PETROBAS OIL SCANDAL

Alberto Youssef, a convicted money launderer and former bon vivant, sat in a Brazilian jail cell in March of last year, getting ready to tell his lawyers a story. It was about an elaborate bribery scheme involving Petrobras, the government-controlled oil giant. He opened with a dire prediction. “Guys,” Mr. Youssef said, “if I speak, the republic is going to fall.”

To those lawyers, Tracy Reinaldet and Adriano Bretas, who recently recounted the conversation, this sounded a tad melodramatic. But then Mr. Youssef took a piece of paper and started writing the names of participants in what would soon become known as the Petrobras scandal. Mr. Reinaldet looked at the names and asked, not for the last time that day, “Are you serious!" “We were shocked,” he recalled, sitting in a conference room in his law office in downtown Curitiba, the capital of the southern state of Paraná, one morning in June. “It was kind of like, in Brazil, we know that corruption is a monster. But we never really see the monster. This was like seeing the monster.”  What Mr. Youssef described to his lawyers, and then to prosecutors after he signed a plea agreement last year, is a fraud that has destabilized the country’s political system, helped tilt the economy into recession and left thousands unemployed. It has all but devastated Brazil’s status as an up-and-comer on the world stage. The Petrobras scandal would read as pure tragedy were it not filled with a cast of Hollywood-ready characters and their lavish props. The latter include a huge inventory of gifts — Rolex watches, $3,000 bottles of wine, yachts, helicopters and prostitutes. There were also staggering sums of money, most of it flowing through a network of phantom corporations, some of it hand-delivered by an elderly gentleman who flew around the world with bricks of cash, shrink-wrapped and strapped beneath thigh-high socks and a Spanx-like vest.

At the core of the scandal is an old-fashioned kickback scheme. Starting in 2004, according to prosecutors, a small number of top Petrobras officials colluded with a cartel of companies to overcharge the oil company for construction and service work. The cartel would decide which of its member companies would win a contract to, for instance, service an oil rig or build part of a refinery. This fake competition was overseen by Petrobras confederates, who were rewarded with bribes. They kept some of the money but shared much of it with political figures. (The company, while publicly traded, is 51 percent government-owned, and more than a few Petrobras executives owe their jobs to elected officials.) What has stunned Brazilians isn’t the novelty of this fraud but its epic scale. The first of many national gasps was emitted in December when a former Petrobras employee named Pedro Barusco pledged to give back every cent of his ill-gotten gains — all $100 million. It was just the beginning. Mr. Barusco told authorities in February that the ruling Workers Party had pocketed up to $200 million over the years, money that was supposedly used to finance political campaigns. In March, roughly one million Brazilians took to the streets in cities across the country to protest. Much of the furor was directed at President Dilma Rousseff, who was chairwoman of Petrobras during part of the time that the graft ring operated. (She denies any involvement and has not been charged.) But politicians in her party and five other parties have been implicated, so there was plenty of blame to go around. To date, 117 indictments have been issued, five politicians have been arrested, and criminal cases have been brought against 13 companies. Petrobras officials have pegged the total of all bribes at nearly $3 billion, a figure that makes the scandal at FIFA, world soccer’s governing body, seem like the work of amateurs.

If you don’t live in Brazil, the Petrobras mess has probably registered, to the extent that it has registered at all, as an esoteric swindle perpetrated by people and corporations whose names you don’t recognize. In Brazil, it has convulsed the country with fury and a stinging sense of betrayal.