Brazilian Authorities Uncover Million Dollar Scam Involving Bitcoin
Police authorities in Rio De Janeiro have uncovered financial irregularities to the tune of $13,625,901 in a food contract for prisons across the city. It is the first case in Brazil where analysis has indicated that the accused used bitcoin to siphon money instead of regular currency.
Following the Digital Bread Crumbs
The investigations began on March 13, 2018, and were carried out by the Federal Revenue Service Brazil (RFB), Federal Police (PF), Federal Public Ministry (MPF) and the Public Ministry of the State of Rio de Janeiro (MPRJ).
At a press conference, authorities pointed out that their initial investigations revealed a racket which involved overbilling a food supplying contract for prison inmates. The discovery has led to the issuance of arrest warrants for 16 individuals, seven of which have already been arrested.
Felipe Paiva, the alleged mastermind is said to have been doing this since 2001, when his company, Induspan, was hired by the Brazilian government to execute the Bread-School project.
During an audit in 2010, however, the financial scam was unearthed, leading to the termination of the contract.
Paiva then founded Primus Initiative as a not-for-profit organization which would take the responsibility of the delivery of snacks and other food items in prisons. Primus operated primarily in Rio de Janeiro and reportedly kept raising prices after each renewal of its contract.
The price quoted for bread increased from six cents in 2001 to 63 cents in 2014. The current contract was to provide around 83,600 servings of snack and coffee each day to prison inmates in Rio de Janeiro.
Prosecutor Carvalho Neto has said that the agreement promised to pay $22,252,590 to the Primus Initiative between August 2010 and August 2015. Of that amount though, Carvalho alleges that more than half was diverted elsewhere.
Luiz Henrique Casemiro, the Superintendent of the Internal Revenue Service, has labeled it as the first instance in Brazil where a cryptocurrency, namely bitcoin, has been used to transfer illegitimate funds to a foreign account on such a large scale.
Speaking at the press conference, Casemiro said, “We at the Federal Revenue first drew attention to this specific operation because it was the first time when an operation involved bitcoin. This shows that people are trying to maybe fly below the radar of the IRS and the Central Bank.”
The superintendent believes that the perpetrators used bitcoin because of its relative unregulated nature of it in Brazil. However, it ended up in the IRS’ crosshairs because of the uncharacteristically large amount of money changing hands.
The entirety of the $13,625,901 was transferred to overseas companies set up for the sole purpose of receiving the funds. Other than that, they had no business or employees whatsoever.
The Securities and Exchange Commission of Brazil (CVM) announced on January 12, 2018, that it does not consider digital currencies as a financial asset. Central Bank President Ilan Goldfajn had earlier said:
“The bitcoin is a financial asset with no ballast that people buy because they believe it will appreciate. That is a typical bubble or pyramid, and the central bank is not interested in bubbles or illicit payments.”