February 26, 2016 / 11:41 AM / a year ago

Brazil police expand corruption probe to railway contracts

SAO PAULO (Reuters) - Brazilian police said they launched a probe into bribes and overbilling in two large railway contracts, serving search and seizure warrants on Friday in six states and the capital Brasilia.

Prosecutors said the operation was based on testimony from plea and leniency deals with construction firm Camargo Correa SA in an ongoing corruption probe into price fixing and political kickbacks at state-run oil firm Petroleo Brasileiro SA.

Police said in the state of Goias alone, the embezzlement of 630 million reais ($160 million) had been detected for segments under construction for the North-South Railway, a long-delayed project that would ease shipments of corn and soybeans.

They are also investigating the so-called Fiol, tracks that would connect the landlocked state of Tocantins to the coast of Bahia.

Camargo Correa confessed to bribing the former president of state-run Valec, which was responsible for building the railways, as part of a settlement with prosecutors last year in which it agreed to pay more than 800 million reais ($201.5 million) in fines and indemnities.

Dozens of executives from Brazil's largest engineering firms have been jailed for allegedly colluding to overcharge Petrobras, as the oil company is known, and using the proceeds to bribe Petrobras executives and politicians, mostly in President Dilma Rousseff's coalition.

The local companies being investigated for bribes related to the railway contracts are also accused of price-fixing and corruption in the Petrobras scandal.

"According to Camargo Correa, there was a cartel, there wasn't a competition for the contracts," said prosecutor Helio Telho at a press conference in Goias state.

The Petrobras investigation has emboldened prosecutors who are ruthlessly cracking down on corruption. On Thursday, police raided the headquarters of one of Brazil's largest steelmakers Gerdau SA in an investigation over suspected tax evasion know as "Operation Zealots".

Other large infrastructure projects, including a plan to divert water from the Sao Francisco river to the drought-prone Northeast, are also being investigated.

The North-South railway, a 1,550-kilometer (963-mile)set of tracks stretching from the interior state of Goias to the coastal state of Maranhão, was started in the 1980s and still isn't entirely operational. The railways would lessen freight costs of agricultural shipments to new ports if completed.

Reporting by Pedro Fonseca, Anthony Boadle and Caroline Stauffer; Writing by Reese Ewing and Caroline Stauffer; editing by John Stonestreet and W Simon

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