With Brazil hosting the G20 summit in Rio de Janeiro between 18-19 November, President Luiz Inácio Lula da Silva has sought to capitalise on the spotlight to rally global support for taxing the world’s wealthiest individuals as a key pillar for funding a sweeping sustainable development agenda.
However, this effort faces significant hurdles to get off the ground. Beyond the geopolitical crises dominating the summit, many G20 nations, grappling with fiscal deficits and rising national populism, are under pressure to prioritise domestic spending over international obligations. In the UK, for example, business activity recently slumped to a 13-month low, while the Labour government is also contending with large-scale farmers’ protests in response to a controversial inheritance tax change intended to bolster struggling public coffers. As University of São Paulo economist Maria Antonieta Del Tedesco Lins aptly summarised, “balancing national demands with multilateral commitments is increasingly difficult,” in the current climate.
Brazil itself is no exception – with its own recent fiscal shortfalls and corruption scandals involving tax officials and representatives of Dentsu International, Lula’s ambitions for global reform highlight the need for domestic fiscal accountability. If Brazil aims to lead on equitable taxation and governance reform, addressing internal fiscal vulnerabilities to the private sector’s undue influence will be key to building credibility on the global stage.
Dentsu’s troubled Brazilian entry
In early November, several major Brazilian media platforms exposed yet another government corruption scandal involving international subsidiaries of Japanese PR giant Dentsu Group, with the firm’s uncomfortably close ties to Brazil’s public officials generating controversy since its market entry.
After gaining ownership of then-leading Brazilian digital agency AgênciaClick via its acquisition of the firm’s UK-based parent company, Aegis Group, Dentsu rebranded AgênciaClick as Isobar Brasil in 2014 as part of its long-term development strategy in the country. Shortly after becoming CEO of the newly-consolidated Dentsu Brasil and Isobar, Abel Reis projected that over time, “the best PR agencies” would increasingly come to “look like the best business consultancies” – a vision that appears to have come to fruition, although undoubtedly not as intended.
Indeed, Dentsu has since faced undue government influence scrutiny reminiscent of that faced by global business consulting titans like McKinsey. In 2015, under then-president Dilma Rousseff’s administration, Isobar Brasil secured a R$44 million contract with the Secretariat for Social Communication (Secom) to manage the government’s digital strategy, which continued under Michel Temer’s presidency.
During Temer’s tenure, his long-time publicist Elsinho Mouco notably joined Isobar as Director of Customer Service and Content to promote the new president’s reformist agenda, which raised questions after Mouco’s brother, Gustavo Mouco, was awarded a R$208 million Secom contract split between his agency, Calia, Artplan and Dentsu subsidiary NBS.
Moreover, in 2016, in the context of the Federal Police’s Operation Acronym investigation, Isobar came under fire when it was alleged that Dilma Rousseff’s former chief of staff, Giles Azevedo, had used Isobar’s Secom contract to settle debts from Rousseff’s 2010 presidential campaign. In the aftermath, Isobar ended its Secom contract and announced plans to shut down its Brasilia offices, citing corruption fears and compliance priorities as motivations for avoiding government or potentially-suspicious contracts.
New Brazilian collusion scandal unfolding
Yet, Dentsu has certainly failed to stick to this plan, with its latest issues in Brazil suggesting its hasty Brasilia exit in 2020 was more indicative of damage control than a commitment to business ethics. As Métropoles, one of Brazil’s largest media platforms, revealed in November, representatives of Switzerland-based subsidiary Dentsu Tracking have engaged in shadowy lobbying practices in an attempt to win a beverage marking contract operated by the Brazilian Mint but whose regulatory guidelines are set by the Federal Revenue Service (FRS).
In a leaked conversation between Dentsu Tracking CEO Philippe Castella and consultant Paulo Zottolo following a meeting with FRS inspection coordinator, Ricardo de Souza Moreira, Zottolo refers to Moreira as “someone who will be shaped” and to Dentsu contact and former FRS official Paulo Ricardo Cardosa as someone who will “do that shaping.” This notably comes as Paulo Ricardo’s wife, FRS deputy secretary Adriana Gomes Rêgo, is under internal investigation for leaking privileged information in a scheme allegedly organised by her husband, who then passes this information on to Dentsu, which Zottolo confirms to Castella in their recorded conversation.
Interestingly, Paulo Ricardo was FRS deputy secretary in 2016 when the previous beverage marking system to tackle the illicit market and increase excise tax revenue was illegally disconnected by the FRS – as confirmed by multiple Federal Court of Auditors (TCU) rulings. The ensuing years without traceability systems in place have left not only an ever-growing tax collection hole – tax revenue losses stemming from the illicit beverage trade had already reached R$28 billion in 2022, dwarfing the “high costs” used to justify shutting down the previous system, as TCU minister Vital do Rêgo noted last August – but a lucrative opportunity for Dentsu.
UK, EU offer warning to Brazil
Yet, as CEO Castella, a former Philip Morris International (PMI) employee, indicates in the recording, winning the beverage marking contract is merely a stepping stone. “We want to focus on beverages first, later we can move into cigarettes” – the ultimate prize for Dentsu, whose deep ties to the tobacco industry have garnered significant criticism in the markets where it has implemented its track and trace system. Indeed, in the same conversation, Castella openly reveals his loyalty to his previous company, asserting that “Philip Morris will be 300% percent behind to change the technology” before implying – in complete violation of the WHO FCTC’s industry independence requirements for track and trace – that Dentsu is “the best option for them.”
Dentsu Tracking’s EU system – whose lack of WHO compliance, ineffectiveness and support from undue lobbying influence were exposed in a recent White Paper produced by a group of MEPs and leading NGOs – has also been applied in the UK, where its impact has equally been questioned by trade officials. Beyond hindering tax generation in the EU and UK, the failure of Dentsu’s system is even impacting its tobacco industry partners, with major players like Imperial Brands attributing a declining market share in the UK to the country’s growing illicit tobacco trade. On the EU level, KPMG’s latest annual report also indicates a rising illicit tobacco trade, further highlighting Dentsu’s incapacity to rein in this scourge.
In light of Dentsu’s issues in the UK and EU, as well as global NGO warnings that countries outside of Europe should avoid its tobacco industry dependent system, Brazil should take note and avoid an unnecessary setback to its taxation regime as it seeks to address its budget deficit, fund vast sustainable development programmes and rise as a leader on the international stage.
As G20 hosts, Brazil has a unique opportunity to champion global wealth taxation, advancing the case for fairer financial systems to tackle global challenges. Yet, this ambition must be matched by action at home. To lead credibly, Brazil must address its own fiscal weaknesses, bolstering accountability and safeguarding government schemes from private influence. By resolving these domestic problems, Brazil can strengthen its fiscal health and fund the ambitious agenda for social inclusion and development it seeks to inspire globally.
