Insight: In Brazil, your internet provider may be a mobster, cops say

Telefonica Brasil, SA

28/03/2022 12:00

By Gram Slattery
    RIO DE JANEIRO, March 28 (Reuters) - As Rio de Janeiro
residents sheltered at home last year during the deadliest phase
of Brazil's COVID-19 outbreak, police detective Gabriel Ferrando
said he got a tip that something suspicious was upending local
internet service.
    Access had vanished across broad swaths of Morro da Formiga,
or Ant Hill, a tough neighborhood on the city's north side. When
Ferrando quizzed a technician from broadband provider TIM SA
 TIM3.SA  tasked with fixing the outage, the worker, whom he
declined to name, said armed men had chased him away with a
warning not to return.
    Turns out a new internet provider had claimed this turf: a
company whose investors at one time included an accused drug and
arms trafficker with alleged ties to Brazil's notorious Red
Command crime syndicate, according to Ferrando, court documents
filed by authorities and business registration records viewed by
Reuters. Using stolen equipment, some of it pilfered from TIM,
the newcomers soon had their own internet service up and
running, Ferrando said. Residents could sign up with the new
firm, he said - or do without. 
    TIM, a unit of Telecom Italia SpA  TLIT.MI , declined to
comment, referring all inquiries to Brazil's telecom industry
association Conexis. In a statement, the group called on the
nation's law enforcement to act to protect legitimate operators.
    Ferrando, a veteran of Rio's top organized crime unit, is
trying to do just that. In a sealed report documenting months of
investigation, he asked Rio state prosecutors in February to
pursue charges against the purported pirates. The prosecutors'
office did not respond to a request for comment. No charges have
been filed. 
    Morro da Formiga isn't the only community reporting
troubles. Reuters interviewed nearly two dozen telecom industry
executives, law enforcement officials, technicians, academics
and internet customers in Brazil, and reviewed thousands of
pages of court filings submitted by police.
    The people and documents described an audacious takeover of
internet service in dozens of neighborhoods in Brazil's major
cities by companies associated with alleged criminals unafraid
to use force and intimidation to push out rivals. The result,
these sources said, is that tens of thousands of Brazilians now
depend on unreliable, second-rate broadband networks estimated
by industry and law enforcement officials to be generating
millions of dollars annually for purported crooks.
    Bootleg providers can be unresponsive when service crashes
and impatient when a bill is missed, some customers told
Reuters. In Rio's working-class Campo Grande neighborhood, a
resident described how someone knocks on his door monthly to
collect 35 reais ($6.80) - in cash.
    There's "pressure to pay on the day that they choose with no
delay," said the customer, who requested anonymity for fear of
retaliation. 
    It's a reliable revenue stream made all the more lucrative
by the COVID-19 pandemic, which forced families online for
school, work and shopping. In 2020 alone, the proportion of
Brazilian households with an internet connection grew by more
than 12 percentage points to 83%, according to the most recent
data available from Cetic.br, an information technology
organization.
    Pirates are plundering equipment and infrastructure, too,
much of it re-purposed for their makeshift networks, authorities
and telecom executives said. Theft and destruction of
telecommunications gear rose 34% in 2020 from 2019, representing
about 1 billion reais ($194 million) in direct annual losses,
according to Feninfra, an industry group whose members include
installers and repair workers. It said that figure rose another
16% in the first half of 2021.
    
    THE ALLEGED SCHEME
    Brazil's telecom industry is not alone in its struggles.
Crime groups for years have controlled distribution of cooking
gas, jugs of drinking water and other basics in many low-income
urban neighborhoods.  urn:newsml:reuters.com:*:nL1N2JL00B urn:newsml:reuters.com:*:nL2N2NL152
    But by building their own broadband networks, Brazil's
criminals are raising their sophistication, according to more
than 20 technicians, industry representatives and law
enforcement officials interviewed by Reuters. They said the
scheme typically works like this:
    First, thieves steal or vandalize equipment belonging to
traditional broadband operators. When repair teams arrive, they
are menaced by armed men who warn them not to come back. Last
year in Rio alone, no-go zones rose to 105 locations for Oi SA
 OIBR4.SA , one of Brazil's largest internet providers. That
figure has quadrupled since 2019, according to data supplied by
the company.
    Shortly after service is interrupted, telecom companies
associated with organized crime groups set up their own
networks, piggybacking on existing infrastructure. In some
cases, these outfits are run directly by members of drug
trafficking gangs including the Red Command or the Pure Third
Command, one of its main rivals. Others are run by militias – a
type of criminal outfit composed of retired and off-duty cops.
In other cases, they are operated by businessmen who pay
kickbacks to gangsters to clear out the competition.
    Often the interlopers receive help from crooked employees of
major providers who sell them expertise and pilfered gear,
according to Rio state prosecutor Antonio Pessanha. He told
Reuters he's investigating criminal activity in the telecom
sector in and around Rio city, the state's capital.
    In one recent case, an employee of Claro, the local unit of
Mexico's America Movil SAB de CV  AMXL.MX , offered to sell
company equipment to organized crime associates, according to a
recorded phone call that Pessanha said his office obtained
through a court-approved wiretap. He did not specify what
criminal organization the people in the call were allegedly
affiliated with, nor did he identify the Claro employee or the
other participants. The investigation is ongoing, and Reuters
was not provided access to the recording.
    Claro declined to comment on the alleged incident.
    
    NEW PLAYER IN ANT HILL
    In Morro da Formiga, detective Ferrando said he began
receiving anonymous tips from some of its roughly 5,000
residents in the first half of 2021 who said broadband services
provided by major operators had stopped working.
    One company dominates there now, Ferrando said, a firm named
JPConnect Servicos de Telecomunicacoes. It was established in
2019, according to corporate registration documents filed with
the Rio government and seen by Reuters.
    Those records show that until late last year JPConnect was
part-owned by an individual named Paulo Cesar Souza dos Santos
Jr., whom authorities allege is a member of Comando Vermelho, or
Red Command, Rio's largest organized criminal group. In 2011,
Rio state prosecutors indicted dos Santos for drug and weapons
trafficking, according to court records viewed by Reuters. He
was later acquitted. 
    Dos Santos transferred his 50% stake in JPConnect in
September 2021 to another investor, Alexandre Rodrigues de
Almeida, according to the registration documents. 
    In January, police officers searched JPConnect's
headquarters in Morro da Formiga, according to Ferrando. He said
the cops found equipment belonging to TIM, Oi, Claro and
Telefonica Brasil SA  VIVT3.SA , the local unit of Spain's
Telefonica SA  TEF.MC . All of those companies declined to
comment on Ferrando's allegations.
    The JPConnect investigation hasn't been previously reported.
Authorities haven't filed charges in the case. Reuters could not
reach officials at JPConnect. The company's registered telephone
number is not functioning. 
    Dos Santos and Almeida declined to comment through their
lawyer. Their attorney, Eberthe Vieira de Souza Gomes, said
JPConnect operates legally and had gained market share by
offering a quality product. He said dos Santos has no connection
to any criminal organization, pointing out that his client was
acquitted of all charges related to his 2011 indictment. Reuters
confirmed dos Santos' acquittal via Rio state court documents.
Those documents did not specify the year of his acquittal.
    TIM, Oi, Claro and Telefonica Brasil referred questions to
Conexis, the telecom trade association. In an interview, Marcos
Ferrari, the group's president, described a litany of woes
facing Brazil's industry generally, including vandalism, theft,
threats to employees and hijacking of service areas by players
with suspected ties to the underworld.
    Authorities must "inhibit this type of criminal action,"
Ferrari said.
    In greater Rio there are several other broadband operators
under investigation for allegedly rough tactics and links to
purported criminals, authorities said.
    Among them is Net&Com, which made headlines in March 2021
when Rio police raided its downtown headquarters as part of a
broader probe into an alleged drug ring. Police have publicly
stated that they are investigating the firm for allegedly paying
criminals associated with the Red Command to help them take over
the telecoms market in poor neighborhoods throughout
metropolitan Rio.
    More than three dozen people, including purported members of
the Red Command, last year were charged with drug and weapons
trafficking and conspiracy, according to court documents filed
by Rio prosecutors and viewed by Reuters. They are currently on
trial and have maintained their innocence.
    In documents laying out the government's case, authorities
alleged the ring also profited by accepting kickbacks from
Net&Com to chase telecom competitors out of neighborhoods where
the company now operates. Net&Com and its executives have not
been charged.
    Pedro Santiago, a lawyer for Net&Com, said the company was
an upstanding operator that had been the "victim of a witch
hunt." Santiago said he had reviewed many hours of police
wiretaps and that these showed no link between the firm and any
criminal elements.
    Police dispute that characterization in court documents seen
by Reuters, citing as evidence allegedly stolen equipment and
conversations among co-conspirators mentioning the alleged role
of Net&Com.
    Pessanha, the Rio state prosecutor, said the investigation
continues.
    "The new gold for the criminal underworld," he said, "is the
internet." 

 (Reporting by Gram Slattery; additional reporting by Rodrigo
Viga Gaier; editing by Marla Dickerson)
 ((gram.slattery@thomsonreuters.com; +55-11-95057-1453))