DEATH BY A THOUSAND BITES: MUNICIPAL LEVEL

UNCLAS SECTION 01 OF 02 BRASILIA 001218

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: KCRM PGOV SOCI BR
SUBJECT: DEATH BY A THOUSAND BITES: MUNICIPAL LEVEL
CORRUPTION IN BRAZIL

REF: BRASILIA 1055


1. (SBU) Introduction and Summary: In recent months,
Brazil's press has focused intently on municipal-level graft
and corruption. Many of the horror stories are being planted
by the Federal Comptroller General's (CGU) office that is
conducting random audits and inspections of many of Brazil's
5,560 municipalities. Based on the CGU's own investigations,
severe corruption is identifiable in over two-thirds of the
municipalities inspected while most of the rest have
significant accounting "irregularities." The financial impact
from the local "fire ants" on Brazil's social and economic
health is staggering. While the CGU campaign is commendable,
there is no evidence yet of a GOB action plan to attack local
level corruption. End summary

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A Plague of Fire Ants...
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2. (U) Thanks to high profile press events by Brazil's
Federal Comptroller General's (CGU) office, municipal level
corruption is receiving wide press attention. In a recent
edition, Brazil's largest circulation newsmagazine "Veja"
headlined "A National Plague, Corruption and Ineptitude
Devour More Than 20 Billion Reals a Year." Using the analogy
of an epidemic of fire ants, the story listed by name a
plethora of corrupt mayors, city councilpersons, and other
local officials throughout the country who misappropriated
federal resources destined for their municipalities. The
total is huge. Over 107 billion reals (about USD 38 billion)
from the federal budget were appropriated in 2003 for
Brazil's 5,560 municipalities -- a level that has risen
almost 70% since 1995. Of this amount, at least 20 billion
reals is estimated to have disappeared last year through
corrupt or inept behavior.


3. (U) Examples of malfeasance among Brazil's
municipalities are being widely publicized in the Brazilian
press. While high profile alleged corruption cases, such as
that of former Sao Paulo Mayor Paulo Maluf (who announced
last week that he was running again for the Sao Paulo
mayorship) may measure graft in the hundreds of millions of
reals, it is corruption at the very local level that is
increasingly coming under public scrutiny, particularly
through the CGU municipality inspection lottery. Every
six-eight weeks the CGU randomly selects 50 municipalities
for immediate fiscal audit of programs financed with federal
resources, either through federal agencies or direct
transfers to state and municipal-level administrative
entities. The inspection process began in 2003 and has
revealed local corrupt behavior that was always assumed but
rarely spotlighted.


4. (U) Recent revelations indicate that the impact on
Brazil is enormous. Daily newspaper "Jornal do Brasil"
described how a corrupt official in Bahia had converted
federal funds into "royalties" to companies for road projects
that were never constructed. Taking funds destined for
providing power lines for farmers, one mayor managed to have
a third of the grid built on his farm. When queried, he
responded, "I have half a dozen cows. I am a citizen equal to
anyone else. Should I stop being mayor in order to build a
power line on my farm?" An account in "Veja" told of a mayor
in the Northeastern state of Para who in just six months and
during three visits to the state capital to collect his
municipality's federal appropriation, managed to be "robbed"
on each occasion for a total of 360,000 reals. Other examples
of corrupt behavior included double payments on contracts,
overbilling, phantom corporations, extra bonuses for local
officials, nepotism, bounced checks, diversion of public
money directly into personal accounts, personal use of
official vehicles and fuel, bribery, and false accounting
practices. Failure to complete already funded infrastructure
projects is common.


5. (U) The Federal Comptroller General identified
extensive malfeasance and mismanagement at the local level.
After completing audits of 200 municipalities, the CGU
identified 139 (70%) as being severely corrupted. Only seven
(3.5%) were deemed as both "clean and accurate," while the
rest exhibited accounting "irregularities." CGU inspections
also revealed widespread failure of community councils,
created to provide local oversight over programs, to fulfill
their mandate. In most cases, councils were constituted only
formally but never held meetings, let alone conduct actual
public oversight. Impartiality within the councils was rare.
Many council members, often municipal employees, were
selected by the same mayors responsible for the use of
federal funds.


6. (U) The greatest level of malfeasance appears in
Brazil's impoverished North and Northeast. GOB Comptroller
General Waldir Pires confirmed a close link between
"political backwardness" (common in Brazil's Northeast and
North) and corruption. As an example, he noted that CGU
audits of just a small number of Northeastern municipalities
in just one month identified the diversion of 17.7 million
reals (about USD 6 million) from SUDENE (the Northeast
Development Superintendency),an agency that was finally
disbanded for endemic corruption and ineffectiveness.

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...A Plague of Councilpersons
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7. (SBU) Brazil's federal system also deserves some
blame for this state of affairs. Brazil's town halls receive
about 15% of all tax receipts as opposed, for example, to
Mexico's 3%. Former Finance Minister Mailson da Nobrega
believes that Brazil's mayors in fact access even more funds,
perhaps 40% of the country's total tax receipts -- money for
which they have no legal right or responsibility. Meanwhile,
there are more mayors and city councilmen at the trough than
ever before. Since the early 1990s, more than 1,000
municipalities have been created, many with no legal,
economic, or social justification. The country has had to
sustain 60,276 local councilpersons. A recent decision by
Brazil's Supreme Electoral Court (TSE) reduced this number
nationwide by 8,500 -- a step, many believe, in the right
direction. Congress, however, is fighting to pass a
Constitutional amendment that would raise the number above
the new 51,700 level (reftel).


8. (SBU) Comment: While it is impossible to prevent
all the fire ants from taking bites out of the public purse,
the CGU's inspection campaign is having a positive impact by
documenting both specific cases and the extent of the
problem, thus making corruption a topic of discussion
preceding municipal elections in October. With the CGU
inspections, evidence of malfeasance is not lacking. But
identification of corruption is only part of the battle.
Successful prosecutions are needed. Though the CGU claims it
sends many cases of malfeasance to federal prosecutors,
prosecutions have not yet occurred. The Lula administration
deserves credit for highlighting municipal level corruption
but there is no evidence yet of a GOB action plan to attack
the problem with effective prosecutions or resistance to
political acts (such as the efforts to re-establish thousands
of council positions) that can create conditions for local
corruption.

Hrinak