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

By Robert Wren Gordon, Published Apr 09, 2021, 08:55am EDT

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.

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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.

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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]

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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:

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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:”

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

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Such heavy edits continue in version 5:

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Through version 9:

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

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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.

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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.

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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

IPVM ImageMr. 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.

IPVM ImageState 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.)

1 report cite this report:

Massive Bid Rigging Evidence Contradicts Dahua Denial on Apr 20, 2021
Massive evidence has shown that Dahua rigged a ~$24 million USD bid in...

Comments (32)

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This is really damning but unfortunately business as usual in Brasil.

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Do you mean that it is normal for manufacturers to write the bid specification on behalf of local authorities in Brazil?

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I mean corruption is so imbedded in Brasil culture that this is almost expected. Look at the PBR scandal not so long ago as an example. We only have a few very long term trusted partners in that country. The old saying here is getting the order is easy, getting paid not so much. We have significant operations there and have learned some lessons the hard way. We have good people and partners here and that makes all the difference.

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this is almost expected

What's surprising to me is the amount of evidence provided. It's one thing to say or suspect rigging, it's another thing to release dozens of documents that allegedly show Dahua writing the bid specs even far before the bid was made public. I am curious to hear (if and/or) what Dahua says about this part.

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All specs have to be written by someone, and every time the buyer does not have knowledge to do so, or if the buyer refuses to hire an independent consultant, it is one or more supplier candidates (manufacturers, integrators) will take charge, behind the curtain.As not all consultants are really independent, it is quite a big challenge to have a clean, effective RFP published.I have worked in Americas, except Canada, and I’ve seen that bribery is not unusual anywhere, but in Latin America in general, it is probably twice or three times bigger than in US.

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if the buyer refuses to hire an independent consultant

That's what I find weird in this case, the project was obviously so big and expensive that it would not be hard to justify spending a few tens of thousands on a consultant for a project that cost tens of millions.

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They didn't even try and hide it, Writing or editing this document on a non-company computer would have been enough to hide who was involved.

I have seen many bids here in the US that defiantly favor a particular brand, every "Independent" consultant has their favorite brands, of course, but it's the principle of respecting the process.

As John said, they could have very easily hired a consultant and avoid this.

I'm more interested in the bribe, where is that evidence?

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They didn't even try and hide it

Dahua has - seemingly over their entire existence - done the dumbest things that truly boggle the mind.

they appear to have no problems in deciding to cheat... but they are so very bad at it that it's almost funny.

almost.

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I think it goes beyond consultants with favored brands (although that is a part of it). Most companies publish an A&E spec that can be copy/pasted into an RFP, many consultants will do exactly that so that they can create a document that looks like it took a lot of time to write but actually didn't.

The actual consultant might be open to other vendors, but the net effect of the copy/paste treatment is to make it harder to get those other vendors in a proposal response that meets the spec.

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If these allegations turn out to be true what would be appropriate punishment?

Start again from scratch?

Keep existing but ban any and all dahua product from being used?

Ban dahua forever from any sales to this state?

Ban dahua forever from any sales to any Brazil government entity?

Ban dahua completely from Brazil?

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Scrap the whole bid, Hire an independent consultant to re-write the spec, preferably one that's based out of the state in question, and reissue the bid.

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Kickbacks are Kickbacks. It happens globally until it's caught.

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Yes it happens globally but when looking at risk assessment some places are much more of a concern than others.

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How much is too much?

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hopefully, the bribe is fully refundable...

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I guess they got a receipt? lol

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Does it even matter what Dahua says?

Is anyone really going to believe what they say based on their track record?

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...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.

Uh, it sounds like it’s not just one case, more like there is a whole division just to handle bribery.

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If the proof (flash drive with several GBs of information/documents) turns to be legit, this could turn out as a major bribery case in this Brazilian State and in the industry as a whole.

Reading some of the comments above, I agree that bribery cases are not new and more prone to happen where the authorities tend to look the other way. It does not make it legal nor ethical to do so. US companies, as most of you are aware, are required do adhere to the Anti-Corruption Act. Penalties could be severe for proven corruption cases. On the other hand, we have a handful of companies, domiciled under a different regime, that simply don’t care. The objective is to fulfill the sales quotas at any cost.

Responding to UD #2, I do not know how far the penalties goes but I truly hope that, first, all the politicians & operators involved will end up in jail. Second, Dahua should be banned of doing any business in the country for the foreseeable future.

For God’s sake, Brazil just passed the 350,000 people dead due to the COVID pandemic. The country is currently in lockdown, hospitals operating mostly at 100% capacity, lack of oxygen to treat patients…. and these clowns are doing this? Stealing funds that, literally, could be used to save lives? Surreal, honestly.

Also, If I read it correctly, there are TWO more cases, similar to this one under watch, which leads me to believe they are trying to institutionalize the corruption. If this turn out to be true, I really hope the penalties will to apply to the full extent of the law. Also, crimes committed across different States goes into the federal prosecution system.

I’m afraid Dahua will place the blame on the local employees, throwing them into the lion's den and move on as business as if nothing happened.

As @Robert Wren Gordon wrote, we will stay tuned for the next episodes.

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I’m afraid Dahua will place the blame on the local employees

Well, Dahua already published a statement "unequivocally deny[ing] the allegation" and declared that they had "robust controls in place to mitigate the risk of compliance violations in any market in which we operate".

So while tactically blaming local employees might be a way to handle this, if the allegations are true, Dahua has put itself in even a worse position.

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So while tactically blaming local employees might be a way to handle this...

Local Dahua employee goes rogue, takes $7 million out of petty cash to pay bribe.

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Lol, this raises a serious question. What's the mechanics of a bribe at this (alleged) scale? You give the bribe first? Part up front? Part on delivery? How do you get it to the (alleged) government official? It's not like slipping someone $20 bucks...

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“I’m telling you he was dealin’ Hik”

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Based on what I've seen on investigations I worked on, If you have the chance to write all specs, the "deal", meaning U$ XM, has already been made. The payment terms I believe will vary, but upfront payment is unlikely in the public sector.

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How do you get it to the (alleged) government official? It's not like slipping someone $20 bucks...

It's easier than slipping someone $20.

There are a number of jurisdictions that you could run this through, but it's not hard to open a company in the Cayman Islands, BVI, Bermuda, Jersey, etc. and name the government official's spouse/sibling/child/parent/best friend as a director. Then you run the payment through the offshore company.

Also, given that we're talking about Brazil, property is another option. Just buy a waterfront apartment in Búzios or Florianópolis or somewhere and gift it to the government official. Doesn't even have to be in Brazil. Could be in Europe too.

Ideally, you mix things up. Apartment here, cash payment there, new cars for the kids, jewelry/clothes for the wife/daughter, I guess it's not that simple, but if you have a background in tax optimization, it's not that hard to move $7MM from China to Brazil.

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...it's not that hard to move $7MM from China to Brazil.

knowing Dahua, it’s probably an all stock deal :)

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knowing Dahua, it’s probably an all stock deal :)

Touché, I did forget that Dahua is publicly listed.

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So in reality actual worth $2.75

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Dahua Brazil has congratulated Lucas Kubaski, named above by the whistleblower on Dahua Brazil's sales team (first name misspelled as Lukas) as having taken "the lead in bribe cases," on his second anniversary with the company (in Portuguese, IPVM translated to English):

Congratulations Lucas K. and thank you for all your dedication. #Recognition #WeAreDahua#TogetherWeAreStronger

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AKA, “Lucash” ;)

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I guess this is the first stage of the Five Punishments....

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