BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 24-28

UNCLAS SECTION 01 OF 02 BRASILIA 002902

SIPDIS

E.O. 12958: N/A
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 24-28
OCTOBER 2005

REF: BRASILIA 2820 AND PREVIOUS


1. SUMMARY. The Lula government's hopes that the political
crisis of the past five months will abate before the onset
of next year's campaign season were dampened by the week's
events, which suggest scandal investigations will roil on
for the foreseeable future. Delays in the final judgment on
expulsion from Congress of former minister Jose Dirceu are
giving rise to frustration, although that result is not in
much doubt. Delicate issues continue to be raked over by
the congressional investigatory committees without great
signs of progress. And the opposition now seems bent upon
pursuing a more aggressive approach to these inquiries as
far into the new year as possible. END SUMMARY.

ETHICS COMMITTEE TO EXPEL DIRCEU, SUPREME COURT INTERFERES
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2. The defense of Lula's former chief of staff, Jose
Dirceu, suffered two sharp setbacks in the Chamber of
Deputies this week. But a subsequent Supreme Court decision
could conceivably further delay the definitive vote on
impeachment proceedings against him by the whole Chamber.
On October 26 the Chamber's Constitution and Justice
Committee rejected, 39 votes to 15, a motion by Deputy Darci
Coelho, which argued that the case against Dirceu should be
overturned because the original plaintiffs (the PTB and
former Deputy Roberto Jefferson) had since withdrawn their
charges. In addition, on October 27, the Ethics Committee
approved Deputy Julio Delgado's report recommending Dirceu's
impeachment, by an overwhelming 13 to 1 margin. The vote in
the Ethics Committee had been previously delayed by a series
of procedural maneuverings and appeals undertaken by Dirceu
and his lawyers. With the approval of Delgado's report by
the Ethics Committee, the final step in the impeachment
process was to be a full floor vote, which had already been
scheduled for November 9. But it may now be delayed again
because of a subsequent Supreme Court decision favoring the
defendant, at least temporarily, on technical grounds.


3. Before the Ethics Committee voted on Dep. Delgado's
recommendation, Dirceu had filed various appeals with the
STF, one of which aimed at overturning the proceedings
against him on grounds that Delgado unduly employed
confidential information obtained by the Congressional

SIPDIS
Inquiry Committees (CPIs) in his report. On October 26,
Supreme Court Justice Eros Grau partially accepted this
contention. He did not order the termination of the
proceedings, but he required that the report be reformulated
to remove the questionable references and then reintroduced
within the Ethics Committee. In order to avoid further
delays, Delgado decided to merely drop some parts of his
report in which such information was directly cited. But,
on October 27 -- just after that version of the report had
successfully passed, 13-1 -- the Justice released a note
stating that deletion of a few paragraphs did not constitute
the reformulation previously required. Hence the vote on it
was invalid.


4. The president of the Ethics Committee expressed
frustration with the court's opinion -- which he considered
"undue interference by the judiciary branch in legislative
affairs". But he accepted annulment of the vote and
promptly scheduled another session for Monday, October 31 --
at which time a freshly reformulated report will be
submitted. It is likely that Deputy Angela Guadagnin,
Dirceu's sole ally on the Committee, will again assert her
right to study the new version -- which would delay a vote
into the following week. If the Ethics Committee does not
vote the report by the end of that time, the decisive
plenary balloting -- presently set for November 9 -- might
have to be postponed. In the face of this ongoing tactical
maneuvering, the Committee will now have to work hard to
keep to its schedule. Whatever the exact day of reckoning
may eventually be, it cannot be delayed much longer and will
almost certainly result in Jose Dirceu's expulsion. But his
unwillingness to concede defeat aggravates an already
contentious climate in Congress.

A WEEK OF CONFRONTATIONS IN THE CPIs
--------------


5. During this week the Congressional Investigatory
Committees (CPIs) continued their work -- providing an
addictive product for Brazilian television audiences. The
main event of hearings of the CPI on corruption in bingo
operations and municipal governments was a long-awaited,
face-to-face confrontation between the brothers of the mayor
of Santo Andre, Celso Daniel -- who was murdered under
suspicious circumstances in January of 2002 -- and Lula's
present personal chief-of-staff, Gilberto Carvalho. In a
previous testimony before the CPI, Daniel's brothers had
affirmed that shortly after Mayor Daniel's murder, Carvalho
told them about a corruption scheme to funnel payoffs on
municipal contracts to PT campaign coffers. They also said
that Carvalho confessed his involvement in the scheme,
together with that of Celso Daniel and other high-level PT
members, including Jose Dirceu. The
Daniels'brothers'testimony was a reiteration of charges they
have made for some time about involvement of Carvalho and
Dirceu in corruption activities by the PT that the brothers
assert may have been linked to their Celso Daniel's
abduction and murder. Cavalho and Dirceu have repeatedly
denied the allegations, and Dirceu stated he would sue the
Daniel brothers for slander. The purpose of the
confrontation was to shed light on the true facts of the
case by bringing these adversaries together in front of the
panel. It did produce some dramatic and emotional moments,
but both sides stuck firmly to their previous stories. Lula
had reportedly been concerned about the prospect of his
present chief of staff giving testimony, but Carvalho did
well enough to keep his job and nothing said in the session
incriminated the President directly.


6. In the "Mensalao" (vote-buying) CPI, a similar
confrontation was held on October 27 between some prominent
recipients of illegal funding -- former PL president,
Valdemar Costa Neto; the ex-treasurer of that party; and a
PP staffer/conduit, Joao Claudio Genu -- and those that
provided it -- former PT treasurer, Delubio Soares; bagman-
businessman, Marcos Valerio, and Simone Vasconcelos, one of
Valerio's employees. The purpose of the session was to
clarify the exact amount of money that was actually
transferred and how/by whom it was effected. Some
interesting details emerged, but much of the testimony
proved contradictory, with the receivers claiming they had
gotten much less than the providers said they had given out.
This pattern considerably irritated some of the congressmen
conducting the inquiry -- leading to both intra-mural
bickering and harsh words against the witnesses, as well as
the government. Nonetheless, the open affirmations by the
witnesses of the existence of extensive illegal campaign
funding activities caused a few indignant opposition
legislators to again call for banning of the PT party from
elections for electoral crimes and consideration of
impeachment investigations of President Lula for any
possible responsibility in the illicit funding.


7. Late in the week PSDB party president Eduardo Azeredo
resigned from that post after news stories seemed to lend
credibility to charges that he had engaged in campaign
finance practices (during his unsuccessful 1998 bid for the
governorship of Minas Gerais) uncomfortably similar to those
his party is alleging against the PT and the Lula
government. But this seems to be a decision intended to
partially take his case off the table so that the PSDB-led
opposition can (per paragraph above) perhaps increase
pressure against the incumbent administration in the run-up
to next year's elections. In this regard, the Bingo CPI has
already authorized prolongation of its activities until
April. PSDB spokesmen have begun demanding establishment of
a new one focused specifically on illicit fund-raising
practices during the 2002 and 2004 elections. And criminal
indictments that could lead to long trials are now possible
against Delubio Soares, Marco Valerio and even legislators
involved with them, who -- through resignation or
impeachment -- have lost, or will loose, their congressional
immunity.

DANILOVICH