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### Viewing cable 05BRASILIA2082, BRAZIL: CORRUPTION SCANDAL UPDATE, WEEK OF 1-5

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05BRASILIA2082 | 2005-08-05 18:30 | 2011-07-11 00:00 | CONFIDENTIAL | Embassy Brasilia

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    C O N F I D E N T I A L SECTION 01 OF 04 BRASILIA 002082

    SIPDIS

    TREASURY FOR PARODI, STATE PASS TO USTR

    E.O. 12958: DECL: 08/05/2015
    TAGS: PGOV PREL ECON BR
    SUBJECT: BRAZIL: CORRUPTION SCANDAL UPDATE, WEEK OF 1-5
    AUGUST 2005: FORMER CHIEF OF STAFF DIRCEU TESTIFIES BEFORE
    ETHICS COMMITTEE

    REF: A. BRASILIA 1979
         ¶B. BRASILIA 1874
         ¶C. BRASILIA 1973
         ¶D. BRASILIA 1631
         ¶E. BRASILIA 2025
         ¶F. BRASILIA 1602

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

    ¶1. (SBU) SUMMARY.  Hearings on the corruption scandals (refs)
    in the Brazilian government continued this week, as
    Congressman Jose Dirceu, President Lula da Silva's former
    Chief of Staff and closest advisor, testified on 2 August
    before the Chamber's Ethics Committee.  Dirceu categorically
    denied any awareness of the vote-buying and illicit
    campaign-funding schemes mounted by PT party leaders with
    private sector money man Marcos Valerio (refs).  He also
    refuted PTB Congressman Roberto Jefferson's new allegations
    that he sought funds from telecommunications company Portugal
    Telecom for the Workers' Party (PT) and the Brazilian Labor
    Party (PTB) when he was Chief of Staff.  In other
    developments, Congressman Valdemar Costa Neto, president of
    the Liberal Party (PL), resigned from his congressional seat,
    after admitting to illegal funds from the PT -- the first of
    several possible resignations by implicated congressmen on
    the horizon.  Simone Vasconcelos, Valerio's financial
    director, testified to both judicial authorities and the
    Postal Service Congressional Inquiry Committee (CPI) that she
    had authorized the transfers in Brazilian reals valuing more
    than USD $27 million to congressmen and staffers, per her
    employer's instructions.  Valerio, who is reportedly seeking
    a deal with prosecutors, also testified to authorities,
    further implicating Dirceu in the corruption scandal.  On 3
    August Roberto Jefferson told congressional questioners in
    the separate, newly-formed CPI on the monthly bribery
    allegations that he believed President Lula da Silva was not
    aware of the bribery activity.  END SUMMARY.

    DIRCEU'S TESTIMONY: "I WILL FIGHT UNTIL THE END"
    --------------------------------------------- ---

    ¶2. (U) On August 2, Brazilian congressman and former Chief of
    Staff Jose Dirceu (PT) delivered his long-awaited testimony
    before the Chamber's Ethics Committee, as a witness in the
    process filed against Congressman Roberto Jefferson (PTB) for
    lying and violating congressional decorum (ref F). (Note: Per
    refs, Jefferson's sensational allegations about high-level
    GOB and PT involvement in illicit money transactions and
    bribes for votes among congressmen triggered the current
    scandals. End note.)  The eight-hour testimony was covered
    live by major TV stations, and there were rumors that Dirceu
    might resign before the session or direct fire against the
    president.  Instead,  Dirceu emphatically and categorically
    denied Jefferson's allegations that he was the master mind
    behind the alleged PT party's bribes-for-votes scheme:  "I
    didn't organize (it), I am not the boss of a scheme and I
    would never allow the buying of parliamentary votes."  Dirceu
    also stated that he was unaware of loans made by advertising
    executive Marcos Valerio to the PT and underscored that he
    would not resign: "I wouldn't be able to walk on the streets
    if, to safeguard my political and electoral rights, I had to
    resign.  I will fight until the end."

    ¶3. (U) The highlight of the session was Dirceu's
    confrontation with Jefferson, who restated his claims against
    the former Chief of Staff, but did not produce any hard
    evidence.  Talking at times directly into TV cameras,
    experienced criminal lawyer Jefferson challenged, in ironic
    and skeptical tones, the very notion that Dirceu, the closest
    advisor to Lula and the most influential figure in the PT,
    could possibly have been unaware of the illicit multi-million
    dollar pay off system run by the PT's former treasurer in
    conjunction with money man Marcos Valerio.  He also launched
    news charges, accusing Dirceu of running another illegal
    financing scheme.  According to Jefferson, Dirceu arranged a
    meeting between high-level executives of telecommunications
    company Portugal Telecom and President Lula, followed by a
    "delegation" trip to Portugal to negotiate illegal funds to
    pay back PT and PTB debts.  Reportedly, the delegation was
    composed of Marcos Valerio, allegedly representing the PT,
    and the former PTB treasurer Emerson Palmieri.  Portugal
    Telecom confirmed the meeting with Valerio, but denied that
    the subject discussed was party financing.  Dirceu continued
    to deny all accusations and   the Presidency released a
    statement refuting Jefferson's statements.

    ¶4. (U) In a parallel motion in the Chamber's Ethics
    Committee, Jefferson's PTB party filed a complaint against
    Dirceu and Liberal Party (PL) representatives Sandro Mabel
    and Valdemar Costa Neto for violating congressional decorum,
    due to their alleged involvement with the vote-buying scheme.
      Investigations initiated against the cited congressmen
    could lead to impeachment.  (Note: The complaint against
    Costa Neto was nullified when he renounced his congressional
    seat paragraph 5 below. End note.)  The complaint against
    Dirceu also may be rejected, given that he was a member of
    the Executive branch, not a congressman, when the alleged
    abuses occurred.

    THE FIRST CONGRESSIONAL RESIGNATION, MORE LIKELY TO COME
    --------------------------------------------- -------------

    ¶5. (U) On 2 August, Congressman Valdemar Costa Neto,
    president of the right-wing Liberal Party (PL), became the
    first congressman to resign from his seat amid corruption
    allegations.  The Postal Service CPI received documents
    proving that PL treasurer, Jacinto Lamas, withdrew more than
    $4 million from Valerio's accounts.  In his resignation
    speech, Neto acknowledged that he had been "misled" into
    accepting illegal payoffs from the PT, but that the money was
    used to pay political campaign debts, not to buy votes from
    his PL colleagues in Congress.  By resigning, Costa Neto
    avoided being investigated by the Ethics Committee and losing
    his political rights to stand for re-election (Note: This is
    a venerable tactic among Brazilian politicians charged with
    improprieties. End note.)

    ¶6. (U) Five other congressmen from the Workers' Party (PT)
    who allegedly received money from Valerio's accounts may
    announce their resignation within the next days: former
    Speaker of the House Joao Paulo Cunha, Professor Luizinho,
    Paulo Rocha, Josias Gomes, and Joao Magno. PT president Tarso
    Genro stated this week that if PT members resign in order to
    keep political rights and run in the 2006 national election,
    they will be expelled from the party.  In another
    development, the PT-connected president of Brazil's National
    Mint stepped down on August 4, after his name appeared in
    Valerio's list of cash withdrawers.  He allegedly received
    illegal money while managing Jorge Bittar's (PT) 2004
    campaign for Rio de Janeiro's city hall.
    VALERIO'S CASH HANDLER TESTIFIES
    --------------------------------

    ¶7. (U) Simone Vasconcelos, financial director at the SMPB,
    one of Marcos Valerio's companies, testified before the
    Federal Police and Postal Service CPI during the week.
    Vasconcelos admitted to transferring large sums of money from
    Valerio's accounts, per his instructions, to congressmen and
    their staffers.  Vasconcelos presented lists of a total of 43
    names of persons who withdrew money -- in Brazilian reals
    worth more than USD $27 million -- from Valerio's accounts.
    Vasconcellos also indicated Valerio paid a law firm that
    defended the PT during investigations of the 2002 murder of
    Celso Daniel, the PT mayor of Santo Andre, Sao Paulo. (Note:
    During his testimony before the Ethics Committee, Congressman
    Jefferson linked the January 2002 murder of Daniel with a
    corruption scheme in Santo Andre to funnel money to PT
    campaign coffers.  Jefferson alleged Daniel was collecting
    evidence to denounce the scheme.  Prosecutors in Sao Paulo
    continue to investigate the possibility that Daniel was
    murdered by hired gunmen after being tortured and forced to
    hand over a dossier implicating those involved, possibly
    including PT officials. End note.)

    JEFFERSON AND VALERIO EXONERATE LULA
    ------------------------------------

    ¶8. (U) On 4 August Deputado Roberto Jefferson testified
    before the newly-established CPI for investigation into the
    allegations of monthly bribe payments ("mensalao") by the PT
    to allied congressmen for votes. (Note: Per refs, this CPI
    will continue the work already underway in Postal CPI, but
    with more focus on the bribery issues.  Some critics have
    opined that the GOB has pushed for a multiplicity of CPIs, to
    defuse the impact of the congress's investigations. End
    note.)  Jefferson was the first witness before the new CPI
    and reiterated charges he has made in the Postal CPI, ethics
    committee hearings and media, but with a striking difference:
    for the first time, Jefferson said that he did not believe
    President Lula da Silva had personal awareness of the
    irregular financial activities of PT leaders and Marcos
    Valerio.  In earlier accounts, Jefferson had mentioned he
    personally had noted the bribery activity to a surprised Lula
    earlier this year, but Jefferson now seems intent on
    exonerating the president.  Jefferson again placed blame for
    the intellectual authorship of the schemes on Dirceu.  At
    week's end Marcos Valerio told the press that he now plans to
    "tell all I know," assigned responsibility to Dirceu, and
    indicated his belief that Lula was not aware of the
    improprieties.

    IMPEACHMENT SUITS FILED BY TWO PRIVATE LAWYERS
    --------------------------------------------- -

    ¶9. (U) On 4 August, two little-know private attorneys filed
    impeachment requests with the Chamber of Deputies against
    Lula, holding him culpable for the corruption scandals.
    Chamber President Cavalcanti, who has authority for
    considering and disposing of the requests, stated he would
    "do nothing hasty" in considering the motions.  Earlier in
    the week, Cavalcanti indicated he saw no grounds for
    impeachment.  Four other impeachment requests, unrelated to
    the current situation, have been filed against Lula in
    private motions since he assumed office.  All were shelved by
    the Chamber.

    COMMENT
    -------

    ¶10. (C) Dirceu's testimony this week drew a categorical line
    around him, and by extension, around Lula, Dirceu's only true
    superior in the GOB and PT.  Dirceu professed complete
    innocence and unawareness of massive schemes he attributed to
    rogue officers of the PT -- a party that Dirceu helped to
    found and over which he has exerted unique dominance.
    Jefferson's witheringly ironic, on-camera challenges to this
    version in the ethics hearing resonated among a political
    class that has had no doubts about Dirceu's power.  We tend
    to share the skepticism, as our own contacts with Dirceu have
    led us to believe there is little in the government or PT
    that escapes his attention and influence.  Whatever the
    veracity of his account, Dirceu is a brilliant and ruthless
    survivor, who would be uniquely equipped among Brazilian
    politicians to carry off the big lie -- he endured
    interrogation during Brazil's dictatorship and later lived
    clandestinely in the country for eleven years, disguised by
    plastic surgery and a false name. But the affirmations of
    Dirceu's involvement by Jefferson and Valerio, and the
    persistent flow of new information that could demolish such
    an unequivocal story, leave Dirceu in an exposed position.

    ¶11. (C) For now, Dirceu's audacious approach, coupled with
    the protestations of Lula's innocence by Jefferson and
    Valerio, are reinforcing the shield around Lula.  And for the
    moment, this seems to fit with the mood of most of the
    congress, opposition and public, who want a rigorous
    accounting of the scandal and will be happy to see the
    rolling heads of implicated politicians, but who remain wary
    of the trauma of a presidential impeachment.  Whether this
    remains the case depends on new revelations that, in the
    current environment, seem likely to appear; on whether Dirceu
    -- in the event he faces disaster -- has evidence of Lula's
    complicity that he could unleash in anger against the man he
    reportedly feels abandoned him; and on whether Lula can reign
    in his provocative rhetoric of recent days and humbly accept
    the defense of appalling ignorance that most of Brazilian
    society still seems willing to afford him.

    LINEHAN

`