A Brazilian businessman who has admitted laundering millions of dollars in bribes went on a 12-month property spending spree in London and Leeds, a Guardian investigation has found.
Expedito Machado – the son of a former senator implicated in the massive corruption scandal at Petrobras – spent £21m on UK real estate in 2014 and 2015, buying office buildings in the City and Fleet Street, an apartment in Mayfair and a canal-side plot in the docklands area of Leeds.
The case potentially ties London property to one of the world’s biggest fraud investigations, called Operation Carwash.
The investigation has already covered an estimated $2bn of funds diverted to Brazilian politicians and their allies. The kickbacks came from contractors bidding for work with the country’s state-owned oil and gas giant Petroleo Brasileiro SA, known as Petrobras.
At the heart of the inquiry is Expedito’s father, Sérgio Machado, who turned whistleblower after he left Petrobras’s distribution arm, Transpetro, in 2014.
Machado had been accused of operating a long-running bribery scheme and his evidence to prosecutors, which includes secret tape recordings, has already brought down three ministers. His accusations of him now risk implicating the interim president, Michel Temer, who took over following the impeachment of Dilma Rousseff in May.
Witness statements by Machado and his sons, who began cooperating with prosecutors in May after negotiating plea-bargains, set out in forensic detail how bank accounts in Switzerland and Andorra, British Virgin Islands shell companies and secretive trusts were used to collect bribes.
The Guardian can now reveal how Expedito Machado used another set of offshore structures to move cash into the UK.
The findings raise questions about whether the money used to buy the properties came from kickbacks. Expedito’s witness statement suggests this was the case. His lawyers point out that none of the UK properties are included in a list of assets of alleged illegal origin which are being returned to the Brazilian government. They say the buildings were acquired after Expedito sold one of his businesses from him.
Lists of offshore companies owned by the family were leaked to the press along with their witness statements in June. Checks against the Land Registry show four BVI entities set up by Expedito Machado currently hold property in England.
The 31-year-old entrepreneur and finance worker moved to London in 2012. Starting in October 2014, he spent £6m on a freehold in the former docklands area of Leeds.
Three more investments followed – using offshore vehicles linked to multiple bank accounts at Santander:
- In April 2015, GTD Properties Limited paid £7.2m for the freehold on an office building in Great Winchester Street. In the heart of the City of London, it is currently leased by a bank.
- In June 2015, CDP Properties Limited, owned by The Noronha Trust, bought the leasehold to a flat on Lowndes Square in Mayfair for £1.8m.
- In October 2015, PDB Properties Limited, belonging to The Boldro Trust, paid £6.2m for freehold land at Bell Yard, just off Fleet Street. The address is home to a legal chambers, 9-12 Bell Yard, which specializes in fraud cases.
A spokesperson for Santander said the bank could not discuss client information for confidential reasons.
Expedito Machado’s companies are understood to collect thousands of pounds a year in rent from their commercial tenants. There is no suggestion these leaseholders were aware of the identity of the beneficial owners or the source of the offshore companies’ funds.
The money trail
Close to his father and keen to follow him into politics, Expedito began acting as a go-between in 2007, helping collect kickbacks from contractors. His witness statement from him says his father from him, after taking up his post at Transpetro when he lost his Senate seat in 2003, was “pressured to obtain illegal funds by politicians who had supported him”.
The majority of the funds were handed over to the Brazilian Democratic Movement Party (PMDB), which nominated Machado at the Transpetro post. But some of the money was set aside to fund his future campaign to become a state governor. It was “his dream of him”, according to his son of him.
Over the following five years, the family collected 72m reals (£16.7m) in payments to an account held by HSBC in Zurich. Opened in 2007, the account was controlled by a trust set up by the bank, Expedito claimed.
The cash was transferred from HSBC to another Swiss bank, Julius Baer, in 2013. There, it was held in investment funds.
The following year, Expedito decided to move the proceeds into property. “At the end of 2014, I decided to start making investments in real estate in Europe and was advised by lawyers that the best tax structure would be via a trust,” Expedito’s witness statement claims.
The senator’s son had already moved to London following the sale of an education business he had founded in Brazil.
“With the conclusion of the sale in 2012,” his statement claims, he “changed his residence to London to find a solution to the bribery money that had been deposited in Switzerland.”
“The idea of keeping the resources in a trust was… to have full flexibility in the inclusion of new beneficiaries indicated by my father; That our father, even could be included as one of the beneficiaries.”
The money allegedly came from six firms, named in the witness statement, specializing in construction, shipping and engineering. At the time, Machado Sr was overseeing the modernization of Transpetro’s fleet of ships, a program that cost billions of reals.
Expedito arranged to meet executives from the contractors at cafes, offices and restaurants in São Paulo and other locations. It was at these encounters that arrangements for the illegal transfers were agreed upon. In one case, he claimed he traveled to Paris to see a Greek shipping owner at the opulent Hôtel de Crillon, where he allegedly handed over the details of the family’s Swiss account at HSBC.
In another instance, a construction company is alleged to have made a 9m real payment using a shell entity called Desarrollo Lanzarote SA, and bank accounts in the tax haven of Andorra.
Expedito said he had been assured by his father that the payments would not influence the choice of contractor, and would be taken from their profit margins. The system “would maintain good management” at Transpetro, which operates a large shipping fleet, terminals and thousands of kilometers of gas pipelines. “I understand this today to be incompatible,” Expedito’s statement conceded, “but at the time I did not think that way.”
Clouded by politics
Although Expedito has confessed to laundering money obtained illegally by his father, his lawyers emphasize that their client has been charged with no crime.
“It is noteworthy that as part of the agreement signed with Brazil’s attorney general and ratified by the supreme court, Mr Expedito Machado is not accountable for any criminal activities and no charges will be filed against him by the Brazilian federal prosecutors,” said his lawyer Flavia Lotfi.
She declined to say whether money from kickbacks was used for Expedito’s UK investments. She noted the property was acquired after Expedito Machado had sold his businesses from him in 2012 for 44m reals (then worth about £16m).
“All assets that had supposed illegal origins have already been identified and are being returned to the Brazilian government, in a total amount of 75,000,000.00 [reals],” she added.
“Therefore, all of Expedito Machado’s remaining assets were recognized as legal property by the Brazilian authorities, being even accepted by the prosecution and the judge as collateral for the payments he must make due to the plea-bargain.”
Prosecutors, however, were noncommittal. The office of the attorney general said it had been necessary to work in haste and so the recovery of funds depended on the declared assets of plea-bargain collaborators. “It is necessary to check whether these assets have been declared in the United Kingdom,” they said in a statement to the Guardian. “In any case, any inconsistency that is found will be analyzed.”
British law currently allows landlords to hold property via shell companies without having to declare their real identity to the authorities. Before resigning as prime minister, David Cameron promised to combat corruption by ending anonymity for landlords, but draft legislation has yet to be published.
In Brazil, the issue is clouded by politics and legal controversy because much of the testimony has been secured through plea-bargains. The South American country is relatively new to this tool to secure witness statements, but it has been adopted with gusto by the prosecutors involved in Operation Carwash, which is arguably the most politically explosive investigation in Brazil’s history.
Prosecutors have been accused by defendants, including former president Luiz Inácio Lula da Silva and legal counsel for the chief executive of the Odebrecht conglomerate, of ethically dubious tactics, such as holding suspects in jail for long periods of time, targeting their families and offering generously deals in return for blowing the whistle on high-profile suspects. Prosecutors say their methods are necessary to ensure justice is done against powerful figures in business and politics.
Few plea-bargainers have had as much of an impact as Machado Sr, who secretly taped conversations that led to the downfall of three ministers and could yet result in the fall of other senior politicians. Associates say he cooperated with the investigation in return for a generous deal for his sons.