BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 28

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 003150

SIPDIS

E.O. 12958: DECL: 09/22/2015
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 28
NOVEMBER - 02 DECEMBER 2005: DIRCEU FALLS

REF: BRASILIA 03103 AND PREVIOUS

Classified By: Classified By: POLITICAL COUNSELOR DENNIS HEARNE. REASON
S: 1.4 (B) (D).


1. (C) Summary: On the evening of 30 November the Brazilian
congress's Chamber of Deputies (lower house) voted to
"cassar" (ban from office or impeach) congressman Jose Dirceu
-- until a few months ago, arguably the most powerful
minister in President Lula da Silva's government and the main
leader in the PT party, but recently a central figure in the
ongoing scandals that have rocked Brazil (ref). Dirceu was
impeached on charges of breaking "congressional decorum" on
specific items related to the scandal allegations, but his
fall is viewed here as a broader acknowledgment by the
political class that the financial improprieties at the core
of the scandals are real, important in scope, and ultimately
the responsibility of senior figures beyond those already
implicated and sanctioned publicly. Hence Dirceu's fate
cannot be considered good news for Lula, though Dirceu's fall
may temporarily diminish pressure on the GOB through the
year's end. End summary.

DIRCEU FALLS
--------------


2. (U) Until a few months ago Lula's powerful Chief of Staff
and once the most influential figure in the cabinet, Jose
Dirceu was formally ousted by his congressional colleagues
late on 30 November from his seat in the Chamber of Deputies,
and also lost his political rights until 2016. A majority of
293 deputies -- 36 more than the necessary -- in the 513-seat
Brazilian lower house voted to expel Dirceu from congress,
indicating their acceptance of a report by the chamber's
ethics committee charging his culpability in the illicit
financing and vote-buying scandals that have rocked the Lula
administration (ref). The vote calling for Dirceu's
"cassacao" (a formal ousting process akin to banning or
impeachment) was the denouement of Dirceu's story in the
crisis, which started six months ago, when a former member of
the governing coalition, deputy Roberto Jefferson (himself
impeached several weeks ago, see refs),accused the Worker's
Party of bribing lawmakers, and implicated Dirceu as the
corruption scheme's mastermind. Dirceu's last in a series of
appeals to the Supreme Court was decided just hours before
the impeachment vote took place, with the Supreme Court
Justices allowing the vote on Dirceu's impeachment, provided
portions of the report judged to be unconstitutional on
procedural grounds were deleted. The 42-page report included
circumstantial evidence that links Dirceu to the PT's
corruption schemes and supports the assertion that "(Dirceu)
altered the regular legislative process by collecting money
from the Banco Rural and Banco de Minas Gerais, together with
Mr. Delubio Soares (former PT treasurer) and by Mr. Marcos
Valerio de Sousa (the private sector money man at the center
of the scandals)... and used that money to buy congressmen's
votes in favor of the governing coalition."


3. (U) At 7:30 p.m., the chamber started impeachment
procedures by hearing a strong oral presentation of the
charges by the ethics committee rapporteur, Deputy Julio
Delgado, followed by Jose Dirceu, who made an emotional
speech in his own defense. Dirceu denied all the accusations
presented in the report, claiming that there were no evidence
to support them. Dirceu defended his record of public
service and argued he was a scapegoat and victim of vendettas
by those who resented his political power and arrogant
personal style. He pleaded not to be ousted from the
Chamber: "I reached the point where my situation became an
agony, a decapitation, a hell, a political execution... I
cannot be impeached because I was the "all-mighty" (in the
government),because I did not answer telephone calls or
schedule meetings. I cannot be impeached because of my
personality. It is not fair, my hands are clean." It was
past midnight when the chamber President (Speaker of the
House equivalent),Aldo Rebelo, announced the final result
and declared Dirceu ousted..


4. (SBU) Dirceu's fall from the apex of power he enjoyed in
the early months of Lula's government began in February 2004,
when his friend and senior advisor Waldomiro Diniz was caught
soliciting bribes from a numbers racketeer, apparently
intending to funnel the cash into PT slush funds. The
governing coalition was able to put off further investigation
of the case for over a year and Dirceu began to regain some
of his previous influence. However, in early June 2005 he
was forced to step down as Lula's chief minister after former
deputy Roberto Jefferson alleged to the press and to Congress
that the Worker's Party was running illicit campaign
financing operations and a bribery scheme in exchange for
lawmakers' support, and that Dirceu was not only aware of the
scheme, but was the mastermind behind it. Jefferson's
allegations prompted the congress to open investigations on
the bribes-for-votes scheme and other allegations, with three
investigative committees (CPIs) examining a range of issues
including use of state funds in illegal actions, money
laundering, bribery charges and corruption involving bingo
houses and contracting practices under PT municipal
governments. After resigning, Dirceu returned to his seat in
the Chamber of Deputies, from where he maneuvered tirelessly
against his impeachment. Ultimately the efforts were
fruitless, as he became the second deputy to be judged and
ousted, following Roberto Jefferson. Throughout the process,
Dirceu made three different appeals to the Brazilian Supreme
Court, a tactic which threatened in its latter stages to
spark an institutional crisis between the legislative and the
judicial branches.
CONGRESSIONAL COMMITTEES: NEXT MOVES
--------------


5. (U) With the conclusion of Dirceu's case, the Ethics
Committee in the chamber is expected to move ahead on 13
other cases against implicated congressmen, and will likely
try to conclude these processes by year's end. Dirceu's
impeachment may well pave the way for faster handling of the
other cases, which include both PT and allied party
congressmen and in which there is substantial material
evidence in some instances. Osmar Serraglio, rapporteur of
the CPI on the Postal Service -- which is charged with
investigating use of state funds in the PT's illicit finances
-- said his committee will also release a report on related
bribery operations involving congressmen, in an effort to
shore up a gap left by the demise earlier this month of a
separate and largely ineffective CPI on vote buying. The
second remaining CPI, which covers corruption in bingo gaming
and municipal governments under the PT, continued its
examination of allegations relating to finance minister
Palocci's tenure as mayor of Riberao Preto, Sao Paulo, and
the murders of PT mayors linked to suspected corruption in
Campinas and Santo Andre, Sao Paulo state.


6. (C) Comment. Dirceu's fall is a watershed. Beyond the
specific charges in the report on which Dirceu's impeachment
was founded, there has been an ongoing and powerful suspicion
here that Dirceu's guilt is broader, that he was in fact the
mastermind, or at the very least a knowledgeable and
complicit observer, in the PT's network of illicit financial
activities, both in government and in the years leading up to
Lula's victory, when proceeds from kickbacks from PT-led
municipalities apparently flowed into party war chests,
fueling campaigns and embroiling some PT mayors in nefarious
circumstances that literally led to murder in the cases of
Santo Andre and Campinas, and that continue to haunt Palocci.
We have tended to share that view of Dirceu's probable
culpability. Dirceu was, for years, the single most powerful
figure within the PT as the party's president, he crafted the
campaign image-remake of Lula that led to his presidential
victory, and he was the most important cabinet minister in
the early years of the administration. It strains credulity
that he would not have been involved in the large-scale,
illicit financial machinations that are at the core of the
current scandals. In our assessment, it fits with Dirceu's
personal history of devotion to both the PT and his own
ambition -- a history that includes exile, training in Cuba
as a guerrilla, and years of clandestine life under assumed
names in Brazil -- that he would view dubious means as
justified by his ends. Indeed, the schemes of which he now
stands accused were set in play to win and consolidate
political power for the PT, rather than fuel graft in a
traditional sense. We see no indication that an angry or
embittered Dirceu will now implicate Lula in wrongdoing, as
that would undercut Dirceu's assertions of his own innocence
(he must still be wary about criminal indictments, though
those seem unlikely),and in the end, Dirceu is probably
still too much of a good soldier to ruin his former chief and
further damage his party. Dirceu recently told Embassy
officers that he intends to vanish for a time from Brazil's
political scene, to work on a book and travel to the United
States in early 2006, where he will recharge his batteries,
learn some English and visit a country that is largely alien
to him. But we are certain that, even with his right to run
for office lost until 2016, Dirceu will remain an extremely
influential figure in the PT and Brazilian left.

7. (C) Comment continued. The Lula government, for its part,
expended virtually no energy to defend its former high priest
in his final trial before the congress, leaving him in the
end to his fate. Lula must now hope that Dirceu's sacrifice
may be sufficient to diminish pressure from the ongoing
investigations, at least through the end of the year. But it
also can be argued that the condemnation of Dirceu represents
the strongest statement yet that the body politic and public
in Brazil believe that the corruption schemes revealed over
the past months are real, that their scope is vast, and that
senior persons in the government and PT party beyond the
former party treasurer, secretary general and others already
thrown from the ship during investigations bear
responsibility. Despite some temporary relief that last
night's vote may offer, that cannot be comforting news for
Lula.



LINEHAN