BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 05-09

UNCLAS BRASILIA 003216

SIPDIS

E.O. 12958: N/A
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 05-09
DECEMBER 2005

REF.: BRASILIA 03150 AND PREVIOUS


1. SUMMARY. This was a quiet week in investigations of the
scandals in the GOB and PT party (refs). Congressional
investigation committees (CPIs) probed allegations of
irregular payments by the PT to a textile firm owned by
Vice President Alencar, but did not link these charges to
the broad financial and bribery conspiracy at the core of
the past several months' scandals. A CPI also heard a
witness who claimed she had informed President Lula da
Silva of municipal corruption related to the PT in the city
of Santo Andre, Sao Paulo, where PT mayor Celso Daniel was
murdered in 2002. End introduction.

PT USES UNACCOUNTED FUNDS TO PAY VICE-PRESIDENT'S COMPANY
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2. On December 4, leading newspaper Folha de Sao Paulo
announced the detection of a payment in the amount of one
million reais (approximately 450 thousand dollars) made by
the Worker's Party (PT) to Coteminas, a textile industry
owned by Vice President Jose Alencar. The May 2005
payment was not accounted for in the party's records, but
the bank where the deposit was made informed the Ministry
of Finance in August. According to the former PT
treasurer, Delubio Soares, the sum was given -- in cash --
to Coteminas as a payment for T-shirts sold by the textile
company to the party during the 2004 municipal campaign.
Soares also confirmed that the payment was made with PT
private sector moneyman Marcos Valerio's funds and that the
party owes another 11 million reais (5.4 million dollars)
to the company. Alencar, whose son took over the
presidency of Coteminas after his resignation, said that
the company recorded the payments in its accounting books
and, therefore, did not do anything illegal. Alencar added
that there was no reason to question the origin of the
money at the time. Ricardo Berzoini, current PT president,
and Paulo Ferreira, PT treasurer, released a statement on
December 5 saying that the "supposed payment" was not
accounted for by the PT, and blamed Delubio Soares and the
former PT directorate.


3. (U) Members of the Postal Service CPI said that the
episode is further evidence of the use of unaccounted
campaign funds by the Worker's Party, but they do not
believe it is part of the broader illicit financing and
bribery scheme facilitated by Marcos Valerio, given the
date of the payment. Investigations conducted by the CPI
point to the fact that, by May 2005, the scheme already had
a deficit of 3 million reais (1.3 million dollars).
Valerio denied knowledge of the payment and said that the
last money transfer he made for the PT was in October 2004,
before the payment to Coteminas was made. The CPI
requested assistance from the Federal Police to investigate
the case.

MURDERED MAYOR CASE: PRESIDENT LULA AWARE OF BRIBES SCHEME
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4. (U) On December 6, in a testimony before the CPI on
bingo games and municipal corruption, Mara Gabrilli,
daughter of Santo Andre, Sao Paulo transportation company
owner Luiz Alberto Gabrilli, stated that she met with
President Lula in March 2003 to request federal
intervention in Santo Andre to bring to an end the
corruption scheme in the municipality. According to
Gabrilli, she told the president about the scheme and said
that it was still in place, even after PT Mayor Celso
Daniel's assassination. She said that the President
promised to take the necessary measures to curb corruption
and to punish those involved, but asked her not to mention
the subject to the press and changed the subject.
Gabrilli's statements reinforce previous testimonies heard
by the CPI in which owners of transportation companies in
Santo Andre affirmed that a scheme to collect kickbacks for
PT slush funds was in place in the municipality, and that
Daniel's assassination was connected to the scheme. The
Presidency did comment on the testimony.

LINEHAN