Cablegate: Brazil Corruption Scandal Update, Week of 30
This record is a partial extract of the original cable. The full text of the original cable is not available.
041331Z Nov 05
UNCLAS SECTION 01 OF 03 BRASILIA 002951
SIPDIS
SENSITIVE
E.O. 12958: N/A
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 30
OCTOBER-04 NOVEMBER 2005
REF.: BRASILIA 2902 AND PREVIOUS
1. (U) INTRODUCTION. A number of significant developments
have emerged this week in investigations on the corruption
scandals battering the Lula's administration and contention
with the opposition has increased markedly. The highlights
are listed below. END INTRODUCTION.
CORRUPTION SCHEME WAS FINANCED BY PUBLIC BANK
---------------------------------------------
2. (U) After six months of investigation, the Post Office
CPI (the congressional committee investigating origins of
money used to finance illicit PT funding operations) made
substantial new revelations this week, indicating that at
least some of PT moneyman Marcos Valerio's slush-fund came
from the coffers of state companies -- rather than being
the questionable loans from private banks, which had been
his and the PT's line to date. According to the CPI's
rapporteur, Deputy Osmar Serraglio, Brazil's largest public
bank, Banco do Brasil, was the source of at least 10 of the
R$ 55 million already clearly identified as having been
distributed to members of the PT and allied parties. The
complex scheme to transfer public money to Valerio's
accounts involved other Brazilian companies, private banks,
and Valerio's advertising agencies. Allegedly, Banco do
Brasil paid money to Valerio's agencies for advertising
campaigns that were not really carried out; then, Valerio
deposited part of the money in private banks and used it as
collateral for loans. Subsequently, he "loaned" the money
to the PT for political purposes. Clear evidence that
public funds were used would be particularly hurtful to the
government, and would undermine the PT's argument that the
only crime committed by the party was the use of
unaccounted campaign funds. The next steps for the CPI
would be gathering of more evidence to absolutely confirm
the existence of this scheme and look into Valerio's
various advertising contracts with other public companies
in order to find the sources of the remaining R$ 45
million.
3. (U) A reliable source indicated to POL officer this
week that the Postal CPI will reveal up to 100 new names
next week of recipients of payoffs from Valerio's slush
fund. To add even more fuel to the fire, nine prominent
members of investigatory committees and spokesman for the
opposition stepped forward this week to charge that their
telephones are being tapped and/or that they have reason to
believe they and their families are being subjected to
surreptitious investigations aimed at discrediting them.
Indeed, two of these deputies went to the Chamber floor
with their accusations -- in highly emotional speeches that
concluded with threats to "punch Lula out" (physically),if
this intrusive behavior were not stopped. Needless to say,
there will now be investigations of this matter and if any
government involvement were to be found, it would be
political dynamite.
ETHICS COMMITTEE RECOMMENDS ACQUITAL OF ONE DEPUTY
--------------------------------------------- --------
4. (U) Of the three cases that have been before the
Chamber's Ethics Committee for some time now, the weakest
was against Dep. Sandro Mabel (PL-GO). He had been accused
by Roberto Jefferson of having received money from the PT's
private sector moneyman Marcos Valerio's pay-off machine
and by Dep. Raquel Teixeira (PSDB-GO) of offering her R$1
million to switch party affiliation to the PL. But no
concrete evidence was ever turned up on the former charge
and it was only her word against his on the latter. Dep.
Benedito Lira's (PP-AL) report to the Committee recommended
his acquittal and that body voted unanimous approval of it
on November 1. All that remains now to fully absolve Mabel
is a floor vote - probably on November 9 - which is
virtually certain to confirm this verdict.
DATE FOR FINAL VOTE ON DIRCEU'S CASE STILL PENDING
--------------------------------------------- -----
5. (U) Ethics Committee Chairman, Ricardo Izar (PTB-SP),
has been struggling mightily to move the far more important
case of Jose Dirceu (PT-SP) - against a continuing blizzard
of legal maneuvering on the part of Lula's former super-
minister and his able lawyer. The Committee had already
approved rapporteur Julio Delgado's (PSB-MG) recommendation
that Dirceu be expelled from the Chamber by a 13-1 margin
on October 27. But that vote was invalidated on a
technicality by the Supreme Court (STJ) and Izar has been
attempting to repeat the process in a way that conforms
with that ruling. His hope has been to complete it soon
enough to permit a definitive floor vote by November 9.
But a combination of obstructionist tactics on the part of
the defendant, holidays and scheduling problems have
impelled the Speaker of the Chamber, Aldo Rebelo (PCdoB-SP)
to delay the day of reckoning until November 23. This has
also slowed action on the third of these long-pending cases
- that of Romeu Queiroz (PTB-MG) -- but the Committee could
vote receive a report on him (almost certain to go against
him) and vote on it as early as next week. It is also
noteworthy here that the full Chamber moved with unexpected
promptness this week to extend the statutory deadline for
final resolution of these three old cases, so that the
accused can no longer hope to secure acquittal simply by
running out the clock. Thereafter, however, the Committee
will have to turn its attention to the 13 more cases that
have been more recently referred to it by still ongoing CPI
investigations - the processing of which will certainly run
on past the end of this legislative year in mid-December.
THE CUBAN CONNECTION
--------------------
6. (U) Charges that the PT had surreptitiously received as
much as R$ 3 million during the 2002 campaign from the
Cuban government - published by the newsmagazine, Veja,
last weekend - have both added a new dimension to ongoing
scandal investigations and heightened contention between
the Lula administration and its opposition. While the
leadership of the PSDB and PFL have been cautious about
pronouncing on the truth of these accusations, they have
promptly announced their intention to investigate them.
Indeed, the main accuser, Vladimir Poleto, is already
scheduled to testify before the opposition-led Bingo and
Municipal Corruption CPI on November 8. These accusations
are particularly incendiary because they identify then-PT
campaign chairman (now Finance Minister) Antonio Palocci as
a participant in this transfer on the Brazilian side - and
one of the red-lines so far observed by the opposition has
been to refrain from calling him before Congress, in spite
of other corruption allegations against him. In addition,
Brazilian electoral law and nationalism make this such a
potentially powerful charge that it has encouraged the
opposition to publicly consider the possibility of legal
action aimed at canceling the "registration" of the PT.
This would have the effect of making Lula and all other
candidates of that party ineligible to participate in next
October's elections.
COMMENT
------------------------
7. (SBU) For at least the last couple of months, the Lula
administration had been seeking a modus vivendi with the
opposition, in order to wind down these damaging
investigations, restore some semblance of normal governance
(especially in Congress) and give itself time to recover
strength in time for the rapidly approaching 2006 campaign
season. But the President's initial reaction to these
threatening new developments seems to have been a strong
one. Of course, he promptly denied the PT's receipt of any
Cuban money, as well as government involvement with
espionage activities against Congress. But the tenor of
private remarks to his closest collaborators - promptly
leaked to the press - were reported to have been even
harsher. According to a number of reports, he essentially
averred that, if the "right" was going to try to force him
out of office prematurely, perhaps via motions to cancel
the registration of the PT, it would be in for "war". This
might include such retaliatory initiatives as exposing
illegal campaign funding on the part of the opposition,
opening criminal investigations against those involved in
corruption under the previous Cardoso administration,
withdrawing government advertising from hostile
publications (which might not be legally possible) and even
"following the line of Chavez". The most charitable
interpretation of this latter threat might be calling his
supporters into the streets - which, if intended to
intimidate Congress and the courts, would be bad enough.
It should be noted, however, that Lula has not actually
done anything yet. Moreover, many politicians have been
out of Brasilia most of this week (which had a holiday in
the middle of it) and, of course, President Bush will be
arriving on Saturday. Below the turbulent surface, one
gets the impression that the government and opposition may
have scared one another. And there are now indications
that elements on both sides are seeking to contain any
further escalation of the confrontation. But it remains to
be seen what happens when business gets back to normal next
Monday and Tuesday. END COMMENT.
DANILOVICH