BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 12-16

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 002457

SIPDIS

TREASURY FOR PARODI; DEPARTMENT PASS USTR AND USAID/LAC

E.O. 12958: DECL: 09/16/2015
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 12-16
SEPTEMBER 2005

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

Classified By: Political Counselor Dennis Hearne. Reasons: 1.4
(B) (D).


1. (C) INTRODUCTION. In two important developments this week
in the continuing political scandals affecting Brazil's
congress, President Lula da Silva's administration and the PT
party (refs),Brazil's Chamber of Deputies (lower house)
formally expelled Federal Deputy Roberto Jefferson, whose
allegations unleashed the current crisis, and moved toward
expulsion of Chamber President Severino Cavalcanti on bribery
allegations. Cavalcanti's fall looks virtually certain, and
succession scenarios for him are difficult to predict at this
stage. The week's events point up both the increasingly
tense and fragmented environment within Brazil's legislature
and, at the same time, the relatively effective functioning
of the institution's investigative and ethics processes. End
introduction.

BRAZILIAN CONGRESSMAN JEFFERSON EXPELLED
--------------


2. (SBU) On 14 September, by a vote of 313 to 156, the
Brazilian Congress formally expelled Congressman Roberto
Jefferson, the man whose allegations of PT party financial
improprieties and vote buying triggered the political crisis
that has shaken the Lula government and Brazilian politics
generally for over four months now. Per refs, Jefferson
launched his series of sensational revelations and
allegations of corruption within the GOB, PT and its allied
base -- most of which have been proven true in the
investigations of recent months -- after Jefferson himself
was implicated in corruption schemes linked to contracts in
Brazil's postal service. Jefferson is the first of 18
federal deputies formally named in allegations to be
expelled, and in this punitive action by he loses his
mandate, the right to run for public office and other
political rights for the next eight years. In his
forty-minute defense speech, the vainglorious and orotund
Jefferson introduced no new allegations. But he excoriated
the PT for producing a corruption scandal of unprecedented
proportions, called Lula a "lazy scoundrel," chastised his
colleagues for allowing the Lula government and PT to reduce
the Brazilian congress to "fratricide" when origins of the
corruption "came from over there" (a reference to the
Planalto Palace of the Presidency, across the Esplanade from
the congress) and claimed to be proud of his role in exposing
the dishonest and "inhuman" face of the PT to Brazil, even at
the cost of his own political career.


3. (SBU) Fearing he would have the same fate as Jefferson,
Carlos 'Bishop' Rodrigues (PL),also involved in the
bribes-for-vote scandal, resigned his mandate on 13
September. Others are expected to resign in the next few
days: Vadao Gomes (PL),Jose Borba (PMDB),Paulo Rocha (PT),
and the president of the Lower House Severino Cavalcanti
(PP). Those who resign before proceedings against them begin
will be free to run for re-election in 2006, while
legislators who are expelled may not run for public office
for the following eight years. In related developments, a
temporary injunction ruling made on technical grounds by
Brazil's supreme court on 15 September halted the expulsion
process against former minister Jose Dirceu. Six other
implicated congressmen have already benefited from similar
injunctions.


SUN SETTING ON SEVERINO
--------------


4. (SBU) Per ref m, Chamber of Deputies President Severino
Cavalcanti faced developments this week in bribery
accusations against him which appear to point inevitably to
loss of his position as chief of the lower house, and quite
possibly his mandate as a congressman. Restaurant owner
Sebastiao Buani said at a news conference on 8 September that
he had been forced to pay about $20,000 in kickbacks to
Cavalcanti in 2002 and 2003 in exchange for a restaurant
concession in the congress (ref m). Cavalcanti denied the
accusations and stated that the documents presented by Buani
were forged. Nonetheless, on 14 September, Buani publicly
presented a copy of a check in the amount of 7,500 reais
(approximately $3,200) payable to Cavalcanti's personal
secretary, Gabriela Kenia. Buani also presented to the

SIPDIS
Brazilian Federal Police copies of his bank statements
showing the withdrawal of large sums of money, allegedly used
to pay Cavalcanti. This documentary evidence, validated by a
documents expert (though contested by a second expert
presented by Cavalcanti) and supported by testimony by Buani
and other employees of his restaurants, looks likely to seal
Cavalcanti's fate. Cavalcanti's early efforts to challenge
the allegations are fading, as he sought reclusion in his
Brasilia residence at week's end. He is reported to be
seeking a meeting with President Lula, who has waffled
between support and an appearance of distance from
Cavalcanti, and who Cavalcanti now reportedly believes has
abandoned him.


5. (SBU) On 13 September, representatives from five
opposition parties formally requested the removal of
Cavalcanti on the grounds of "violation of parliamentary
decorum", claiming that "someone accused of taking a small
bribe can't judge others accused of taking big bribes". The
head of the Ethics Committee stated he would open
investigations. The only options realistically available now
for the embattled Cavalcanti are: first, he may resign only
the Chamber's presidency (which would be assumed by
opposition PFL Deputy Jose Thomaz Nono) while fighting to
keep his deputy's mandate; second, Cavalcanti may take
personal leave from both the presidency and his mandate while
the Ethics Committee conducts the investigations; and third,
he may refuse to resign the presidency and the mandate while
the investigations are underway, creating a chaotic impasse
within the congress; fourth, he may resign both his mandate
and the presidency before the Ethics Committee begins formal
impeachment procedures, thus saving his right to run for
office in 2006. There is no clear scenario or favorite at
this stage for a replacement for Severino, and the
increasingly free-for-all environment within the lower house
makes predictions difficult. But the succession drama will be
the next major spin-off story in the crisis that continues to
roil Brazilian internal politics.

CPI CONTINUES TO INVESTIGATE MAYOR'S MURDER
--------------


6. (SBU) The congressional inquiry committee (CPI) on
corruption related to bingo game operations and municipal
kickback schemes called various witnesses to testify in the
case of the 2002 murder of Santo Andre's PT mayor Celso
Daniel (refs). On 15 September Sao Paulo police officers
that conducted criminal investigations in 2002 were summoned
to testify in closed sessions of the CPI, as was Gilberto
Carvalho, President Lula's chief of cabinet. Carvalho was
mentioned in earlier testimony by Francisco Daniel, brother
of Celso Daniel. According to Francisco Daniel, his brother
was involved in a corruption scheme to funnel payoffs on
municipal contracts to PT campaign coffers, together with
Carvalho and former minister (and then PT president) Jose
Dirceu. Francisco Daniel claims crooked businessmen involved
in the scheme commissioned the killing of Celso Daniel when
he began to consider exposing their activities. Carvalho
denied all of Francisco Daniel's allegations in the September
15 hearing, and the CPI is now reportedly considering
convoking both Carvahlho and Francisco Daniel to face off
against each other in a joint hearing.



7. (C) Comment. Both the expulsion of Jefferson and the
almost certain demise of Cavalcanti as Chamber President are
key events, providing the strongest signs since last week's
opening of expulsion procedures against 18 congressmen (ref
l) that powerful figures implicated in the scandals or other
impropriety will be held to account. On balance, both events
are likely to be seen as evidence that Brazil's legislature
can and will police itself if placed under sufficient public
scrutiny, and Jefferson's farewell exclamations that the
government had succeeded in focusing the scandal on congress
and inducing fratricide therein while avoiding further blame
are given the lie by the continued plummet of Lula's standing
in the polls. However, the vacuum emerging with Cavalcanti's
demise may exacerbate for a time the sense of fragmentation
and drift that is now undeniably prevalent in the congress.
Emergence of a replacement figure who can lead the
institution back toward coherence and comity would be a
salutary development for Brazil as it faces a continuing
crisis.






CHICOLA