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 002687 
 
SIPDIS 
 
TREASURY FOR PARODI; STATE PASS USTR AND USAID/LAC 
 
E.O. 12958:  N/A 
TAGS: PGOV PREL BR
SUBJECT: BRAZIL CORRUPTION SCANDAL UPDATE: WEEK OF 3-7 
OCTOBER 2005 
 
REF: (A) BRASILIA 2614 
     (B) BRASILIA 2601 AND PREVIOUS 
 
1.(U) Introduction: Brazil experienced a relatively 
quiet week on the political scandal front, as congressional 
investigators sought to regain their bearings following the 
leadership change in the lower house.  The three 
congressional inquiry committees focused on the 
interlocking scandals (ref b) returned to work, even as 
President Lula da Silva charged there were too many 
unconfirmed accusations and allegations. Lula's comments 
drew a sharp rejoinder from the opposition's Senate leader. 
End summary. 
 
"DENUNCISMO" 
----------- 
 
¶2.  (U) The week got off to a bad start for Lula's Workers' 
Party (PT) when its former Secretary-General, Silvio 
Pereira, gave an interview published in Sunday's Folha de 
Sao Paulo in which he alleged that the entire PT Executive 
Committee knew all about the "Caixa 2" illegal campaign 
fundraising schemes.  Numerous members of the executive 
committee and other party leaders rushed into print with 
categorical denials of any such knowledge. 
 
¶3. (U) In a speech Monday to the Sao Paulo State 
Federation of Industries (FIESP), Lula complained of a 
climate of "denuncismo" characterized by allegations and 
accusations which in the end are not corroborated or 
confirmed.  "And there are no apologies, no reparations, no 
retractions," Lula complained.  Coming off his victory in 
getting political ally Aldo Rebelo elected President of the 
lower house, Lula appears to be trying to move off the 
defensive and intensifying efforts to put the scandal 
behind him.  But his remarks drew a sharp rejoinder from 
Arthur Virgilio, leader of the opposition PSDB in the 
Senate.  In a twenty-minute speech, Virgilio listed the 
names of all the individuals and private and state-owned 
companies who have been implicated in the scandal and have 
suffered consequences.  These include 15 Members of 
Congress facing possible expulsion, one already expelled, 
three who resigned (Virgilio gratuitously included ousted 
lower house President Severino Cavalcanti, whose downfall 
was caused by an entirely unrelated incident), and numerous 
executives of state-owned companies who were forced to step 
down.  In all, he said, 47 private companies and 26 state 
entities have been enmeshed.  "If it were all merely 
'denuncismo,' nobody would have had to be fired, nobody 
would have had to pay some price," Virgilio said.  Leading 
media pundits such as columnist Dora Kramer also quickly 
criticized Lula's apparent effort to dismiss in such a 
facile manner five months of devastating revelations and 
investigations. 
 
IN THE CPIs 
----------- 
 
¶4.  (U) On Tuesday, after several unsuccessful attempts, 
the congressional inquiry committee (CPI) charged with 
pursuing corruption in the postal service was finally able 
to assemble a quorum and voted to break the banking, tax, 
and telephone secrecy privilege of eleven brokerage firms 
involved in pension fund investments.  The CPI continues to 
track allegations of irregularities in state-owned 
companies and dubious fund-raising activities by the PT. 
PT and allied members on the committee have been accused of 
trying to sabotage the CPI's work by failing to attend 
meetings, thereby depriving the committee of a quorum. 
Their sudden appearance may signal a shift in tactics as 
the government now wants to ensure that the CPIs complete 
their work and disband in the allotted six-month time 
frame, so as not to extend their activities into the 
election year.  The Postal Service CPI is due to finish its 
work December 9, but most provisions are for an extension 
of its mandate into early 2006. 
 
¶4. (U) Also on October 4, the CPI investigating bingo 
corruption voted to summon Lula's personal secretary, 
Gilberto Carvalho, to a confrontation October 26 with the 
brothers of Celso Daniel, the murdered PT mayor of Santo 
Andre (ref B).  Daniel was murdered in January 2002 in what 
many now suspect was a crime related to politics and 
municipal corruption.  Carvalho, who is alleged to have 
directed efforts to cover up the crime to keep it from 
tainting the PT, testified before the committee on 
September 15.  Celso Daniel's brothers, Joao Francisco and 
Bruno, have testified that Carvalho described to them the 
outlines of a corruption scheme managed by Lula's former 
Chief of Staff, Jose Dirceu --allegations both Carvalho and 
Dirceu stridently deny.  An irritated President Lula said, 
"I'm still waiting for the Bingo CPI to call a bingo 
operator."  This CPI has focused much of its attention on 
municipal corruption allegations involving the PT, as well 
as corruption related to bingo operations. 
 
EXPULSIONS 
---------- 
4.On Wednesday, the enforcement arm ("Corregedoria") of 
the lower house issued a report formally recommending the 
expulsion of thirteen members implicated in the scandal. 
Most are accused of withdrawing funds from companies or 
accounts controlled by Marcos Valerio.  The house 
leadership is expected next week to approve the opening of 
expulsion processes against the thirteen.  The first step 
in the process is be an investigation by the Ethics 
Committee, some of whose members are believed to favor 
exonerating some of the accused. 
 
DANILOVICH