BRAZIL CORRUPTION SCANDAL UPDATE: WEEK OF 3-7

UNCLAS SECTION 01 OF 02 BRASILIA 002687 SIPDIS TREASURY FOR PARODI; STATE PASS USTR AND USAID/LAC E.O. 12958: N/A TAGS: PGOV PREL BR SUBJECT: BRAZIL CORRUPTION SCANDAL UPDATE: WEEK OF 3-7 OCTOBER 2005 REF: (A) BRASILIA 2614 (B) BRASILIA 2601 AND PREVIOUS 1.(U) Introduction: Brazil experienced a relatively quiet week on the political scandal front, as congressional investigators sought to regain their bearings following the leadership change in the lower house. The three congressional inquiry committees focused on the interlocking scandals (ref b) returned to work, even as President Lula da Silva charged there were too many unconfirmed accusations and allegations. Lula's comments drew a sharp rejoinder from the opposition's Senate leader. End summary. "DENUNCISMO" -------------- ¶2. (U) The week got off to a bad start for Lula's Workers' Party (PT) when its former Secretary-General, Silvio Pereira, gave an interview published in Sunday's Folha de Sao Paulo in which he alleged that the entire PT Executive Committee knew all about the "Caixa 2" illegal campaign fundraising schemes. Numerous members of the executive committee and other party leaders rushed into print with categorical denials of any such knowledge. ¶3. (U) In a speech Monday to the Sao Paulo State Federation of Industries (FIESP),Lula complained of a climate of "denuncismo" characterized by allegations and accusations which in the end are not corroborated or confirmed. "And there are no apologies, no reparations, no retractions," Lula complained. Coming off his victory in getting political ally Aldo Rebelo elected President of the lower house, Lula appears to be trying to move off the defensive and intensifying efforts to put the scandal behind him. But his remarks drew a sharp rejoinder from Arthur Virgilio, leader of the opposition PSDB in the Senate. In a twenty-minute speech, Virgilio listed the names of all the individuals and private and state-owned companies who have been implicated in the scandal and have suffered consequences. These include 15 Members of Congress facing possible expulsion, one already expelled, three who resigned (Virgilio gratuitously included ousted lower house President Severino Cavalcanti, whose downfall was caused by an entirely unrelated incident),and numerous executives of state-owned companies who were forced to step down. In all, he said, 47 private companies and 26 state entities have been enmeshed. "If it were all merely 'denuncismo,' nobody would have had to be fired, nobody would have had to pay some price," Virgilio said. Leading media pundits such as columnist Dora Kramer also quickly criticized Lula's apparent effort to dismiss in such a facile manner five months of devastating revelations and investigations. IN THE CPIs -------------- ¶4. (U) On Tuesday, after several unsuccessful attempts, the congressional inquiry committee (CPI) charged with pursuing corruption in the postal service was finally able to assemble a quorum and voted to break the banking, tax, and telephone secrecy privilege of eleven brokerage firms involved in pension fund investments. The CPI continues to track allegations of irregularities in state-owned companies and dubious fund-raising activities by the PT. PT and allied members on the committee have been accused of trying to sabotage the CPI's work by failing to attend meetings, thereby depriving the committee of a quorum. Their sudden appearance may signal a shift in tactics as the government now wants to ensure that the CPIs complete their work and disband in the allotted six-month time frame, so as not to extend their activities into the election year. The Postal Service CPI is due to finish its work December 9, but most provisions are for an extension of its mandate into early 2006. ¶4. (U) Also on October 4, the CPI investigating bingo corruption voted to summon Lula's personal secretary, Gilberto Carvalho, to a confrontation October 26 with the brothers of Celso Daniel, the murdered PT mayor of Santo Andre (ref B). Daniel was murdered in January 2002 in what many now suspect was a crime related to politics and municipal corruption. Carvalho, who is alleged to have directed efforts to cover up the crime to keep it from tainting the PT, testified before the committee on September 15. Celso Daniel's brothers, Joao Francisco and Bruno, have testified that Carvalho described to them the outlines of a corruption scheme managed by Lula's former Chief of Staff, Jose Dirceu --allegations both Carvalho and Dirceu stridently deny. An irritated President Lula said, "I'm still waiting for the Bingo CPI to call a bingo operator." This CPI has focused much of its attention on municipal corruption allegations involving the PT, as well as corruption related to bingo operations. EXPULSIONS -------------- 4.On Wednesday, the enforcement arm ("Corregedoria") of the lower house issued a report formally recommending the expulsion of thirteen members implicated in the scandal. Most are accused of withdrawing funds from companies or accounts controlled by Marcos Valerio. The house leadership is expected next week to approve the opening of expulsion processes against the thirteen. The first step in the process is be an investigation by the Ethics Committee, some of whose members are believed to favor exonerating some of the accused. DANILOVICH