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Did Citi [REDACTED] A Brazilian Billionaire By [REDACTED] Corrupt Government Officials?

Citi is learning the hard way not to stick your finger in the anthill of Brazilian politics unless you're willing to get stung.
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As is the case with elite wealth management or nights out with Sage Kelly, it’s near-impossible to journey into the fraught arena of Brazilian politics and keep your nose clean. That’s a lesson that Citigroup is learning, if belatedly, as it grapples with allegations from a Brazilian billionaire who has accused the bank of colluding with the Brazilian government to strong-arm him out of his joint investment with Citi running Brazil’s top telecom company.


The accuser, Daniel Dantas, is well-known in Brazil, a vegetarian teetotaler who has played starring roles in some of the country’s biggest business deals as well as its seamiest political intrigues. Now, in a lawsuit filed in the southern district of New York, Dantas claims that the bank double-crossed him in order to placate powers-that-be and seize ownership of profitable investments.

The charges in the lawsuit, which mentions damages in the unspecified billions of dollars, cover a period of time that has now come to be seen as the seedbed of scandals that eventually brought down Brazil's preasident. “Citibank exploited this corrupt environment to manufacture false criminal charges against Plaintiff Daniel Dantas and to enlist corrupt elements in the governing Brazilian regime to threaten Mr. Dantas,” the lawsuit claims, adding that Citi “ became a full-fledged and central player in the corrupt scheme to ruin Mr. Dantas and his business.”

A representative for Citi declined to comment on its forays in the morass of corruption and venality that is Brazilian politics, other than to say the claims are without merit.

The particulars of the case are, like Citi’s interests in Brazil, hopelessly opaque and convoluted. The basic story is this: In 1998, Citi set up a Cayman Islands vehicle to invest in Brazil’s newly privatized telecom sector, which was to be spun off into a company cleverly titled Brasil Telecom. Dantas wanted in, so he cajoled Citi into an investment consortium alongside two state-run Brazilian pension funds. With their combined might the group sidelined rival investor Telecom Italia, giving Dantas's Opportunity Equity Partners control of the new company.

But Brazilian power politics took their toll on Dantas, who ended up in a lengthy series of legal tie-ups, and by 2004 Citi wanted the scandal-prone financier out. For his part, Dantas claimed he was merely facing blowback from refusing shakedowns from political opponents in the ruling Brazilian Worker’s Party, then run by the immensely popular (and now-disgraced) president Lula Da Silva. But all Citi saw was liability. “Citibank has never been involved in as many lawsuits as in this case,” the bank’s Brazilian lawyer said in 2005.

But Citi’s attempt to ditch Dantas got caught up in the vagaries of the Brazilian legal system. An imbroglio had erupted involving the American security company Kroll, which Brasil Telecom had hired (under Citi’s suggestion, claims Dantas) to snoop on their Italian business rivals. A few government officials ended up getting caught up in the dragnet and blame fell on Dantas. Citi sought to remove him, but faced innumerable court delays as the Kroll case worked its way through the system. (Dantas was eventually acquitted.)

Amidst all this, Dantas alleges, Citi was busy scheming with power brokers to push him and his fund out of the picture, an effort that allegedly involved a campaign of intimidation in the press. Alongside the pension funds in the Brasil Telecom consortium, Citi “opened up a new front in the attacks by having Brasil Telecom’s internet portal, iG, pay journalists associated with the PT regime and its allies to ramp up the press campaign against Mr. Dantas,” the lawsuit claims.

There was motive for all the skulduggery, according to the lawsuit: winning lucrative contracts with Brazilian state-owned pension funds. By colluding with the government against Dantas, the lawsuit says, “Citibank received a valuable right to ‘put’ its interests in certain of the Portfolio Companies to the Pension Funds at a fixed, deep-in-the-money price that guaranteed Citibank a significant return on its investment.”

At another point, the lawsuit alleges, Dantas's lawyers received information that Citi took part in a scheme to bribe the president of the highest non-constitutional court in Brazil, in order “to obtain favorable decisions in their litigation with Opportunity concerning Brasil Telecom.”

(As an aside, the guy then in charge of Citi's alternative investments, and thus Brasil Telecom, was Michael Carpenter. He had run Citi's Corporate and Investment Bank until 2002, at which point he became the fall guy for the scandal over the bank's biased analyst reports handed out to benefit investment banking clients – a history the lawyers in the lawsuit seem to relish noting.)

The Citi-Dantas conflict reached a climax in 2008, when Citi finally got Dantas to sign documents that allowed Brasil Telecom to go ahead with a big state-supported merger while releasing Citi from liability in ongoing litigation with Dantas. But according to the plaintiffs, that decision came only after a extended campaign of state-sponsored intimidation involving shadowy meetings, vague threats and the Godfather-like slaughter of livestock and ranch hands.

That would be the end of the story if it weren’t for a little dust-up called Operation Car Wash, a political corruption scandal that erupted in 2014 and led to the impeachment of president Dilma Rousseff and the implosion of Brazilian politics. As the lawsuit claims, “subsequent disclosures” and “recent revelations” stemming from the fallout of Brazil’s political crisis uncovered Citi’s alleged role in of Dantas’ endless travails.

The intrigue is heightened by lengthy redactions in the lawsuit, which evidently are required by Brazilian law but have the additional effect of making Citi look guilty of unspeakable mischief.

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It’s unclear what’s hiding behind those ominous black bars. Moreover, it’s too early to tell whether the suit has merit or simply represents the attempt of a seasoned political operator capitalizing on the Hobbesian bedlam that is Brazilian politics to score a nice settlement from a bank too large to care about anything under 8 figures. However it plays out, though, the lesson is clear: Don’t fuck with Brazil unless you’re willing to slug it out.



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