’t contain references to the foreign bank accounts that Mr. Odebrecht is accused of using for bribe payments.
“I would like to express my preoccupation with the impact that these unfounded accusations have on our business, our clients, suppliers, employees and partners, and in the communities where we are present,” Mr. Odebrecht said in court.
Company tradition
Odebrecht was founded in 1944 by Marcelo’s grandfather, Norberto, in the northeastern Brazilian city of Salvador. The region, long impoverished, benefited from large government development projects in the 1950s
A descendant of German immigrants, Norberto Odebrecht wrote a series of books detailing his philosophical code that employees are still expected to read. The books say the company has no bosses, only leaders, and ask that workers be loyal to the company to ensure its “dream of perpetuity.”
After Mr. Odebrecht’s arrest in June, employees at dozens of Odebrecht offices were photographed in red Odebrecht shirts and held signs that read, “We are all Odebrecht.” The photos were posted on a
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group called Odebrecht United, which has more than 20,000 members.
Another tradition of the founder was fostering connections. Norberto Odebrecht aligned with Gen.
Ernesto Geisel,
a former chief executive at Petrobras who was president of Brazil from 1974 to 1979, during the military dictatorship. Starting in the 1970s, Odebrecht won Petrobras contracts, and later built Rio’s Galeão international airport, as well as Brazil’s first nuclear power plant.
In the 1980s, with the Brazilian economy roiled by hyperinflation, Odebrecht looked abroad, said
Pedro Henrique Pedreira
Campos, a professor of history in Rio de Janeiro who wrote a book about Brazilian construction firms.
“They began a process of expansion outside the country, with direct support from the Brazilian government through favorable diplomacy, financing and other incentives,” Mr. Campos said.
Odebrecht gained an international reputation for engineering prowess and delivering quality work on deadline. Its first foreign project was a hydroelectric dam in the mountains of Peru in 1979. In 1984, the company began building Angola’s biggest hydroelectric dam during the country’s civil war and fostered relations with President José Eduardo dos Santos, who has stayed in power ever since. Odebrecht has more than 24,000 employees in Angola and claims to be the country’s largest private employer.
Odebrecht and a partner firm completed construction of a wing at the Miami International Airport after problems with the previous contractor.
Jose Abreu,
the former director of the Miami airport, said Odebrecht was “a great partner” and helped contain spiraling costs.
In Panama, meanwhile, Odebrecht has won about $8.5 billion in public contracts since 2006, equal to about 20% of the country’s total annual output.
During the 2000s, President
Luiz Inácio Lula da Silva
sought to further Brazil’s reputation as a rising global power by encouraging Odebrecht’s expansion abroad. Odebrecht representatives joined diplomatic trade missions, according to diplomatic cables released this year by the foreign ministry.
Odebrecht’s revenue grew from $5.5 billion in 2003, when Mr. da Silva became president, to $46 billion last year. Brazil’s development bank, known as BNDES, helped finance Odebrecht’s growth with taxpayer-subsidized loans. The company received more than $8 billion in BNDES credit from 2007 to 2015 for foreign projects, angering many Brazilians who said the money should have been spent improving domestic infrastructure.
The company won some of its biggest contracts in countries where the left-leaning Mr. da Silva had a rapport with leaders, including Venezuela, for 14 years run by Mr. da Silva’s close friend, the late President
Hugo Chávez.
The former president’s relationship with Odebrecht and other local companies are now under investigation by Brazilian authorities in a separate case. Mr. da Silva and Odebrecht have denied any wrongdoing.
Taking charge
While the company was expanding its reach, Marcelo Odebrecht was being groomed to take over by his grandfather, Norberto, who brought his grandson to construction sites while still a boy.
Marcelo Odebrecht studied engineering in Brazil and earned an M.B.A. from the IMD Business School in Switzerland, where he was invited to speak in June. He learned the family business working in various roles at Odebrecht offices in Brazil and abroad, including the U.S. He sometimes introduced himself as
Marcelo Bahia,
his middle name, to maintain anonymity, said colleagues, who described him as a serious man with a quick, analytical mind.
During meetings, Mr. Odebrecht often tallied sums in his head while others reached for a calculator. He often rose at dawn for a swim before sending a volley of emails by 7 a.m., people close to him said.
In 2008, at age 40, he was named chief executive, taking over from his father, Emílio, and becoming a fixture at meetings between President Dilma Rousseff and business leaders.
“Some of the other executives were jealous that he always got invited and they had to fight for a seat at the table,” said
Alberto Bueno,
a partner at São Paulo-based strategy firm Concordia.
Mr. Odebrecht remained in contact with top government officials even after his company was accused last year in the Petrobras scheme, police documents show.
Last November, in the week after executives from six Brazilian construction companies were arrested, Mr. Odebrecht’s agenda showed a meeting at the residence of Brazilian Vice President
Michel Temer,
according to records from an iPhone that police confiscated in Mr. Odebrecht’s bedroom.
A spokesman for Mr. Temer confirmed the meeting but said Mr. Odebrecht requested it to discuss company business, not the investigation.
In the weeks leading up to his planned speech in Switzerland, Mr. Odebrecht fretted about the financial fallout from the investigation. In one note on his phone, police said, Mr. Odebrecht wondered if the company would be targeted by the U.S. Department of Justice under the Foreign Corrupt Practices Act.
On the morning of June 19, Mr. Odebrecht was taken into custody by police at his home in a São Paulo neighborhood of gated mansions.
A few hours later, his father,
Emilio Odebrecht,
the company’s board chairman, sent an email to employees, saying operations would continue normally.
Marcelo Odebrecht spent the next month in a prison cell with three other suspects in the investigation. There were only three beds, police said, so the men rotated sleeping on the floor. Mr. Odebrecht, who is hypoglycemic, was later transferred to a prison hospital.
During his congressional testimony in October, Mr. Odebrecht looked confident. Before police escorted him away, Mr. Odebrecht shook hands and patted the backs of legislators.
—
Luciana Magalhaes
contributed to this article.
Write to Will Connors at william.connors@wsj.com and Paul Kiernan at paul.kiernan@wsj.com
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