VZCZCXRO8752
PP RUEHRG
DE RUEHSO #0350/01 0901225
ZNR UUUUU ZZH
P 311225Z MAR 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 4787
INFO RUEHBR/AMEMBASSY BRASILIA 5936
RUEHBU/AMEMBASSY BUENOS AIRES 2126
RUEHAC/AMEMBASSY ASUNCION 2473
RUEHCV/AMEMBASSY CARACAS 0224
RUEHMN/AMEMBASSY MONTEVIDEO 1887
RUEHLP/AMEMBASSY LA PAZ 2678
RUEHSG/AMEMBASSY SANTIAGO 1634
RUEHRI/AMCONSUL RIO DE JANEIRO 6954
RUEHRG/AMCONSUL RECIFE 2807
RHEHNSC/NSC WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 2342
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 02 SAO PAULO 000350 
 
SIPDIS 
 
SIPDIS 
 
NSC FOR CRONIN 
STATE PASS USTR FOR SULLIVAN/LEZNY 
DEPT OF TREASURY OASIA, DAS LEE AND FPARODI 
USDOC FOR 4332/ITA/MAC/WH/OLAC/SHUPKA 
USDOC ALSO FOR 3134/USFCS/OIO/EOLSON/DDEVITO/DANDERSON 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONESE, NRIVERA, CMERVENNE 
DOL FOR ILAB MMITTELHAUSER 
 
E.O. 12958: N/A 
TAGS: PGOV EFIN ECON PINR BR
SUBJECT: SAO PAULO STATE BANK ACCUSED OF FAVORING ALCKMIN 
SUPPORTERS 
 
REF: (A) 05 BRASILIA 2150 AND PREVIOUS 
 
     (B) 05 SAO PAULO 323 
 
------- 
SUMMARY 
------- 
 
¶1.  Media reports published March 26 accuse state-owned "Nossa 
Caixa" bank of directing advertising money to political allies of 
Governor (and opposition presidential candidate) Geraldo Alckmin, 
including several state legislators.  Alckmin and senior bank 
officials have denied wrongdoing; however, on March 27 an advisor to 
Alckmin who was implicated resigned.  In Brazil, where media 
enterprises depend on government advertising revenue and public 
relations firms live off government contracts, and where many 
politicians themselves own radio and TV stations and newspapers, 
official, political, and personal business too often gets mixed 
together in less than salutary ways.  To date, the allegations 
against Nossa Caixa have not blossomed into a major scandal; 
however, allies of President Lula and the Workers' Party (Partido 
dos Trabalhadores - PT) may seize on it to try to tarnish Alckmin's 
image.  End Summary. 
 
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THE STORY 
--------- 
 
¶1. On Mach 26, leading-circulation daily "Folha de Sao Paulo" 
published an expose alleging wrongdoing at "Nossa Caixa," a bank 
owned by the State of Sao Paulo.  According to the article, the bank 
directed advertising funds to publications friendly to Governor 
Geraldo Alckmin and publicity contracts to public relations firms 
with close ties to his Brazilian Social Democracy Party (PSDB).  An 
internal audit of the bank revealed that between September 2003 and 
July 2005, two public relations firms working without any contract 
were paid 25 million reais (more than USD 12 million) in a variety 
of irregular ways that are reportedly under investigation by a 
public prosecutor.  As a result of the audit, Nossa Caixa's 
Marketing Manager, Jaime de Castro Junior, was fired in December 
2005 for malfeasance, indolence, and indiscipline.  Deeming himself 
a scapegoat, Castro provided an account claiming that members of the 
Governor's staff, in particular special advisor for communications 
Roger Ferreira, pressured his department to direct business to 
certain media and publicity entities.  The newspaper article quotes 
from e-mails purportedly exchanged among Ferreira, Castro, and 
executives of public relations firmS under contract to Nossa Caixa, 
discussing placement of ads. 
 
¶3.  Among those alleged to have benefited from the scheme are state 
legislators Wagner Salustiano (PSDB), Afanasio Jazadji (PSDB), Vaz 
de Lima (PSDB), Geraldo "Bispo Ge" Tenuta (PFL - Liberal Front 
Party), and Edson Ferrarini (Brazilian Labor Party - PTB); 
television stations Rede Vida and Rede Gospel; and the magazine 
"Primeira Leitura," which was founded by Luiz Carlos Mendonca de 
Barros, who served as Minister of Communications during the Fernando 
Henrique Cardoso administration and has been identified as an 
economic advisor to Alckmin's nascent campaign. 
 
----------- 
THE DENIALS 
----------- 
 
¶4.  Ferreira and senior Nossa Caixa officials denied any political 
influence in the bank's publicity and marketing operations, and many 
of the alleged beneficiaries likewise denied any favoritism. 
Primeira Leitura's website published a lengthy rebuttal.  For his 
part, Deputy Jazadzi opined that it was obvious that the Alckmin 
administration was running the bank's publicity operations, noting 
 
SAO PAULO 00000350  002 OF 002 
 
 
that his own radio station had only received "sporadic" bank 
advertising, which had dried up after in March 2005 after  the 
Governor's candidate, whom Jazadji had not voted for, lost his bid 
to be elected President of the Legislative Assembly (ref B). 
 
¶5. Governor Alckmin, who was expected to resign March 31 as required 
by the Constitution in order to run for President, said there was no 
truth to the allegations and that the case would not be 
investigated.  He indicated that Ferreira would continue to serve in 
state government.  However, Ferreira resigned the following day, all 
the while insisting that he had done nothing "damaging to the rules 
of ethics or the public spirit." 
 
¶6.   So far, only "Folha" and a few television news reporters have 
pursued this story, and it is not clear whether it will gain 
momentum.  The PSDB succeeded in blocking a request by the PT to 
create an investigative committee in the Legislative Assembly to 
look into the matter, and also defeated efforts to call Ferreira, 
Castro, Nossa Caixa President Carlos Eduardo Monteiro, and others to 
testify before the Budget and Finance Committee. 
 
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COMMENT 
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¶7. It is difficult at this point to determine how much fire there is 
beneath the smoke.  There appears to have been some commingling of 
personal, political, and official business, but to what extent, if 
any, Ferreira or Nossa Caixa officials (beyond the hapless Castro) 
did anything illegal or even unethical is not clear.  Advertising 
and publicity agencies, and the money they earn working in politics 
and government, appear to be a rich source of scandal and 
corruption, as illustrated by the important roles played by Marcos 
Valerio Fernandes de Souza and Duda Mendonca in the scandals 
involving the Lula government and the PT (see ref A).  However, 
given Governor Alckmin's reputation for probity, it might be awkward 
for him to have to fall back on an "everybody does it" explanation. 
He may not need to; he may well be able to weather this mini-storm 
without damage.  But the election is a long way off, and Lula and 
the PT may try to build this episode into a larger attack on 
Alckmin's ethics and administrative competence.  End Comment. 
 
¶8.   This cable was coordinated/cleared with Embassy Brasilia. 
 
MCMULLEN