"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.

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- 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