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

UNCLAS SECTION 01 OF 02 BRASILIA 001218 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: KCRM PGOV SOCI BR
SUBJECT: DEATH BY A THOUSAND BITES: MUNICIPAL LEVEL 
CORRUPTION IN BRAZIL 
 
REF: BRASILIA 1055 
 
      ¶1.  (SBU) Introduction and Summary:  In recent months, 
Brazil's press has focused intently on municipal-level graft 
and corruption. Many of the horror stories are being planted 
by the Federal Comptroller General's (CGU) office that is 
conducting random audits and inspections of many of Brazil's 
5,560 municipalities. Based on the CGU's own investigations, 
severe corruption is identifiable in over two-thirds of the 
municipalities inspected while most of the rest have 
significant accounting "irregularities." The financial impact 
from the local "fire ants" on Brazil's social and economic 
health is staggering. While the CGU campaign is commendable, 
there is no evidence yet of a GOB action plan to attack local 
level corruption. End summary 
 
      ------------------------ 
      A Plague of Fire Ants... 
      ------------------------ 
 
      ¶2.  (U) Thanks to high profile press events by Brazil's 
Federal Comptroller General's (CGU) office, municipal level 
corruption is receiving wide press attention. In a recent 
edition, Brazil's largest circulation newsmagazine "Veja" 
headlined "A National Plague, Corruption and Ineptitude 
Devour More Than 20 Billion Reals a Year." Using the analogy 
of an epidemic of fire ants, the story listed by name a 
plethora of corrupt mayors, city councilpersons, and other 
local officials throughout the country who misappropriated 
federal resources destined for their municipalities.  The 
total is huge. Over 107 billion reals (about USD 38 billion) 
from the federal budget were appropriated in 2003 for 
Brazil's 5,560 municipalities -- a level that has risen 
almost 70% since 1995.  Of this amount, at least 20 billion 
reals is estimated to have disappeared last year through 
corrupt or inept behavior. 
 
      ¶3.  (U) Examples of malfeasance among Brazil's 
municipalities are being widely publicized in the Brazilian 
press. While high profile alleged corruption cases, such as 
that of former Sao Paulo Mayor Paulo Maluf (who announced 
last week that he was running again for the Sao Paulo 
mayorship) may measure graft in the hundreds of millions of 
reals, it is corruption at the very local level that is 
increasingly coming under public scrutiny, particularly 
through the CGU municipality inspection lottery.  Every 
six-eight weeks the CGU randomly selects 50 municipalities 
for immediate fiscal audit of programs financed with federal 
resources, either through federal agencies or direct 
transfers to state and municipal-level administrative 
entities. The inspection process began in 2003 and has 
revealed local corrupt behavior that was always assumed but 
rarely spotlighted. 
 
      ¶4.   (U) Recent revelations indicate that the impact on 
Brazil is enormous. Daily newspaper "Jornal do Brasil" 
described how a corrupt official in Bahia had converted 
federal funds into "royalties" to companies for road projects 
that were never constructed. Taking funds destined for 
providing power lines for farmers, one mayor managed to have 
a third of the grid built on his farm.  When queried, he 
responded, "I have half a dozen cows. I am a citizen equal to 
anyone else. Should I stop being mayor in order to build a 
power line on my farm?" An account in "Veja" told of a mayor 
in the Northeastern state of Para who in just six months and 
during three visits to the state capital to collect his 
municipality's federal appropriation, managed to be "robbed" 
on each occasion for a total of 360,000 reals. Other examples 
of corrupt behavior included double payments on contracts, 
overbilling, phantom corporations, extra bonuses for local 
officials, nepotism, bounced checks, diversion of public 
money directly into personal accounts, personal use of 
official vehicles and fuel, bribery, and false accounting 
practices.  Failure to complete already funded infrastructure 
projects is common. 
 
      ¶5.   (U) The Federal Comptroller General identified 
extensive malfeasance and mismanagement at the local level. 
After completing audits of 200 municipalities, the CGU 
identified 139 (70%) as being severely corrupted.  Only seven 
(3.5%) were deemed as both "clean and accurate," while the 
rest exhibited accounting "irregularities."  CGU inspections 
also revealed widespread failure of community councils, 
created to provide local oversight over programs, to fulfill 
their mandate. In most cases, councils were constituted only 
formally but never held meetings, let alone conduct actual 
public oversight. Impartiality within the councils was rare. 
Many council members, often municipal employees, were 
selected by the same mayors responsible for the use of 
federal funds. 
 
      ¶6.   (U) The greatest level of malfeasance appears in 
Brazil's impoverished North and Northeast. GOB Comptroller 
General Waldir Pires confirmed a close link between 
"political backwardness" (common in Brazil's Northeast and 
North) and corruption. As an example, he noted that CGU 
audits of just a small number of Northeastern municipalities 
in just one month identified the diversion of 17.7 million 
reals (about USD 6 million) from SUDENE (the Northeast 
Development Superintendency), an agency that was finally 
disbanded for endemic corruption and ineffectiveness. 
 
      ----------------------------- 
      ...A Plague of Councilpersons 
      ----------------------------- 
 
      ¶7.   (SBU) Brazil's federal system also deserves some 
blame for this state of affairs.  Brazil's town halls receive 
about 15% of all tax receipts as opposed, for example, to 
Mexico's 3%. Former Finance Minister Mailson da Nobrega 
believes that Brazil's mayors in fact access even more funds, 
perhaps 40% of the country's total tax receipts -- money for 
which they have no legal right or responsibility. Meanwhile, 
there are more mayors and city councilmen at the trough than 
ever before. Since the early 1990s, more than 1,000 
municipalities have been created, many with no legal, 
economic, or social justification.  The country has had to 
sustain 60,276 local councilpersons. A recent decision by 
Brazil's Supreme Electoral Court (TSE) reduced this number 
nationwide by 8,500 -- a step, many believe, in the right 
direction. Congress, however, is fighting to pass a 
Constitutional amendment that would raise the number above 
the new 51,700 level (reftel). 
 
      ¶8.   (SBU) Comment:  While it is impossible to prevent 
all the fire ants from taking bites out of the public purse, 
the CGU's inspection campaign is having a positive impact by 
documenting both specific cases and the extent of the 
problem, thus making corruption a topic of discussion 
preceding municipal elections in October. With the CGU 
inspections, evidence of malfeasance is not lacking. But 
identification of corruption is only part of the battle. 
Successful prosecutions are needed.  Though the CGU claims it 
sends many cases of malfeasance to federal prosecutors, 
prosecutions have not yet occurred. The Lula administration 
deserves credit for highlighting municipal level corruption 
but there is no evidence yet of a GOB action plan to attack 
the problem with effective prosecutions or resistance to 
political acts (such as the efforts to re-establish thousands 
of council positions) that can create conditions for local 
corruption. 
 
Hrinak