Special Report: In Brazil, organized crime siphons billions from gas
stations
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[March 12, 2021]
By Gram Slattery
RIO DE JANEIRO (Reuters) - Travel across
Brazil and you'll spot signs almost everywhere for BR Distribuidora, the
owner of South America's largest gas station chain. The familiar
green-and-yellow logo of the company, formerly a unit of state oil giant
Petrobras, is a fixture in big cities and hamlets alike.
Less well-known is BR's effort to purge its retail network of alleged
crooks. In 2019, the company booted hundreds of independent franchisees
from its network for purported "irregularities," a BR spokesman told
Reuters, including evading fuel taxes and ripping off customers with
adulterated gasoline. In all, BR stripped its name from 730 outlets,
roughly 10% of its Brazilian network at the time, the company said.
But other suspected criminals continue to operate BR stations, Reuters
has found. A major franchisee in the state of Rio de Janeiro, for
example, has been indicted by state prosecutors at least 12 times for
fuel-related crimes over the past 15 years and is currently on trial for
his alleged participation in a sprawling fuel-smuggling ring, according
to court documents reviewed by Reuters. He has not been convicted in any
of the court cases examined by the news agency.
BR's situation is not unique. Crooks have infiltrated the four largest
gasoline chains in Brazil, where they are estimated to control hundreds,
if not thousands, of stations, according to Reuters interviews with more
than two dozen industry and law enforcement officials. The news
organization also reviewed thousands of pages of court cases and
enforcement records from Brazil's oil regulator.
Cheats sell stolen gasoline and rig pumps to short customers the full
amount they paid for, the interviews and documents show. More serious
crimes abound, too. Some entrepreneurs use their stations to launder
cash for gangs like the First Capital Command, South America's largest
organized crime group, authorities allege, as well as for "militias" -
violent criminal enterprises composed in part by retired and off-duty
cops.
In southern Brazil, a station owner is facing trial for the 2017 murder
of the head of an industry watchdog that was investigating suspected
fraud at the businessman's operations.
Gas station graft is lucrative. Ill-gotten gains at Brazil's pumps
amount to 23 billion reais ($4.15 billion) annually, according to a
November estimate from the Instituto Combustivel Legal, or ICL, an
industry group founded last year to combat fraud.
Brazil's President Jair Bolsonaro has blamed unscrupulous gas station
owners for cheating the treasury and fleecing motorists amid public
anger over recent fuel prices hikes.
"It's a business worth billions," Bolsonaro said during a live broadcast
on multiple social media platforms in February.
In statements to Reuters, Brazil's largest fuel distributors by market
share - BR, Ipiranga, Raizen and Ale - acknowledged grappling with bad
actors in their retail outlets, all of which are owned by independent
franchisees. Together these four firms account for nearly half the gas
stations in Brazil. The distributors said they work diligently to cull
miscreants, feeding information about alleged misconduct to police,
prosecutors and regulators.
These companies have ties to some of the biggest names in the oil
industry. Raizen Combustiveis SA, for example, is a joint venture
between Royal Dutch Shell PLC and local ethanol producer Cosan SA; it
oversees roughly 5,000 Shell-branded gas stations in Brazil, according
to the most recent data from Brazil's oil regulator. Ale Combustiveis,
with around 1,500 stations, is a unit of Switzerland's Glencore PLC. Top
player BR, the former subsidiary of Petroleo Brasileiro SA, boasts
approximately 7,800 locations. Ipiranga is a subsidiary of São
Paulo-based Ultrapar Participacoes SA and has 7,105 stations in Brazil.
Lawsuits aimed at stripping alleged wrongdoers of their franchises can
take years to wend their way through Brazil's court system, industry
officials said. Periodic purges, like BR's 2019 housecleaning, can
amount to whack-a-mole, with bad actors finding ways to gain control of
other stations, said Carlo Faccio, the head of ICL.
"The situation of the fuel industry is very bad," he said. "We're very
far behind. There's a lot we have to do."
No government agency tracks how many gas stations are linked to
convicted or suspected criminals in Brazil. Reuters analyzed court
records in the state of Rio de Janeiro, which authorities say is a
hotbed of this illicit activity.
The news organization identified 20 station owners who have been
indicted or convicted for fuel-related offenses since 2015.
Collectively, the 101 gas stations they own amount to roughly 4% of all
retail fuel outlets in Rio state. Most of those owners were linked to
organized criminal groups, according to prosecutors and court documents
they submitted in various criminal cases.
Guilherme Vinhas, a partner at the Rio de Janeiro law firm Vinhas e
Redenschi Advogados who has worked for all of the largest distributors,
said criminal infiltration of the retail fuel sector had become a major
concern for his clients.
"The companies are monitoring this," Vinhas said, "and they're worried."
IRRESISTIBLE OPPORTUNITY
Fuel-related crimes are common in oil-producing nations in emerging
markets.
In Mexico, for example, thieves tapping into pipelines cost state oil
company Pemex 15 million pesos ($728,000) per day, Chief Executive
Octavio Romero Oropeza said last year. This purloined fuel frequently is
fenced by complicit gas station owners, Mexican authorities say.
Still, industry executives say Brazil's fuel crooks are among the
world's worst, due in part to a tax regimen they say invites cheating.
Fuel taxes here vary widely from state to state. For example, the state
tax on ethanol, sold in virtually all Brazilian gas stations, is 32% in
Rio de Janeiro state, compared to 13% in neighboring São Paulo. That
creates an incentive for criminals to purchase fuel from low-tax
jurisdictions and resell it in high-tax states to crooked station owners
who charge customers the higher tax and pocket the difference, industry
officials said.
"It's the most complex (tax system) that I know," Marcelo Araújo, the
chief executive of Ipiranga, said during a virtual oil industry
conference in December.
Criminals in Brazil reap 7.2 billion reais ($1.3 billion) annually from
fuel tax evasion alone, according to a 2019 study by the Fundação
Getúlio Vargas, a Rio de Janeiro think tank. Adulterating gasoline with
ethanol or other liquids is another trick to boost profits, authorities
said.
But some of the biggest rewards for station owners, authorities and
company sources said, comes from using their outlets to launder money
for criminal organizations.
Among the Rio gas station owners with criminal records identified by
Reuters is Cleber "Clebinho" Oliveira da Silva. He currently owns two
gas stations in Rio, according to corporate registration records: one an
independent station unaffiliated with any national brand, the other a
franchised location for Ipiranga.
In 2018, da Silva was convicted in state court of belonging to the
Justice League, one of Rio's largest criminal militias. Da Silva, now
37, was sentenced to six years in prison. He has remained free as he
appeals that decision.
In 2019, da Silva was sentenced to pay a fine and carry out community
service in a separate case for using his independent station to launder
the Justice League's illicit profits. The nature of the community
service and amount of the fine was not specified in the sentencing
document. Authorities say the Justice League is involved in a variety of
illegal activities, including fuel smuggling, auto theft and protection
rackets.
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A gas station is seen in Rio de Janeiro, Brazil March 10, 2021.
REUTERS/Pilar Olivares
Prosecutors did not establish how much money da Silva laundered. But
in his decision, the judge cited witness testimony alleging that the
station's monthly revenue more than quadrupled to 900,000 reais
($163,000) after da Silva purchased a piece of the business in 2015.
Within a year of that conviction, da Silva purchased another
station, this one a franchised location for Ipiranga, corporate
registration and regulatory records show.
Ipiranga told Reuters that da Silva was not an owner of that station
when it entered the company's distribution network in 2008, and that
it was unaware of his involvement. "If this person currently has a
stake ... he did it completely behind the back of Ipiranga and in a
way that goes against what is written on the franchise contract,"
the company said in an e-mailed statement.
Da Silva could not be reached for comment. His attorney did not
respond to requests for comment and declined to provide contact
information for his client.
Another alleged crook is José Rodrigo Gallo de Faria, a former Shell
franchisee in Rio de Janeiro. In 2019, state prosecutors indicted de
Faria for receiving stolen gasoline, according to a copy of the
indictment seen by Reuters. He is free pending trial.
Police described de Faria in that indictment as the "main sponsor"
of the so-called called Xerem Militia, which specializes in robbing
fuel from pipelines. According to the indictment, the militia in
April 2019 illegally tapped into a pipeline in a working class
neighborhood near the city of Rio de Janeiro, setting off an
explosion that killed an eight-year-old girl. De Faria was not
implicated in the girl's death.
A lawyer for de Faria, Ralph Hage, said his client was innocent and
could document that his fuel was purchased legally. Hage did not
provide proof of those legal purchases to Reuters, but said he would
produce the relevant documentation in court.
Raizen, which oversees the Shell brand in Brazil, declined to
comment about de Faria. His outlet no longer bears the Shell logo.
In January, a few weeks after Reuters first contacted Raizen about
de Faria, his station exited the Shell network and turned
independent, according to registration records filed with Brazil's
national oil regulator.
One of the best-known figures among Rio de Janeiro's gas station
owners is Mario "Marinho" Augusto de Castro, who owns a stake in at
least 43 outlets in the state, according to corporate registration
records reviewed by Reuters.
De Castro has been the target of at least 15 law enforcement
investigations over the past two decades, all involving fuel,
according to state police records reviewed by Reuters.
At present he is defending himself in at least five criminal cases.
In one of those cases, filed in 2008, prosecutors charged de Castro
with participating in a large criminal organization that smuggled
low-tax fuel into Rio state.
At least 18 of de Castro's stations are franchised locations for BR,
and at least seven stations are franchised locations for Shell, the
records show.
Renato Alves, a lawyer for de Castro, said his client has never been
convicted of a crime and denies wrongdoing in all ongoing court
cases. He said de Castro's multiple franchise agreements with BR and
Raizen show he is well-respected in the industry. Alves added that
the sheer number of government regulations de Castro must contend
with across his large portfolio of stations has made his client
vulnerable to "undeserved" indictments.
BR said it had "no knowledge of a criminal conviction related to the
activities of Mr. Mario Augusto de Castro," adding that the company
"will reinforce the mechanisms that it uses to curb" suspected
wrongdoing by its franchisees.
Raizen declined to comment about de Castro.
FIGHTING BACK
Fuel distributors frequently press lawsuits against franchisees they
suspect of irregularities in an effort to terminate their franchise
agreements, according to several company sources and court cases
reviewed by Reuters.
But those cases can take years to work their way through Brazil's
crowded courts, the interviews and legal records show. Even
victories don't bring swift relief.
"Non-compliant (franchisees) typically take advantage of all sorts
of legal maneuvers to delay compliance with judicial decisions," a
spokeswoman for BR wrote in an e-mail.
Brazilian law dictates that retail gas stations cannot be owned by
oil producers or distributors. Rather, they must be owned by
independent third parties - usually individuals - who are free to
buy and sell stations among themselves. While franchise agreements
typically give distributors the right to approve these transactions,
such sales nonetheless create a backdoor through which unscrupulous
actors can buy into well-known chains by dealing directly with
station owners, said Délio Campos, a spokesman for Glencore's Ale
network.
"In some cases, despite contractual conditions forbidding it,
property can change hands without the company's consent having been
obtained," Campos said.
Da Silva, the convicted money launderer, purchased his Ipiranga
station in 2019 from two individuals with a pre-existing franchise
agreement with the company, regulatory records show.
Ipiranga said any ownership stake by da Silva happened without its
knowledge. Da Silva could not be reached for comment. His lawyer did
not respond to a request for comment.
Authorities say fuel crime has become so lucrative to Brazil's
underworld that those trying to stop it are at risk.
On March 23, 2017, Fabrizzio Machado da Silva, the head of the
Brazilian Association for Fighting Fuel Fraud, an industry watchdog
in southern Brazil, was shot to death outside his home in the city
of Curitiba. Police allege the hit was arranged by Onildo Chaves de
Córdova II, an area businessman upset at the association's
investigations into potential fuel adulteration and pump rigging at
three of his independent gas stations, according to the criminal
indictment and Luis Roberto de Oliveira Zagonel, a lawyer for da
Silva's family.
State prosecutors charged Chaves with murder. He is free pending
trial. No trial date has been set.
A lawyer for Chaves, André Pontarolli, said his client is innocent.
He added that police probes into Chaves' business practices have not
resulted in any indictments.
The Fighting Fuel Fraud group, meanwhile, disbanded shortly after da
Silva's murder, Zagonel said.
(Reporting by Gram Slattery in Rio de Janeiro; Additional reporting
by Stefanie Eschenbacher in Mexico City and Alexandra Alper in
Washington; Editing by Brad Haynes and Marla Dickerson)
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