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Cablegate: Brazil - Corruption Scandal Update, Week of 19-23

This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 002539

SIPDIS

TREASURY FOR PARODI, DEPARTMENT PASS TO USTR AND USAID/LAC

E.O. 12958: DECL: 09/22/2015
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL - CORRUPTION SCANDAL UPDATE, WEEK OF 19-23
SEPTEMBER, 2005 - CHAMBER PRESIDENT RESIGNS

REF: A. BRASILIA 2219
B. BRASILIA 2150
C. BRASILIA 2082
D. BRASILIA 2025
E. BRASILIA 1979
F. BRASILIA 1874
G. BRASILIA 1973
H. BRASILIA 1631
I. BRASILIA 2242
J. BRASILIA 2237
K. BRASILIA 2305
L. BRASILIA 2384
M. BRASILIA 2457
N. BRASILIA 2387
O. SAO PAULO 1071
P. SAO PAULO 1076

Classified By: POLITICAL COUNSELOR DENNIS HEARNE. REASONS: 1.4
(B) (D).

1. (SBU) Summary. Chamber of Deputies President Severino
Cavalcanti resigned both his position and his mandate this
week in disgrace in the face of corruption allegations, the
first Chamber leader to fall in such circumstances in
Brazil's history. The resignation sets the stage for a
succession contest in which President Lula da Silva's
scandal-scarred PT is unlikely to have sufficient unity or
clout to elect one of its own to the position, though it
reportedly may back Aldo Rebelo, a well-regarded communist
deputy who served as a minister in Lula's government.
Seeking to avoid the humiliating failure that brought the
obscure Cavalcanti to the Chamber presidency last February,
Lula's government and the PT may have to accept a candidate
from the PMDB party (Michel Temer's name is emerging
prominently) if it hopes to avoid a hostile opposition party
figure in the Chamber's presidency at this critical juncture.
In a related development, a convicted money launderer
alleged that the illicit PT financial scheme that paid bribes
to allied party congressmen (refs) also paid Cavalcanti the
equivalent of 3.5 million dollars to assure Cavalcanti's
cooperation with the Lula government once Cavalcanti assumed
the Chamber presidency. A poll this week indicates continued
downward trends in public perceptions of Lula and his chances
for re-election. End summary.

CAVALCANTI RESIGNS: REPLACEMENT STILL UNCERTAIN
--------------------------------------------- --

2. (U) On 21 September, Chamber of Deputies President
Severino Cavalcanti (U.S. Speaker of the House equivalent)
delivered his resignation speech before the lower house
plenary, in the wake of credible accusations that Cavalcanti
extorted kickbacks from a restaurant owner in exchange for a
restaurant concession in the Congress building (Ref. M and
N). Cavalcanti is the first Chamber President in Brazil's
history to resign owing to corruption allegations. Earlier
this week, the restaurant owner's allegations were reinforced
when the Brazilian Federal Police announced it had strong
evidence that Cavalcanti had been receiving bribes while
serving as the Chamber's first secretary in 2002 and 2003,
and was forwarding the case to the Supreme Court (Note: With
Cavalcanti's resignation, his case reverts to a normal
criminal court for hearing. End Note.). In addition, on 20
September a convicted currency black market operator
testified during a joint session of congressional inquiry
committees (CPIs) that Cavalcanti accepted a bribe from PT
elements to secure his cooperation with the GOB when he
assumed the Chamber Presidency (see para 6 for details).

3. (U) During his resignation speech, Cavalcanti denied all
the accusations, blamed the media, his political enemies and
the "elite" for his resignation, and promised to regain his
Chamber seat in 2006. A group of university students present
at the session booed Cavalcanti after his speech, causing a
brief tumult with security personnel and forcing the
adjournment of the session. Politicians and analysts here
widely regard Cavalcanti as a political hack and
arch-pragmatist and were not surprised by his resignation and
trifling speech. Indeed, if Cavalcanti had not resigned, a
broad-based movement within the Chamber would have initiated
an impeachment process against him, likely leading to his
expulsion and loss of political rights for eight years.
Nonetheless, Cavalcanti still tried to bargain with the
government. In return for Lula's guarantee that his
appointees would not be dismissed, Cavalcanti relented on a
reported threat to take medical leave and pass the Chamber's
command to Chamber Vice President Jose Thomaz Nono, from the
opposition PFL party. With the Speaker's resignation, Nono
temporarily takes over the Chamber's presidency for a period
of five plenary sessions, after which elections for a new
president will be held.

4. (SBU) Cavalcanti's resignation sets off a contest in the
Chamber for the new President, and puts pressure on Lula's
government and on his Worker's Party (PT), which is
undergoing a tense internal election process (refs p and q).
The Chamber President controls the lower house's agenda,
decides which bills come to vote, resolves procedural
disputes, and decides on impeachment requests, in addition to
being third in the succession line to replace the President.
Cavalcanti's election in February 2005 was a result of the
PT's inability to settle on a single candidate for the
position, and represented a humiliating setback for the Lula
administration and a clear sign of PT's internal schisms
(Ref. O). Lula and the PT must avoid a similar disaster at
this juncture. Under an unwritten rule of the Brazilian
legislature, called the "Rule of Proportionality", the party
with the largest caucus -- currently the PT -- has the right
to nominate the speaker. But this rule was weakened by the
PT's bungling in February, and, given the party's deep
involvement in the corruption scandal, it lacks the political
strength necessary to secure victory for its candidate. As
of 23 September, there are reports that the government and PT
may back Aldo Rebelo, a communist deputy from Sao Paulo who
served as Lula's minister for political coordination and is a
well-regarded pragmatist with good relations across the
spectrum of parties in the Chamber.

5. (SBU) Still, many political analysts doubt the PT can
elect the new Chamber leader and foresee challenges coming
especially from the catch-all PMDB party, which has remained
broadly neutral during the crisis. Losing to the PMDB would
be less damaging than defeat by an opposition candidate from
the centrist PSDB or right-of-centre PFL, but could still
represent a serious setback, since the PMDB's likely
candidate -- Michel Temer of Sao Paulo -- is from the PMDB
wing that is generally hostile to Lula. Moreover, the party
would control three out of the four positions in the
presidential line of succession (the Senate's President is
already from the PMDB) -- a matter of some significance in
the event of impeachment proceedings. Along with Temer and
Rebelo, the PFL's Nono is a leading contender.

BLACK MARKET OPERATOR TESTIFIES IN JOINT SESSION
--------------------------------------------- ---

6. (U) On 20 September currency black market operator Antonio
Oliveira Claramunt, known as Toninho da Barcelona, testified
in a joint session of the three congressional inquiry
committees (CPIs) currently investigating the related
corruption scandals. During his testimony, Claramunt, who
is currently serving a 25-year prison sentence for money
laundering, stated that the PP, through Deputy Severino
Cavalcanti, received 8 million reais (approximately $3.5
million) from businessman Marcos Valerio and currency black
market operator Dario Messer at the time Cavalcanti assumed
the Chamber's presidency. Claramunt also stated that
Messer's operations in the currency black market were used to
launder money for various PT campaigns and Deputy Jose Janene
(PP), but did not present evidence confirming his
accusations.

LULA'S RATINGS REMAIN ON DOWNWARD TREND
---------------------------------------

7. (U) On 21 September, IBOPE released its fourth poll since
the beginning of Brazil's political crisis. Compared to the
figures released in August, President Lula and his
administration's ratings remain steady, but compared to
previous polls, the tendency downward is confirmed:
President Lula's personal approval rating of 55 percent in
June, dropped to 45 percent in August and remained the same
in September. Those that considered the administration good
or excellent were 35 percent in June, 29 percent in August
and remained 29 percent in September. In addition, the poll
showed Lula and Sao Paulo Mayor Jose Serra virtually tied in
the 2006 election contest.

8. (C) Comment. If the Lula government and PT caught any
piece of luck in recent weeks, it may be in the fact that
this week's allegations that the disgraced Severino
Cavalcanti was bribed by the PT "mensalao" machine to secure
his cooperation once he assumed the Chamber Presidency came
from a convicted criminal, recounting second hand statements
by another convict. A more credible source offering such
testimony would have caused an explosion, setting up a direct
nexus between the ludicrous tenure of Cavalcanti in the third
most powerful office in the country and the PT corruption
schemes that have rocked Brazil and Lula's government for
four months. Such a connection, if proved at some stage by
stronger testimony or evidence, would raise the corruption
scandal to the level of outright bribery of the leader of one
branch of government by the party dominating another, taking
the crisis to another dimension of gravity. In our view, that
would be one development (we believe there could be others on
the horizon) that could turn the tide of opinion definitively
against Lula.


CHICOLA

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