Toronto-based asset management giant Brookfield Corp. is under scrutiny for buying an infrastructure project caught up in one of the largest corruption scandals in South American history.
According to new filings in a U.S. federal court in New York, the municipality of Lima, Peru, is accusing the Canadian corporation of profiting from assets plagued by “corrupt practices,” including a Peruvian toll road project purchased in 2016 from Brazilian construction firm Odebrecht — just before Odebrecht pled guilty to foreign bribery in a massive U.S. Department of Justice case that resulted in a $3.5 billion (U.S.) fine.
Odebrecht’s billionaire CEO was sentenced to 19 years in prison but has since had his sentence reduced, according to several media reports.
Brookfield, headquartered in Brookfield Place in downtown Toronto, is one of the top alternative investment managers in the world with more than $1 trillion in assets under management. It has more than 2,000 holdings across 30 countries in many sectors, including real estate, renewable power, private equity and infrastructure.
The lawyers representing Lima have filed a discovery application, seeking documents and a deposition from Brookfield Infrastructure’s chief operating officer, Ben Vaughan, that can be presented as evidence in ongoing criminal cases against government officials and executives in Peru.
“By the time Brookfield Infrastructure began its due diligence, Odebrecht’s corrupt business in Peru and elsewhere was publicly known, with substantial coverage over the 12 months leading up to the sale,” wrote the attorneys from New York litigation firm Boies Schiller Flexner LLP. “Brookfield Infrastructure’s due diligence team dug its head in the sand.”
The allegations against Brookfield are untested in court.
“We strongly refute these allegations, which have arisen due to the ongoing expropriation of our toll road assets in Peru,” a Brookfield spokesperson wrote in an emailed statement to the Star. “The local municipality has acted illegally to disrupt our concession over the toll roads.”
“We have prevailed in two international tribunal arbitrations that have ruled in our favour and rejected the municipality’s allegations. Brookfield has been a responsible steward of the road concession since 2016, during which time we have maintained a key road network, supporting the growth of the country’s economy,” the spokesperson added.
“Peru’s actions against a world-class investor like Brookfield are deeply concerning in terms of the stability required to maintain an attractive investment regime.”
In 2016, Brookfield bought a majority 57 per cent stake in the “Rutas de Lima” project, comprising of more than 115 kilometres of Peruvian highways, from Brazil’s Odebrecht, which retained 25 per cent of the shares.
Since then, authorities in Peru have found evidence of bribery in connection to the Rutas de Lima concession contract between the municipality and Odebrecht, and launched several probes.
Among them, the former mayor of Lima, Susana Villarán, has been charged for accepting funds from Odebrecht toward her re-election campaign in 2013. Last September, Villarán’s case proceeded to the trial phase.
Former Peruvian president Pedro Pablo Kuczynski is also being investigated in a Rutas de Lima money-laundering case.
In separate international arbitrations, the Rutas de Lima consortium argued that the municipality had breached the concession contract. It had shuttered a major toll unit and barred toll rate increases, following “riots” from residents in the area. The municipality, in turn, maintained that Rutas de Lima had bribed officials to obtain the contract. The tribunals rejected this defence, according to a court document filed last March.
“When Brookfield gets caught red-handed making massive profits off a toxic contract procured through nearly $4 million in bribes, they cry ‘illegality’ and ‘expropriation,’” Michael Caputo, spokesperson for the municipality of Lima, told the Star. Caputo is a former top health adviser in the Trump administration during the onset of the COVID-19 pandemic.
“Brookfield knew exactly what it was buying: a tainted contract with excessive benefits baked in, courtesy of bribes paid to Lima’s then-mayor and her opposition to guarantee the deal,” said Caputo. “They didn’t have to take the risk of paying the bribes themselves — they simply bought into the deal after the dirty work had been done.”
Lima’s lawyers also subpoenaed several other financial institutions involved in the acquisition of Rutas de Lima, including Scotiabank, which reportedly ran the competitive process for the 2016 deal and monitored toll collections placed in an escrow account.
Scotiabank declined to comment as the matter is before the courts.
