The Crimes That Fueled a Fantastic Brazilian Museum

(Bloomberg Businessweek) -- In the hours after the twin towers fell in Lower Manhattan, Bernardo Paz had a flash of inspiration. He called up his curator, Ricardo Sardenberg, who was helping him create a private museum in the hills of southeastern Brazil. Paz had become rich by taking over bankrupt mining companies, and he sensed an historic opportunity to build a world-class art collection. “If there’s a time to go to New York, it’s right now,” Sardenberg remembers Paz saying even as they watched the televised loop of the towers collapsing. As soon as flights to New York resumed, they went.

The galleries in Chelsea were quiet, but dealers were relieved to entertain a buyer, and Paz scooped up sculptures and installations by top contemporary artists “for the price of a banana,” in Sardenberg’s words. He favored pieces too unwieldy for most private collections, such as The Forty Part Motet by Janet Cardiff and George Bures Miller, in which 40 loudspeakers play 40 individually recorded voices singing an English Renaissance choral composition. No matter that Paz didn’t have a place to display it. He’d have a structure built, large enough for someone to stroll by each speaker and make out a single voice with one ear while hearing the whole chorus with the other, as the artists had intended.

Before that September trip, few in the art world had heard of Paz. But in just a few years, his backyard collection would grow into one of the world’s largest open-air museums. Known as Inhotim (pronounced “een-yo-CHEEN”), it’s now a major stop on the international art circuit, despite being located in a depressed mining region 16 hours by plane and car from New York or London. It doubles as a tropical garden and nature preserve, and amid the 700 acres of flora imported from as far away as Madagascar and Sri Lanka, you’ll find special commissions such as Matthew Barney’s De Lama Lâmina, in which a tractor clutches a ghostly white tree beneath a geodesic bubble. Two installations incorporate pools that visitors can swim in. There are also standalone galleries dedicated to individual artists, including one for the works of Adriana Varejão, Paz’s fifth wife (of six).

Paz has said he poured as much as $70 million into Inhotim some years. The result, according to Wallpaper magazine, “is a unique dialogue between art, architecture, and nature”—or, as ArtReview would have it, “the Jurassic Park of contemporary art.” To Brazilians, it’s a national treasure that has transformed the country’s cultural life and drawn millions of tourists.

But Inhotim is also a monument to the ubiquity of dirty money in the art market. In the final months of 2017, Paz was convicted of tax evasion and money laundering; his museum was found to have gained from the scheme. And these weren’t the only misdeeds that helped to fund his great project. Over a long history of wrongdoing that has never been fully reported, Paz broke a series of environmental laws and even benefited from child labor to build his fortune.

At 67, Paz has long, flowing white hair and a white beard yellowed by cigarettes. His eyes are blue and intense. He declined to comment for this article, but under normal circumstances he loves to talk. In the space of a single 2013 interview, he claimed to be the first foreign businessman to meet Chinese leader Deng Xiaoping (“When I went to China, only the Jews were there”), said he can’t get turned on by a woman over 50 (“I’m a man of few pleasures in life, and one of them is sex”), and spoke proudly of the quilombolas—descendants of escaped slaves—he hires to work in Inhotim’s gardens (one of whom was cured of his wish to “kill white people”).

Paz believes beauty changes lives, and, perhaps because he lets the poor in for free, he’s called Inhotim “a factory of citizens” and “the greatest social project anyone in the world has ever done.” He’s also called himself a socialist, and scoffs at the ostentation of other rich people with their yachts and private jets. Preparing to head to Davos for the World Economic Forum in 2010, he said, “When I get there, I’m going to look those soft-asses in the face and tell them all to go to hell.” (He actually gave a speech about the unifying power of contemporary art and received a standing ovation.)

Paz is a strange sort of cosmopolitan. He’s happiest at home in Minas Gerais—literally “general mines,” the state where he grew up—and speaks English only haltingly. At an event in California in 2014, he said, “My mother was a poetry, and was a painting, and was a sociologist. And my father was a engineer, and his father was a general, who did all the frontier in Brazil.” Then he switched to Portuguese to recall that his dad sang patriotic hymns to him every night, and that this made him feel like he had to be a hero one day.

Today Paz is rich, though it’s hard to gauge just how rich. He’s said Inhotim is worth $1.5 billion, but the pieces commissioned for the museum have never had their values established by a sale. He owns 29 companies, but none are publicly traded and most have ceased operations. Even the active ones lack websites or public-relations offices. Perhaps the best clue to his fortune emerged in 2010, when he announced the sale of his iron-ore business to the East China Mineral Exploration & Development Bureau for $1.2 billion. According to a person involved in the deal, the buyers backed out after digging into the books and finding massive tax debts.

Paz’s early career also left little trace in the public record. The way he’s described it in interviews, he got into mining by accident. In 1973 his first wife’s father, a banker in Minas Gerais, took him on at a failing iron-ore company called Itaminas. Paz, then 23, had little training for this. He’d dropped out of high school and worked in a clothing boutique before a stint as a stockbroker. Dreamy in his new role as overseer, he liked to observe the colossal trucks carting deep-red earth to the ore crusher and imagine all that would be built with the resulting steel. But he was dedicated, working till midnight and waking before sunrise to watch his workers arrive. Sometimes he slept in a tent at the mine. Soon, he was made the company’s director.

Itaminas was swimming in debt. In a foolhardy bid to pay it off, Paz started taking over other insolvent mining companies. “It was the worst suffocation of my life,” he later said. He occasionally drank a whole bottle of whiskey to get to sleep. His father-in-law died in 1980, and eventually his wife got fed up and left him, though he kept Itaminas in the divorce. The day they separated, he went to a bar and met his second wife, a 22-year-old Austrian, with whom he had his third child (of seven). But nothing changed. He was drunk when he bought his first pig-iron plant to smelt the raw ore from his mines.

In those days, Paz cared more about profit than great social projects. To heat his smelting furnaces, he needed fuel. So through a company called Replasa Reflorestadora SA, he started cultivating 50,000 acres of eucalyptus, a fast-growing tree that can be harvested for charcoal. The government leased him land in northern Minas Gerais to that end, even though 60 families already used the area for subsistence farming. Known as geraizeiros, they’d been there for generations, grazing cattle and growing manioc and corn.

José Gonçalves Dias, 41, remembers accompanying his father in the 1980s to gather squash and watching as Replasa’s men called the police to haul him away. “It was a humiliation,” Dias says. “Replasa cracked down on every little thing.” The family couldn’t even gather firewood.

The area had once been thriving tropical savanna. But eucalyptus is a notoriously thirsty tree, and the geraizeiros noticed that Replasa planted at the headwaters of streams—areas protected under Brazilian law. Dias’s community now lives along a dusty road in homes of unpainted cinder block with small enclosures for chickens. Showing me around, he sweeps his arm at a dried-out basin. “We used to bathe and fish here,” he says. After the stream dried up, water had to be purchased for $160 a tank—a fortune for them.

Many left to seek work in faraway cities. Dias stayed and did what he could to help put food on the table. He says he was 10 years old when he went to work in a carvoaria—an array of crude ovens that turn wood into charcoal. His job was to slather wet mud on the ovens to keep them sealed as they burned. Wearing flip-flops as he clambered on top, he sometimes burned his feet. He did this job for four years, always off the books, for a Replasa subcontractor. His sister, Maria do Rosário Gonçalves Dias, now 44, says she started working directly for Replasa at age 14, dispersing ant killer without a mask or boots. Both say many other kids worked alongside them. Another geraizeiro, Pedro Ferreira de Santana, 43, says he did the same work as Maria when he was 16, an age when minors in Brazil are allowed to work but not to handle pesticides. He was paid half the minimum wage. (A lawyer for Replasa says the company never used child labor and that safety equipment was mandatory.)

The press never got wind of any of this. Instead, Paz’s first major scandal arose from a more visible disaster. In May 1986, seven workers died after a dam broke at one of his mines. Regulators said Itaminas had overloaded the dam with tailings, and a worker told the press it had been thrown together without a proper engineering plan. Just the same, less than two weeks later, Paz was awarded a medal of “industrial merit” from two Minas Gerais business groups, which celebrated him for expanding Itaminas into a conglomerate with 4,000 employees and annual revenue of half a billion dollars. He traveled constantly to China, becoming one of the first Brazilian mining executives to sell his product abroad. When others succumbed to the economic crises of the ’80s and ’90s, he survived.

It helped that Paz often failed to pay his taxes, forcing the government to negotiate installment plans. He claimed he simply didn’t have the money, but he was pouring cash into his garden the whole time.

Paz has said that children understand contemporary art better than their parents do—which is partly why he likes it. This is obvious at Inhotim. On a Wednesday, when entrance is free, I wander the stone paths that meander through the park, passing trees too large to wrap one’s arms around, and benches carved from giant trunks, and man-made lakes, and manicured expanses of lawn, all tended by a small army of gardeners. At one end of the park, I stop at a piece by Yayoi Kusama: 500 stainless-steel spheres floating in a water garden. Visitors are taking selfies in the sun. At the other end, guests navigate the steel forest of Chris Burden’s Beam Drop Inhotim, which the artist created by releasing 71 girders from a crane into a pit of wet cement. People walk for miles, but I see few symptoms of museum fatigue. Atop a hill, a group of boys play with a kind of giant kaleidoscope—Olafur Eliasson’s Viewing Machine, which can be trained on the surrounding rainforest. From that point, it’s also possible to make out, beyond Inhotim’s perfect square of green, the red earth of hills torn up by iron-ore mining.

Inhotim began as an unintended consequence of Paz’s 1980s takeover spree. One of the companies he bought came with land in the municipality of Brumadinho, which was then known only for its leprosarium. Legend has it that the property once belonged to an Englishman locals called ’inho Tim—“Mr. Tim,” in the rural vernacular. Paz decided to make his country home there, and, in the tradition of empire builders since Nebuchadnezzar II, he began designing a garden.

He got advice from the best: Roberto Burle Marx, the renowned Brazilian landscape architect, who awakened in him some latent aesthetic yen. Paz started buying Brazilian modernist art, but collecting remained a hobby until 1995. On a business trip that year he suffered a stroke and was forced to stay in bed for a week—the first real respite of his adult life. He decided to step back from his business empire, move into Mr. Tim’s old house, and throw himself into the garden.

His taste in art grew more adventurous. One day he acquired a sculpture that didn’t fit in his house. It was an assortment of iron bells hanging from three surreally tall canes—Deleite, by Tunga, one of Brazil’s greatest contemporary artists. Tunga, who became a friend, pushed Paz to let the public visit his garden.

Inhotim wouldn’t open its gates until 2006, but the project became all-consuming. Paz wanted to create something more than a world-class collection—something unique, transformational. He hired the best curators he could find. One was Allan Schwartzman, now chairman of the fine art division at Sotheby’s, who started working on Inhotim in 2003. “You’re in the middle of nowhere,” he remembers telling Paz. “Why would anyone travel 15-plus hours to get here?” But Schwartzman had a solution: “Let’s commission artists to do some of their most ambitious dream projects—projects they’ve been thinking about for years but never thought they’d be able to create.” For one of the first commissions, the American artist Doug Aitken, who’d previously worked mostly with video, designed Sonic Pavilion, a five-year project that involved digging a 663-foot well and installing microphones at the bottom to transmit the sound of the Earth to a listening station on a hill.

The strategy was ingenious: Artists charged little, or even nothing, for the opportunity to work on such a grand scale. Still, the installation costs could be extravagant, and site-specific works weren’t exactly fungible investments. Even among top collectors, Paz’s boldness was unusual. “I don’t know anyone who’s collected on the scale he’s collected without an eye toward what this means in terms of long-term value,” Schwartzman says. Paz also stood out for putting every free penny into collecting. One dealer remembers him walking up to her stand at a fair, identifying three pieces he liked, and buying them without a second thought. As soon as Paz moved on, an Inhotim curator stayed behind to cancel the sales, explaining that he was trailing Paz to “unbuy” impulsive purchases.

Iron-ore prices were soaring in those days, thanks to demand from China. But Inhotim had barely opened to the public when rumors surfaced that it was a front for laundering ill-gotten funds. Partly this was because Paz’s brother Cristiano had recently been accused (and was later convicted) of funneling government kickbacks to corrupt officials through his public-relations firm. Partly, as former Inhotim curator Jochen Volz laments, “people just couldn’t believe that somebody would be so insane as to build a museum in Brumadinho.”

The bad press lent urgency to a plan to make Inhotim a nonprofit, insulated from the ups and downs of its founder’s life. Paz liked to say he was planning the museum for the next 1,000 years. He often spoke of building an airport, four hotels, and a convention center, to establish what he called a “post-contemporary Disney World” that could fund itself in perpetuity. He also dreamed of building self-sustaining villas where people would live and work remotely, creating “a model of life in perfect tune with nature, but also very connected to technology.” He wasn’t afraid to use the word “utopia.”

But not long after Inhotim opened, a series of government investigations began uncovering the environmental and labor violations that had helped Paz build his fortune—and then the financial crimes that had shielded his fortune from taxation. The first sanction came in 2007, after labor inspectors descended on a charcoal operation that supplied one of Paz’s pig-iron companies, Itasider–Usina Siderúrgica Itaminas SA, and found 36 people working in “slavelike” conditions. According to the inspectors, the workers had been forced to buy their own chain saws, with payments automatically deducted from their salaries, and made to live on a site infested with scorpions as they cut wood for the ovens. For buying charcoal made under these conditions, Itasider was placed on a government blacklist, cut off from state financing for three years. Vale SA, Brazil’s largest iron-ore producer, also suspended sales to the company. (At the time, Itasider said it had stopped buying charcoal from this supplier. Lawyers for Paz declined to comment.)

Then, starting in 2008, Brazil’s environmental protection agency began cracking down on the trade in charcoal from the Amazon region. As far back as the 1980s there had been reports that one of Paz’s companies, Cosipar, used fuel made from illegally deforested trees; Itasider and another of Paz’s pig-iron companies were slapped with $13 million in fines for this and related infractions. Later inspections would show they kept using black-market charcoal anyway.

In 2009, state inspectors made the first significant survey of Paz’s eucalyptus plantations. They discovered the environmental violation that local farmers had observed decades earlier: Replasa had planted at the headwaters of streams. They also found the company had failed to set aside 20 percent of its land for preservation, as the law requires.

The farmers, meanwhile, had grown tired of feeling corralled, unable to use the land. So in December of that year, Dias and his fellow geraizeiros occupied part of Paz’s tree farm. Seventy police officers were called in to remove them. In the legal battle that ensued, an activist lawyer named André Alves de Souza discovered that Paz had leased the lands from the government and never left them, even though the attorney general for Minas Gerais had determined that the leases were illegally extended by an official implicated in a scheme to sell off public lands. Alves filed a suit questioning Paz’s claim to the area, and a judge granted an injunction halting Replasa’s operations. (The case is pending.) Replasa was subsequently denied a key environmental license, and its plantations were mostly shut down. Further denting Paz’s fortune, he had to pledge a pig-iron complex as collateral for his various fines and injunctions; Itasider was eventually producing so little that it dropped out of a local industry group.

Despite Paz’s growing fame as a patron of the arts, none of this reached the public consciousness. What finally drew press attention was the allegation, in 2009, that he’d received tens of millions of dollars from a mysterious fund in the Cayman Islands.

Unlike his brother, Paz was never linked to political corruption. Instead, prosecutors would accuse him of laundering undeclared funds from his mining conglomerate. It was no secret to Brazil’s internal revenue service that he’d neglected what one tax-levy case calculated to be at least $200 million in taxes and social security contributions over the years. But as they pored over the books of Paz’s 29 companies, Minas Gerais state prosecutors also uncovered accounting methods they claimed veered into criminal tax evasion. A separate, federal inquiry found evidence that he’d spirited vast sums offshore, then quietly brought the funds back home to spend on his pet project.

The investigators focused on a holding company called Horizontes that Paz had formed to administer Inhotim. In 2007 and 2008, Horizontes had received $98.5 million from a Cayman Islands entity, the Flamingo Investment Fund. Investigators found that, to get around a tax on cross-border investments, the payments had been registered as loans from anonymous parties. But the loans were never repaid, nor any interest charged. Allegedly, Paz used some of the money going through Horizontes to buy land for Inhotim and transferred some to his other companies, ordering employees to cash checks for as much as 500,000 reais ($131,500) at a time. Although investigators failed to track the money from there, they suspected Paz had used it to buy art—which always remained his personal property, on loan to the nonprofit that ran the museum.

Responding to the charges, Paz insisted the Flamingo fund belonged to someone else. But he couldn’t say who. At a 2015 deposition he searched for a name, theatrically shutting his eyes and raising his palm to his face. “He’s the owner of—oh, God,” he said. “It’s the sixth-largest bank in Switzerland. UFC, UFC …” (It wasn’t UBS.) Nervously stroking his white mane, occasionally thumping the table in front of him, he framed his tangled web of money transfers as simple accounting mix-ups. “Being a businessman in this country is complicated stuff,” he said. He listed all the economic crises he’d weathered and claimed he’d neglected his taxes only to avoid laying off workers. He even resorted to mentioning his stroke and the six wives who’d left him because of his obsession with work.

Federal Judge Camila Velano kept interrupting to return to the substance of the accusations. Exasperated, Paz addressed her as filha—in essence, “girl”—before correcting himself. Asked about his huge withdrawals of cash, he said, “Some time ago, I started taking a lot of tranquilizers and my memory went to hell, so I now have some difficulty remembering the past.”

This didn’t help his case. In September 2017, Velano handed Paz a nine-year sentence for money laundering. (She also convicted his sister, Virgínia, of involvement in the scheme.) Then, three months later, another judge convicted Paz of evading $10 million in taxes, sentencing him to an additional five years in prison.

Justice is slow in Brazil, so Paz (and his sister) could remain free for years while appeals are pending. His life, though, has changed irrevocably. With his cash flow dwindling, museum staff had been signing up corporate sponsors, which began threatening to cut off their donations. Paz saw little choice but to step down as Inhotim’s chairman. He used to tour the grounds every morning in a golf cart. Now he barely leaves his art-filled mansion in a section of the park closed to visitors.

Still, Paz has kept the esteem of many curators and gallery owners who’ve dealt with him. Luisa Strina, a São Paulo dealer who sold him four pieces by legendary Brazilian artist Cildo Meireles, says of his tax evasion, “It’s not my problem.” Thiago Gomide, another dealer who’s known Paz for years, says the authorities should actually “thank God” he didn’t pay his taxes, because the park might not exist otherwise. “Better for them to have a museum,” Gomide says, “than to have 10 times the money, which will be poorly spent.” The reactions aren’t much different outside Paz’s circle. One dealer in New York expresses dismay only at the prospect that Inhotim could shut down—then asks for inside details on what will happen to all the art.

Paz wants to leave a legacy at Inhotim. “It’s my function in life,” he told Judge Velano in 2015. “I’m a guy who fights for ideals.” He may yet fulfill his goal. In April he struck a deal to pay off $100 million in back taxes by transferring ownership of 20 artworks to the government, including Barney’s De Lama Lâmina, Aitken’s Sonic Pavilion, and four pieces by his ex-wife Varejão. Citing Inhotim’s importance to the local economy, officials promised to keep the art at the museum. The deal was, in essence, an imprimatur for the most brilliant trick of Paz’s career—deciding personally how his taxes should be spent for what he saw as the common good. Yet, even inside his circle, some feel uneasy about what he will leave behind.

Paz started buying the work of Brazilian artist Miguel Rio Branco in the ’90s. The conversations they had helped inspire Inhotim’s creation, and today the museum has a whole building to display Rio Branco’s color-saturated photographs of humble Brazilians. Now 71, Rio Branco lives and makes his art in a sprawling compound in Araras, in the high mountains north of Rio de Janeiro. Sitting on a couch in his studio, surrounded by hanging canvases and dusty tools, he’s initially quick to forgive his patron: “He has that degree of craziness that every artist has, which sometimes allows you to do extraordinary things. But he’s not an administrator, obviously.” Anyway, he says, “Brazil has so many taxes that if you paid all the taxes in your life, you wouldn’t be able to do anything else.”

His expression changes when he hears what Paz did in the north of Minas Gerais. Rio Branco wasn’t aware of Paz’s pig-iron business or his vast fields of eucalyptus. At first he insists Paz must not have known about the methods that built his wealth—or that if he did, his “conscience” had since evolved. “Great fortunes are usually problematic,” Rio Branco says. “But at least they built something.”

He stands up. A half-dozen dachshunds scamper after him as he opens the door to his garden and slips into a gap in a hedgerow, plunging into a labyrinth of manicured bushes and tall, flat stones. He tried to sell the labyrinth to Inhotim, he says, but the curators balked at the price. For now its value remains theoretical, the sum of construction costs and a future patron’s premium.

Rio Branco keeps coming back to how Paz made his fortune. Eucalyptus, he says, is “totally destructive.” And those charcoal ovens: “prehistoric.” Finally he admits that Paz’s mining business had already troubled him. Inhotim might be a perfect square of paradise, but extractive industries have laid waste to the surrounding forests, leveling whole mountains in search of ore. “Inhotim for me would be a kind of restitution for that,” Rio Branco says. “But is it enough of a restitution? Maybe not.”

Even that restitution, of course, is little solace to the people who bore the cost of Paz’s ambition. Up in northern Minas Gerais, Dias says he’d never even heard of Inhotim until his legal battles with Paz. Yet the people who visit the park, he says, are just as clueless about Paz’s misdeeds. The only hint can be found in a plaque denoting one of the park’s endangered plants. It’s a bush with purple flowers—the canela-de-ema, native to a stretch of savanna not far from Replasa’s fields. —With Alice Maciel

To contact the editor responsible for this story: Jeremy Keehn at jkeehn3@bloomberg.net

©2018 Bloomberg L.P.