Dahua Rigs $24 Million Bid, Alleges Brazilian Official, Dahua Denies

A Brazilian State Deputy alleges that Dahua, in cahoots with local authorities, rigged a ~$24 million USD bid in its favor, in doing so violating Brazilian law. Dahua "unequivocally" denied this to IPVM.

Last month, Dahua was awarded a ~$24 million USD project with a Brazilian state's Department of Transportation. Inside this report, IPVM examines the alleged illegal activity and shares direct feedback from the Brazilian legislator who filed complaints naming Dahua to Brazilian authorities and from Dahua denying the allegations.

Executive Summary

The allegations against Dahua are that Dahua bribed Brazilian government officials ~$7 million USD and that Brazilian government officials worked with Dahua, allowing Dahua to write the bid specification more than a year prior to the specification being opened to the public, enabling Dahua to unfairly win the project.

To support this, a Brazilian State Deputy shared files from a flash drive that is claimed to come from a Dahua Brazil employee. The drive does include detailed documentation supporting the Dahua specification writing claims but does not substantiate the bribe claims.

Dahua unequivocally denied the allegations calling them 'baseless claims' and the Governor of this Brazilian state filed a civil suit to remove publications in Brazil reporting on this. Meanwhile, the Public Prosecutor has recommended putting this bid on hold.

Dahua did not explain or comment on the evidence provided, if or when they do, we will update with their response.

Dahua Alleged Legal Infractions

In comments to IPVM, Carlos Von Schilgen Ferreira, a deputy in the Legislative Assembly of the Brazilian state of Espírito Santo, confirms that his state views bid specifications as confidential government records until their date of publication and maintains that a third/external party’s involvement therewith is an indicator of “administrative improbity and crimes of the law of bidding” (in Portuguese, IPVM translated to English):

In Brazil, the acts that precede the publication of the specifications are confidential and are handled internally within the public administration. No private agent or agent external to the competent sector legally can have access, control or interference under penalty of administrative improbity and crimes of the law of bidding. The terms of reference is also included in this context. This is because if a private agent or interested party has access to these documents, there would be a conflict of interest, similar to a fox guarding a henhouse. [emphasis added]

Proof that the internal bidding acts are confidential is the register in watermark in the background of this bidding procedure of the electronic portal [see example image]. The very papers alert the confidentiality, in the case that we send a sample of the terms of reference this is also included as it is an internal act of the government until its publication.

Dahua’s alleged early and regular involvement in the drafting of the terms of reference is consistent with formal complaints registered in January 2021 by integrators Johnson Controls, France-based Engie, and Brazil-based FiscalTech regarding a pro-Dahua bias in the specs of the Espírito Santo Department of Transportation (hereinafter DETRAN/ES, for its abbreviation in Portuguese) bid. Should this alleged bias be upheld, this would further imply a violation of what Mr. Von referred to as “the law of bidding,” otherwise known as [Brazilian] Law 8.666 of June 21, 1993, which governs bidding and contracts with the Public Administration, as public bids should not be biased in favor of one seller and should be written in a way that allows at least three sellers to meet their requirements. As a Brazilian industry executive told IPVM (in Portuguese, IPVM translated to English):

In Brazil, this is understood as involving some sort of bias. In Brazil it is prohibited by legislation 8.666, it is prohibited bias in the bidding. There must be at least three companies that adhere to the technical specifications and that participate in the process.

This executive's comments were further substantiated by a former Dahua Brazil employee (in Portuguese, IPVM translated to English):

No, you can help write the project, but in accordance with Law 8.666. At a minimum there must be 3 manufacturers, at a minimum, complying with the specs.

And a locally based sales professional:

Yes, it’s not allowed. If the 3rd part[y] write[s] it, according to the laws[, it] must to [sic] be out of the bid. That law [is] call[ed] 8.666/93.

Dahua Allegedly Wrote Specs

As IPVM reported in January, the DETRAN/ES final bid specs were released on December 22, 2020. Nonetheless, IPVM has obtained evidence that points to Dahua being involved with this bid as early as August 2019.

Among files that IPVM has reviewed pertaining to the matter are 20+ revisions of the terms of reference, or Annex I to the bid specs, dating between August 2019 and November 2020:

Numerous versions of the terms of reference as early as version 4, dated August 15, 2019, are recorded as being “Last saved by” an author/editor called “Dahua Tecnologia:”

Inside version 4, the author “Dahua Tecnologia” is shown as having made substantial, heavy edits to the document on Espírito Santo state government letterhead:

Such heavy edits continue in version 5:

Through version 9:

All the way through version 22 with author “Dahua:”

Alleged Bribe and Whistleblower

The Microsoft Word files screenshotted above were shared with IPVM directly by Deputy Von, who obtained them from a whistleblower on the Dahua Brazil sales team through the Folha do ES media outlet (in Portuguese, IPVM translated to English):

I am from the commercial team of DAHUA, I work within the legality to sell the equipments and meet the goals, but the Commerical Director Fábio Lopes and the Engineer Lukas Kubaski, took the lead in bribe cases and are competing against the commerical team for results. But they work with bribery.

In his cover letter, the Dahua whistleblower alleges that a R$ 40 million BRL (~$7 million USD) bribe is behind the rigged bid; however, IPVM does not know how the whistleblower arrived at this R$ 40 million BRL figure and there is no public evidence of the reasoning behind this figure or if it was indeed paid.

In light of the alleged bribe, in exclusive, English-language comments to IPVM, Mr. Von asserts that the Dahua-DETRAN/ES bid constitutes “the biggest corruption scandal” in the history of his state:

We are probably facing the biggest corruption scandal in the recent history of the state of Espírito Santo. My main job as a state deputy is to inspect the actions of the governor. I have already reported the case to the prosecutor and federal police. The investigations already started.

But when I found out that IPVM, [the] world's leading authority on video surveillance, was also investigating the bidding, I saw an opportunity to go further in the investigations so decided to share with them all the evidence and materials that I had already obtained.

Brazilian Federal Police, Public Prosecutor Notified

Mr. Von shared with IPVM the complaint that he sent, naming Dahua, to Brazil’s Federal Police and also confirmed that he had notified the Federal Public Prosecutor (logo shown).

Public Prosecutor Accepts Case, Recommends Suspension of Bid

As of Wednesday, April 7, various Brazilian media outlets (1, 2, 3) reported that the Public Prosecutor had agreed to investigate the bid, with one outlet clarifying the Federal Public Prosecutor had forwarded the case to Espírito Santo’s State Public Prosecutor.

In April 7 comments on the floor of Brazil's national Chamber of Deputies (equivalent to the US House of Representatives), Dr. Soraya Manato, a federal deputy for the state of Espírito Santo, calls about Dahua specifically as having been part of a "fraudulent bidding scheme" (at 0:21, in Portuguese):

On Thursday, April 8, Espírito Santo’s Public Prosecutor issued a notice recommending a 120-day suspension of the bid and calling for DETRAN/ES to surrender all documents relating to the bid that Dahua won. In comments to IPVM, Mr. Von called the Public Prosecutor's notice "important" and said it would be hard for the government to ignore (in Portuguese, IPVM translated to English):

[T]his document is important. The bid will probably be suspended for four months. It would be difficult for the government to not comply with the recommendation of the Public Prosecutor.

If by chance the government does not comply with the recommendation, the Public Prosecutor will have to go to court against the state. Then it would be for the judge to decide. But, as I told you, I think it would be very difficult for the government not to comply with the Public Prosecutor's recommendation.

Dahua: Unequivocally Denies

Dahua provided the following statement to IPVM:

Dahua Technology is aware of an accusation regarding irregularities in the bidding process for a security camera system to serve the Brazilian state of Espirito Santo.

We unequivocally deny the allegation. The Brazilian state authorities have secured a judicial order requiring the retraction of these baseless claims.

Detail judiciary order sees the following link: http://aplicativos.tjes.jus.br/consultaunificada/faces/pages/pesquisaSimplificada.xhtml with Process No.: 0006267-82.2021.8.08.0024

Dahua Technology competes on the basis of the quality of our products and in full compliance with all applicable laws and practices regarding competitive bidding processes. We have robust controls in place to mitigate the risk of compliance violations in any market in which we operate. Our track record of compliance with such laws and regulations speaks for itself.

Dahua Technology reserves the right to take further action to protect the company’s reputation, if necessary.

Dahua did not explain or comment on the detailed evidence provided showing they heavily edited the specification far before it was released. If or when they do, we will update with their response.

State Government: "False News"

In an undated Official Note, the Government of the State of Espírito Santo cited what it labeled as "false news" about the bid, defending that (in Portuguese, IPVM translated to English):

1 - The bidding process respected the current legislation in all the steps, obeying the steps, transparceny, and the due publicity.

Removed Publications in Brazil

Five publications were ordered to be removed in Brazil on this topic, though specifically because these publications alleged bribes directly involving the Governor of this state. For example, from the Court's decision to remove these posts:

The fact that the first defendant reported in the newspaper called “Folha do Espírito Santo” [1] that “The Pen Drive of the company DAHUA was leaked and proves the fraudulent scheme of the bidding of Detran-ES, of the order of R $ 139 million, which directly involves the governor of Espírito Santo, Renato Casagrande (PSB) ” and “ The assembly and direction of the bidding was all articulated by Vitor Murad. He is the operator of Secretary Tyago Hoffmann and Governor Renato Casagrande in technology schemes ” , these are delicate statements, since he blames the author for committing crimes, without however presenting evidence.

To Be Continued…

IPVM will continue to follow this investigation as it unfolds in Brazil. If you have any information relating to corruption involving video surveillance manufacturers in any part of the world, please send us a news tip (including secure options).

(While Mr. Von consented to public comments in his capacity as a legislator, IPVM respects the confidentiality of industry professionals and accepts anonymous tips.)