LDN - Business

In Brazil, your internet provider may be a mobster, cops say

[March 28, 2022] By Gram Slattery

RIO DE JANEIRO (Reuters) - As Rio de Janeiro residents sheltered at home last year during the deadliest phase of Brazil's COVID-19 outbreak, police detective Gabriel Ferrando said he got a tip that something suspicious was upending local internet service.

Access had vanished across broad swaths of Morro da Formiga, or Ant Hill, a tough neighborhood on the city's north side. When Ferrando quizzed a technician from broadband provider TIM SA tasked with fixing the outage, the worker, whom he declined to name, said armed men had chased him away with a warning not to return.

Turns out a new internet provider had claimed this turf: a company whose investors at one time included an accused drug and arms trafficker with alleged ties to Brazil's notorious Red Command crime syndicate, according to Ferrando, court documents filed by authorities and business registration records viewed by Reuters. Using stolen equipment, some of it pilfered from TIM, the newcomers soon had their own internet service up and running, Ferrando said. Residents could sign up with the new firm, he said - or do without.

TIM, a unit of Telecom Italia SpA, declined to comment, referring all inquiries to Brazil's telecom industry association Conexis. In a statement, the group called on the nation's law enforcement to act to protect legitimate operators.

Ferrando, a veteran of Rio's top organized crime unit, is trying to do just that. In a sealed report documenting months of investigation, he asked Rio state prosecutors in February to pursue charges against the purported pirates. The prosecutors' office did not respond to a request for comment. No charges have been filed.

Morro da Formiga isn't the only community reporting troubles. Reuters interviewed nearly two dozen telecom industry executives, law enforcement officials, technicians, academics and internet customers in Brazil, and reviewed thousands of pages of court filings submitted by police.

The people and documents described an audacious takeover of internet service in dozens of neighborhoods in Brazil's major cities by companies associated with alleged criminals unafraid to use force and intimidation to push out rivals. The result, these sources said, is that tens of thousands of Brazilians now depend on unreliable, second-rate broadband networks estimated by industry and law enforcement officials to be generating millions of dollars annually for purported crooks.

Bootleg providers can be unresponsive when service crashes and impatient when a bill is missed, some customers told Reuters. In Rio's working-class Campo Grande neighborhood, a resident described how someone knocks on his door monthly to collect 35 reais ($6.80) - in cash.

There's "pressure to pay on the day that they choose with no delay," said the customer, who requested anonymity for fear of retaliation.

It's a reliable revenue stream made all the more lucrative by the COVID-19 pandemic, which forced families online for school, work and shopping. In 2020 alone, the proportion of Brazilian households with an internet connection grew by more than 12 percentage points to 83%, according to the most recent data available from Cetic.br, an information technology organization.

Pirates are plundering equipment and infrastructure, too, much of it re-purposed for their makeshift networks, authorities and telecom executives said. Theft and destruction of telecommunications gear rose 34% in 2020 from 2019, representing about 1 billion reais ($194 million) in direct annual losses, according to Feninfra, an industry group whose members include installers and repair workers. It said that figure rose another 16% in the first half of 2021.

THE ALLEGED SCHEME

Brazil's telecom industry is not alone in its struggles. Crime groups for years have controlled distribution of cooking gas, jugs of drinking water and other basics in many low-income urban neighborhoods.

But by building their own broadband networks, Brazil's criminals are raising their sophistication, according to more than 20 technicians, industry representatives and law enforcement officials interviewed by Reuters. They said the scheme typically works like this:

First, thieves steal or vandalize equipment belonging to traditional broadband operators. When repair teams arrive, they are menaced by armed men who warn them not to come back. Last year in Rio alone, no-go zones rose to 105 locations for Oi SA, one of Brazil's largest internet providers. That figure has quadrupled since 2019, according to data supplied by the company.

Shortly after service is interrupted, telecom companies associated with organized crime groups set up their own networks, piggybacking on existing infrastructure. In some cases, these outfits are run directly by members of drug trafficking gangs including the Red Command or the Pure Third Command, one of its main rivals. Others are run by militias – a type of criminal outfit composed of retired and off-duty cops. In other cases, they are operated by businessmen who pay kickbacks to gangsters to clear out the competition.

Often the interlopers receive help from crooked employees of major providers who sell them expertise and pilfered gear, according to Rio state prosecutor Antonio Pessanha. He told Reuters he's investigating criminal activity in the telecom sector in and around Rio city, the state's capital.

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Cables are pictured in a suburb of Rio de Janeiro, Brazil March 10, 2022. REUTERS/Ricardo Moraes

In one recent case, an employee of Claro, the local unit of Mexico's America Movil SAB de CV, offered to sell company equipment to organized crime associates, according to a recorded phone call that Pessanha said his office obtained through a court-approved wiretap. He did not specify what criminal organization the people in the call were allegedly affiliated with, nor did he identify the Claro employee or the other participants. The investigation is ongoing, and Reuters was not provided access to the recording.

Claro declined to comment on the alleged incident.

NEW PLAYER IN ANT HILL

In Morro da Formiga, detective Ferrando said he began receiving anonymous tips from some of its roughly 5,000 residents in the first half of 2021 who said broadband services provided by major operators had stopped working.

One company dominates there now, Ferrando said, a firm named JPConnect Servicos de Telecomunicacoes. It was established in 2019, according to corporate registration documents filed with the Rio government and seen by Reuters.

Those records show that until late last year JPConnect was part-owned by an individual named Paulo Cesar Souza dos Santos Jr., whom authorities allege is a member of Comando Vermelho, or Red Command, Rio's largest organized criminal group. In 2011, Rio state prosecutors indicted dos Santos for drug and weapons trafficking, according to court records viewed by Reuters. He was later acquitted.

Dos Santos transferred his 50% stake in JPConnect in September 2021 to another investor, Alexandre Rodrigues de Almeida, according to the registration documents.

In January, police officers searched JPConnect's headquarters in Morro da Formiga, according to Ferrando. He said the cops found equipment belonging to TIM, Oi, Claro and Telefonica Brasil SA, the local unit of Spain's Telefonica SA. All of those companies declined to comment on Ferrando's allegations.

The JPConnect investigation hasn't been previously reported. Authorities haven't filed charges in the case. Reuters could not reach officials at JPConnect. The company's registered telephone number is not functioning.

Dos Santos and Almeida declined to comment through their lawyer. Their attorney, Eberthe Vieira de Souza Gomes, said JPConnect operates legally and had gained market share by offering a quality product. He said dos Santos has no connection to any criminal organization, pointing out that his client was acquitted of all charges related to his 2011 indictment. Reuters confirmed dos Santos' acquittal via Rio state court documents. Those documents did not specify the year of his acquittal.

TIM, Oi, Claro and Telefonica Brasil referred questions to Conexis, the telecom trade association. In an interview, Marcos Ferrari, the group's president, described a litany of woes facing Brazil's industry generally, including vandalism, theft, threats to employees and hijacking of service areas by players with suspected ties to the underworld.

Authorities must "inhibit this type of criminal action," Ferrari said.

In greater Rio there are several other broadband operators under investigation for allegedly rough tactics and links to purported criminals, authorities said.

Among them is Net&Com, which made headlines in March 2021 when Rio police raided its downtown headquarters as part of a broader probe into an alleged drug ring. Police have publicly stated that they are investigating the firm for allegedly paying criminals associated with the Red Command to help them take over the telecoms market in poor neighborhoods throughout metropolitan Rio.

More than three dozen people, including purported members of the Red Command, last year were charged with drug and weapons trafficking and conspiracy, according to court documents filed by Rio prosecutors and viewed by Reuters. They are currently on trial and have maintained their innocence.

In documents laying out the government's case, authorities alleged the ring also profited by accepting kickbacks from Net&Com to chase telecom competitors out of neighborhoods where the company now operates. Net&Com and its executives have not been charged.

Pedro Santiago, a lawyer for Net&Com, said the company was an upstanding operator that had been the "victim of a witch hunt." Santiago said he had reviewed many hours of police wiretaps and that these showed no link between the firm and any criminal elements.

Police dispute that characterization in court documents seen by Reuters, citing as evidence allegedly stolen equipment and conversations among co-conspirators mentioning the alleged role of Net&Com.

Pessanha, the Rio state prosecutor, said the investigation continues.

"The new gold for the criminal underworld," he said, "is the internet."

(Reporting by Gram Slattery; additional reporting by Rodrigo Viga Gaier; editing by Marla Dickerson)

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