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 03 BRASILIA 002348 
 
SIPDIS 
 
TREASURY FOR PARODI, STATE PLASS TO USTR AND USAID/LAC/AA 
 
E.O. 12958: DECL: 09/02/2015 
TAGS: PGOV PREL ECON BR
SUBJECT: BRAZIL - CORRUPTION SCANDAL UPDATE, WEEK OF 29 
AUGUST - 02 SEPTEMBER 2005 
 
REF: A. BRASILIA 2219 
     ¶B. BRASILIA 2150 
     ¶C. BRASILIA 2082 
     ¶D. BRASILIA 2025 
     ¶E. BRASILIA 1979 
     ¶F. BRASILIA 1874 
     ¶G. BRASILIA 1973 
     ¶H. BRASILIA 1631 
     ¶I. BRASILIA 2242 
     ¶J. BRASILIA 2237 
     ¶K. BRASILIA 2305 
 
Classified By: POLITICAL COUNSELOR DENNIS HEARNE. REASONS: 1.4 
(B)(D). 
 
¶1. (SBU) SUMMARY. A joint report by the two lead 
congressional committees investigating Brazil's interlocking 
corruption scandals (refs) this week recommended the 
expulsion from Brazil's congress of 17 legislators on 
suspicion of taking bribes for votes from a PT party 
affiliated money man, and also cited for expulsion former 
minister Jose Dirceu as the likely mastermind of the scheme. 
Senate President Renan Calheiros ordered the three 
congressional committees (CPIs) involved in investigating the 
scandals to streamline and focus their efforts.  In one 
committee hearing this week, the brother of Celso Daniel, a 
PT mayor murdered in 2002, alleged that senior Lula aide 
Gilberto Carvahlo and Dirceu were both involved in kickback 
schemes in the municipality of Santo Andre, Sao Paulo that 
may be linked to Daniel's killing. And Dirceu, showing his 
continued power within the PT, won out in an internal 
struggle with interim party president Tarso Genro, who 
announced he would not seek the party presidency in the PT's 
September election.  END SUMMARY. 
 
JOINT CPI REPORT ACCUSES 18 CONGRESSMEN OF CORRUPTION 
--------------------------------------------- -------- 
 
¶2. (U) On 1 September a joint report was released by the two 
Congressional Inquiry Committees (CPIs) on the Postal Service 
and vote-buying allegations recommending the expulsion from 
congress of 18 congressmen.  Former cabinet minister and PT 
strongman Jose Dirceu is cited in the report, based on 
testimony and circumstantial evidence, as the probable 
mastermind of payoffs for votes to allied congressmen and 
parties.  Dirceu called the accusations baseless and vowed to 
fight the process against him in both the congress and 
judicial system.  The report accuses the rest of the cited 
legislators of actually withdrawing funds -- either 
personally or through staff or family proxies -- from the 
accounts of Marcos Valerio, the private sector money man at 
the center of the illicit finance scandals linked to elements 
of Lula's PT party (refs). The report found that evidence 
accumulated by investigators to date "makes it irrefutable 
that moneys were paid to congressmen and directors of parties 
integrated in the government's support base..." and that the 
accusations by PTB deputy Roberto Jefferson of regular PT 
payoffs to congressmen and allied party figures that sparked 
the current crisis do "correspond to facts."   Chamber of 
Deputies President Severino Cavalcanti has yet to approve the 
report and forward it to the Ethics Committee, which is 
responsible for starting procedures against the cited 
congressmen.  Statements by Cavalcanti earlier in the week 
claiming that the payoff scheme had not been proven and 
suggesting he would recommend mild punishment for implicated 
congressmen caused derisive reactions in both the media and 
congress, including angry calls for Cavalcanti's removal from 
his position on the Chamber floor by Green Party deputy 
Fernando Gabeira.  Cavalcanti subsequently walked back from 
his remarks, but is still seen as inclined to slow the 
process and engineer a vague outcome that lets many accused 
legislators off the hook. On 2 September, the Chamber's 
Constitution and Justice Committee ordered that all expulsion 
motions must be voted in full plenary in the lower house, 
regardless of whether the Ethics Committee, Chamber 
presidency or other committees recommend suspension of any of 
the processes.  The Brazilian media interpreted the order as 
an impediment to further efforts by Cavalcanti to manipulate 
the proceedings behind the scenes. 
 
¶3. (U) If found guilty, the following congressmen could be 
expelled from Congress and lose their right to stand for 
public office for eight years: 
      - Jose Dirceu (PT) (former minister of the civil 
household in Lula's cabinet) 
      - Sandro Mabel (PL) 
      - Wanderval dos Santos (PL) 
      - Roberto Brant (PFL) 
      - Roberto Jefferson (PTB) (case already under 
investigation by the Ethics Committee) 
      - Carlos "Bispo" Rodrigues (PL) 
      - Valdemar Costa Neto (PL) (resigned) 
      - Joao Magno (PT) 
      - Joo Paulo Cunha (PT) 
      - Paulo Rocha (PT) 
      - Romeu Queiroz (PTB) 
      - Professor Luizinho (PT) 
      - Josias Gomes (PT) 
      - Jose Mentor (PT) 
      - Jose Janene (PP) 
      - Pedro Correa (PP) 
      - Pedro Henry (PP) 
      - Vadao Gomes (PP) 
      - Jose Borba (PMDB) 
 
COORDINATING THE CPI'S 
---------------------- 
 
¶4. (SBU) The joint report released this week recommending 
expulsion of the eighteen congressmen is an interim document, 
not a final product for either of the authoring CPIs, which 
are continuing their work.  The joint report does represent a 
first effort at improved coordination among the three 
separate CPIs established by the Brazilian Congress to look 
into the interlocking scandals.  The three committees have 
competed, as congressmen showboated for media attention and 
concentrated on sensational testimony, while mounds of 
documentary information went unassessed.  For many media and 
political observers, the politicized and duplicative work of 
three committees examining intersecting issues and often the 
same witnesses may threaten the chances for coherent outcomes 
that clearly assign guilt.  This week Senate Chairman Renan 
Calheiros called for a meeting between the CPIs' presidents 
and rapporteurs to coordinate agendas and divide 
responsibilities.  As a result, the Postal Service CPI will 
now examine the origins of the illegal funds that were 
funneled to PT campaign coffers through Marcos Valerio's 
accounts.  The CPI on bribery for votes will focus more 
specifically on illicit payoffs to congressmen.  And the CPI 
on bingo games will investigate bribery and kick back schemes 
on contracts in PT-led municipalities in Sao Paulo, in 
addition to the connection of the bingo houses with money 
laundering, organized crime, and illegal campaign financing. 
How this rationalization of labor works out in practice 
remains to be seen. 
 
THE GHOST OF CELSO DANIEL 
------------------------- 
 
¶5. (SBU) On 1 September, Jose Francisco Daniel, the brother 
of the late PT mayor of Santo Andre Celso Daniel, testified 
before the CPI on bingo games and municipal corruption. 
According to Francisco Daniel, his brother was involved in 
2000-2002 in a corruption scheme to funnel payoffs on 
municipal contracts to PT campaign coffers, at the direction 
of Lula's cabinet chief Gilberto Carvalho (then a campaign 
officer for Lula) and former minister Jose Dirceu (then 
president of the PT).  The mayor decided to denounce the 
scheme after he discovered that part of the money was being 
diverted for personal corruption, Franciso Daniel said. 
Celso Daniel produced a dossier naming names and providing 
evidence of other PT members' involvement, which ultimately 
led to his abduction and killing in 2002, according to his 
brother.  Francisco Daniel claimed it was Carvalho himself 
who told him on 26 January 2002 -- six days after Celso 
Daniel's murder -- about the corruption scheme and Daniel's 
intentions to denounce it.  Carvalho, according to Franciso 
Daniel, said that the moneys were taken to Jose Dirceu and 
used in the campaign of Marta Suplicy (former PT mayor of Sao 
Paulo) and other PT campaigns.  Franciso Daniel further 
claimed that there were two witnesses to the conversation. 
Carvalho released a public statement denying all the 
accusations and Jose Dirceu reiterated his ongoing law suit 
against Francisco Daniel for slander.  (Note: Sao Paulo civil 
police recently reopened a criminal investigation of Celso 
Daniel's murder, which will run concurrently with an ongoing 
state Public Ministry inquiry.  End note.) 
 
PT'S INTERNAL DISPUTE: DIRCEU WINS BATTLE AGAINST GENRO 
--------------------------------------------- ---------- 
 
¶6.  (SBU) On 29 August, former Education Minister and interim 
PT president Tarso Genro announced he would not run for party 
presidency in the upcoming September internal elections, 
marking a victory for former chief of staff Jose Dirceu. 
Genro had advocated a major re-orientation of the party and 
demanded that Dirceu abandon his aspirations for party 
leadership (Dirceu refused).  During a press conference, 
Genro stated that he was stepping down because "the party was 
unwilling to change its ways ... we proposed a vision of 
breaking (with the past) and that isn't what we're seeing." 
Former Social Security and Labor Minister and current PT 
secretary general Ricardo Berzoni announced his candidacy in 
 
SIPDIS 
replacement of Genro's.  Genro, Dirceu and Berzoini are 
members of the PT moderate wing (known as "the majority 
camp"), which steered the party toward the political center 
in the late 1990s but which is also now associated with the 
scandals rocking the PT and GOB.  The internal divisions are 
apparently strengthening the candidacy of more leftist wings 
of the party, who are outraged by the corruption allegations 
and also critical of the GOB's fiscal austerity.  A PT member 
and congressional staffer, in a conversation with POL FSNs, 
opined that the victory of Deputy Maria do Rosario, from the 
party's left-to-center wing, is regarded as increasingly 
possible in the party's September election. 
 
¶7. (C) Comment. These events taken together made for a 
significant week in the 100 day-and-counting crisis 
embroiling Brazilian politics.  First, the joint report by 
two CPIs recommending expulsion of 18 congressmen is a 
benchmark in the crisis, seen here as a confirmation that the 
vote bribery allegations are fact and that the cited 
congressmen and perhaps others still to be named will be held 
accountable.  Dirceu and others will try various tactics to 
forestall their expulsions, but the accusation of guilt, at 
least in the political forum of the congress, is now 
formalized.  Second, if the three CPIs can succeed in 
streamlining and improving their work, critical and still 
largely unanswered questions about the origins of the vast 
amounts of money plowed into Valerio's illicit apparatus, the 
breadth of the payoff schemes, and the early origins of the 
PT's illicit financial operations (i.e., in municipalities 
like Riberao Preto and Santo Andre) can be more effectively 
addressed. Third, the testimony of Jose Franciso Daniel 
brought the national spotlight back onto the scabrous case of 
the kidnapping, torture and murder of Celso Daniel in 2002 -- 
unquestionably the most hideous skeleton in the PT's closet. 
The danger of serious new revelations in the case that can 
further prejudice the image of the PT and Lula's erstwhile 
inner circle increases with the congressional attention, 
which now coincides with ongoing Public Ministry and new 
civil police investigations into links between the killing, 
kickback schemes in Santo Andre's municipal government, and 
PT campaigns in 2002.  Finally, the defeat in PT circles this 
week of Tarso Genro sets the stage for a dramatic face off in 
the party's September elections, one that could see the 
implosion of the PT in its known form, with hard to predict 
consequences. 
 
 
 
 
 
DANILOVICH