"OPERATION NAVALHA": EMERGING POLITICAL SCANDAL

UNCLAS SECTION 01 OF 02 BRASILIA 000921 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV ECON BR SUBJECT: "OPERATION NAVALHA": EMERGING POLITICAL SCANDAL ¶1. (SBU) Summary. A large-scale Federal Police investigation has surfaced a major political corruption scandal involving bribes a construction firm allegedly paid to politicians to guarantee lucrative contracts. The scandal has reached the Cabinet and at least six ministries may be involved. Silas Rondeau, Minister of Mines and Energy, resigned on May 22. Civil Household Minister Dilma Rousseff and Bahia Governor Jaques Wagner have been mentioned in connection with the investigation, but so far they are not accused of wrongdoing. Similarly, Senate President Renan Calheiros and Senator Jose Sarney are linked with the prime suspect in the investigation, but also have not been accused of any wrongdoing. A number of current and past governors as well as some members of congress are accused of malfeasance. The scandal is likely to dominate national news for weeks and could affect the Accelerated Growth Program (PAC),since PAC contracts are a focus of the investigation. Politicians named in the scandal come from a broad political spectrum including government and opposition parties. For that reason, congressional leaders are currently resisting an independent congressional investigation. End summary. ¶2. (SBU) The Operation Navalha (i.e., "Razorblade" in Portuguese) scandal was uncovered by an extensive Federal Police investigation and involves allegations of corruption by Zuleido Veras, owner of Gautama, a construction firm, in exchange for government contracts. The corrupt practices included bribes to ensure a competed contract was awarded to Gautama, overpriced contracts, and contracts for works that were not completed or not even begun. ¶3. (SBU) Federal Police arrested 47 persons, including 13 politicians. Gautama's corrupt practices are said to have taken place in 10 states, including the Federal District, over at least a five year period. Politicians from nine political parties are cited. Recent briberies involved contracts for projects in the Accelerated Growth Program ("PAC"),Lula's flagship public works programs. The corruption scheme operated in state governments and several federal ministries including Mines and Energy, Cities, Planning, National Integration, Transportation, and Finance. ¶4. (SBU) States where Gautama (based in Bahia) is said to have committed crimes are mainly in the northeast, and include Alagoas, Bahia, Maranhao, Pernambuco, Piaui, Sergipe, as well as Mato Grosso, the Federal District, Goias, and Sao Paulo. Politicians under suspicion come from a wide spectrum of political parties, including the Workers' Party (PT),Brazilian Democratic Movement Party (PMDB), Brazilian Social Democracy Party (PSDB),Brazilian Socialist Party (PSB),Democratic Labor Party (PDT),Democrats (DEM),Socialist People's Party (PPS),Progressive Party (PP),and Party of the Republic (PR). The total value of the rigged contracts is well into the hundreds of millions of dollars. The bribes ranged from 20,000 to 100,000 (USD 10,000 to 50,000). Some politicians also received campaign contributions from Gautama, but they may have been legal. ¶5. (SBU) A number of prominent political figures have been arrested, are under suspicion, or are linked to the scandal in one way or another: - Mines and Energy Minister Silas Rondeau (PMDB) is directly accused by Federal Police of taking a bribe of 100,000 reais (USD 50,000), and resigned on May 22, reportedly at the urging of his patron, Senator Jose Sarney (PMDB, Amapa). Rondeau denies the accusation. - Sarney himself is not under suspicion, but the investigation is looking at contracting with Gautama stretching back over many years, covering a period of time when the Sarney family was dominant in Maranhao state politics. The immediate past governor and a Sarney ally, Jose Reinaldo Tavares (PSB),was arrested but released after giving a deposition. He remains under investigation. The current governor of Maranhao and a Sarney adversary, Jackson Lago (PDT),is under suspicion of having received bribes in exchange for the immediate release of funds to Gautama for contracted work. The state of Maranhao is reported to have paid Gautama over 31 million reais for construction projects in the past 16 months. - In addition to Rondeau, other executive branch figures whose names have been appeared in the case include Presidential Chief of Civil Household Dilma Rousseff (PT) and Bahia governor Jaques Wagner (PT), but Federal Police have not accused them of any wrongdoing. Wagner once hosted Rousseff on a boat belonging to Gautama owner Zuleido Veras, although it is not yet clear whether the boat was rented or provided without charge, and whether Rousseff or Wagner knew of the connection to Gautama. BRASILIA 00000921 002 OF 002 - Senate President Renan Calheiros (PMDB, Alagoas) has known the prime suspect in the case, Zuleido Veras, for over 20 years, and reportedly has met with him multiple times in Calheiros's official residence. This linkage is embarrassing for Calheiros, but he has not been implicated in wrongdoing. - Alagoas Governor Teotonio Vilela Filho (PSDB) is also under suspicion, as are Wellington Dias (PT),governor of Piaui, and Joao Alves Filho (DEM),a former governor of Sergipe. - Tourism Minister Marta Suplicy (PT) is reported to have taken a campaign donation of 150,000 reais from Gautama. - Federal Deputy Paulo Magalhaes (DEM, Bahia),a nephew of Senator Antonio Carlos Magalhaes (DEM, Bahia),is also accused of malfeasance. A small number of Federal Deputies received campaign donations from Gautama, but media reporting suggests they were legal. Senator Delcidio Amaral (PT, Mato Grosso) is also under some suspicion for accepting favors from Veras, but he is vigorously denying any impropriety. ¶6. (SBU) Some deputies are calling for a joint bi-cameral Parliamentary Inquiry (CPI),but Calheiros and several leaders from both the government and the opposition are against the idea, given the breadth of the charges across party lines and the potential for gridlock if the scandal roils on for months. ¶7. (SBU) Federal Police have searched Gautama and found lists with gratuities linked to hundreds of names, including those of many politicians, but Justice Minister Tarso Genro is publicly cautioning against jumping to conclusions. Genro said small gifts from corporations do not amount to corruption. ¶8. (SBU) Comment. The scandal is likely to dominate national news for weeks and could affect the Accelerated Growth Program (PAC), since PAC contracts are a focus of the investigation. So far the accused come from all large and medium sized parties, and thus the scandal is not uniquely prejudicial to Lula's party and coalition. Nonetheless, with echoes of the "mensalao" scandal still audible, this new sensation will add to perceptions of ethical promiscuity within Lula's administration. More revelations may further undercut GOB credibility and could affect the 2008 municipal elections and 2010 presidential and congressional elections. SOBEL