Go to the Globe and Mail homepage

Jump to main navigationJump to main content

AdChoices
Workers prep poultry at the meatpacking company JBS, in Lapa, Brazil, Tuesday, in March 21, 2017. (Eraldo Peres/The Associated Press)
Workers prep poultry at the meatpacking company JBS, in Lapa, Brazil, Tuesday, in March 21, 2017. (Eraldo Peres/The Associated Press)

Brazil’s sordid tale of beef and bribes Add to ...

Joesley and Wesley Batista built the world’s biggest meat company through a succession of savvy deals. They grew their father’s country slaughterhouse into a global empire and became billionaires in the process. But all the Batistas’ deals to date are dwarfed by their latest.

Faced with the prospect of prison sentences as prosecutors investigated years of corrupt practices, Joesley Batista, 44, hid a recorder under his shirt collar and went to talk business with Brazilian President Michel Temer. Then he turned over the tapes and other evidence to investigators.

In exchange, he won immunity from prosecution for himself and his brother. Last week, days before the contents of their plea bargain went public, Joesley Batista escorted his family on to a plane to New York, where they have been filmed enjoying the city – while his country reels under the impact of surreptitious recording and the political and economic chaos it has sown. On Saturday, a combative President Temer accused the Batistas of carrying out “the perfect crime.”

“The creator of the tape is free and at ease, strolling the streets of New York, while Brazil, which had emerged from the most serious economic crisis in its history, faces days of uncertainty,” he said in a brief address to the country. “[Mr. Batista] did not spend a day in jail, was not arrested, was not tried, was not punished and furthermore, won’t be.”

The supreme court is now awaiting police analysis of the recording and considering whether to allow its use in an impeachment case against Mr. Temer.

But even those Brazilians who want to see the president resign will concede he has a point about JBS, the Batistas’ company.

“This was a very, very good deal for the brothers,” says Sergio Lazzarini, the co-author of Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond, who has studied the Batistas and JBS.

The firm began as a five-cows-a-day slaughter operation in the central state of Goias, founded by Jose Batista Sobrinho (hence the JBS) in the 1950s. In the 1990s, he and his sons began to buy meat from other sources and, in 1997, started to export. But it was another decade before the company made its big leap – when the Batista brothers’ ambitions matched up with that of the Brazilian government.

Former president Luiz Inacio Lula da Silva favoured a “developmentalist” model of economic growth: His Workers’ Party authorized the use of vast amounts of state resources to enable Brazilian companies to become international titans in their areas, what his government called the “national champions.” The Batistas took JBS public in 2007 and then turned to the National Bank for Economic and Social Development (BNDES in Portuguese) to fund a shopping spree. BNDES lent the company more than $3-billion over the next decade, at single-digit interest rates, when commercial banks were charging close to 30 per cent for capital. The bank also bought a 21-per-cent stake in the meat company.

With the 2007 purchase of the U.S. firm Swift & Co. (maker of the Butterball turkey, among other meat products) for $1.9-billion, JBS became the world’s largest beef company. Next they bought the U.S. chicken firm Pilgrim’s Pride, in 2009; combined with two national producers it acquired, that made JBS the biggest producer of poultry globally. By 2014, JBS was the second-largest food company in the world, behind only Nestlé.

The Batistas also expanded beyond food: They set up a holding company, J&F Investments, in 2012, which owns producers of everything from paper pulp to cleaning products (and Havaianas, the ubiquitous Brazilian flip-flop). Today J&F says it employs some 260,000 people in more than 30 countries. Joesley Batista is president of the holding company while Wesley, 46, runs JBS; their three sisters and father have equal shares in the holding company, while a third brother sold his stake. The Batistas lured star executives to the expanding business: For example, Henrique Meirelles, who was Central Bank president in Mr. da Silva’s government and is today the finance minister, took over as chair of the J&F advisory board in 2012 (he resigned when he returned to government).

But JBS’ low-cost loans allegedly came with an off-the-books price: In his plea bargain, Joesley Batista told prosecutors that from the time of the first loan, it was routine for JBS to deposit a percentage into an overseas account for an agent of the then-finance minister, Guido Mantega. He said that he put a total of $62-million into accounts abroad for Mr. da Silva and for Dilma Rousseff, who succeeded him as president. Both have denied accepting any illegal funding, for campaigns or for their personal use.

The cozy relationship between politicians and JBS was not secret. In the 2014 federal elections, for example, the company contributed more than $125-million in campaign financing, the largest political donors. But the five executives who joined the Batistas in the plea bargain say the funding went far beyond that. Ricardo Saud, a JBS director, said the company paid some $248-million to 1,829 candidates for political office from 28 different parties in 2014, just $5-million of it legal donations. Another director testified that one politician suggested he send bribe money over in a cooler with a layer of choice steak on top as a disguise.

“All those allocations and investments by the state were based on political connections,” said Prof. Lazzarini. “Our research shows that companies that donate more to winning candidates get more money – there was a process, simple as that. And bribes were disguised as campaign donations. … The brothers were like the owners of Brazil. They were really, really professionals in this.”

But over the past couple of years, a new drive for transparency has swept Brazil and began to ensnare the Batistas and their businesses. In 2016, they came under scrutiny in an investigation into pension-fund contributions to their pulp company, which briefly obliged the brothers to step down from their executive roles. They had to delay a U.S. public offering earlier this year after JBS was among meat producers targeted in police raids in an action called Operation Weak Flesh, accused of bribing inspectors to clear substandard meat for sale and export.

The major threat to the firm seems to have been the federal police Operation Bullish, an investigation into fraud at BNDES – and the sight of other top Brazilian executives, such as Odebrecht SA’s former chief executive Marcelo Odebrecht, behind bars seems to have persuaded the Batistas that they had best make a deal. Prosecutors appear to have seen an irresistible opportunity to obtain hard evidence against the President and promised to keep them out of jail (the brothers face a $93-million fine).

It is not clear that their business will get off as easily. Prosecutors are demanding that J&F pay a fine of $4.6-billion over 10 years, which is 4.5 per cent of its 2016 revenue; the company is offering a tenth of that.

Between Operation Weak Flesh and a stock price plunge after the plea-bargain news, JBS lost $7-billion in market value over the last two months; the share price fell 30 per cent on Monday alone.

And now Brazil’s security commission is investigating the company for allegedly having bought a billion dollars worth of U.S. currency to hedge against the real in anticipation of the impact of the plea bargain.

“The million-dollar question is how the Brazilian and American authorities didn’t notice all that money floating around,” said Felippe Serigati, a professor of agricultural economics at the Getulio Vargas Foundation in Sao Paulo who studies JBS. But the brothers will not have to worry over much about political consequences for their business, he added: “They’re a very diversified supplier in a consumer market for which this [political scandal] makes no difference: People are still going to eat meat and other JBS products. “

Report Typo/Error

Follow on Twitter: @snolen

Next story

loading

Trending

loading

Most popular videos »

More from The Globe and Mail

Most popular