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UNCLAS SECTION 01 OF 02 BRASILIA 000921 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON BR
SUBJECT: "OPERATION NAVALHA": EMERGING POLITICAL SCANDAL 
 
 
¶1.  (SBU) Summary.  A large-scale Federal Police investigation has 
surfaced a major political corruption scandal involving bribes a 
construction firm allegedly paid to politicians to guarantee 
lucrative contracts.  The scandal has reached the Cabinet and at 
least six ministries may be involved.  Silas Rondeau, Minister of 
Mines and Energy, resigned on May 22.  Civil Household Minister 
Dilma Rousseff and Bahia Governor Jaques Wagner have been mentioned 
in connection with the investigation, but so far they are not 
accused of wrongdoing.  Similarly, Senate President Renan Calheiros 
and Senator Jose Sarney are linked with the prime suspect in the 
investigation, but also have not been accused of any wrongdoing.  A 
number of current and past governors as well as some members of 
congress are accused of malfeasance.  The scandal is likely to 
dominate national news for weeks and could affect the Accelerated 
Growth Program (PAC), since PAC contracts are a focus of the 
investigation.  Politicians named in the scandal come from a broad 
political spectrum including government and opposition parties.  For 
that reason, congressional leaders are currently resisting an 
independent congressional investigation.  End summary. 
 
¶2.  (SBU) The Operation Navalha (i.e., "Razorblade" in Portuguese) 
scandal was uncovered by an extensive Federal Police investigation 
and involves allegations of corruption by Zuleido Veras, owner of 
Gautama, a construction firm, in exchange for government contracts. 
The corrupt practices included bribes to ensure a competed contract 
was awarded to Gautama, overpriced contracts, and contracts for 
works that were not completed or not even begun. 
 
¶3.  (SBU) Federal Police arrested 47 persons, including 13 
politicians.  Gautama's corrupt practices are said to have taken 
place in 10 states, including the Federal District, over at least a 
five year period.  Politicians from nine political parties are 
cited.  Recent briberies involved contracts for projects in the 
Accelerated Growth Program ("PAC"), Lula's flagship public works 
programs.  The corruption scheme operated in state governments and 
several federal ministries including Mines and Energy, Cities, 
Planning, National Integration, Transportation, and Finance. 
 
¶4.  (SBU) States where Gautama (based in Bahia) is said to have 
committed crimes are mainly in the northeast, and include Alagoas, 
Bahia, Maranhao, Pernambuco, Piaui, Sergipe, as well as Mato Grosso, 
the Federal District, Goias, and Sao Paulo.  Politicians under 
suspicion come from a wide spectrum of political parties, including 
the Workers' Party (PT), Brazilian Democratic Movement Party (PMDB), 
Brazilian Social Democracy Party (PSDB), Brazilian Socialist Party 
(PSB), Democratic Labor Party (PDT), Democrats (DEM), Socialist 
People's Party (PPS), Progressive Party (PP), and Party of the 
Republic (PR).  The total value of the rigged contracts is well into 
the hundreds of millions of dollars.  The bribes ranged from 20,000 
to 100,000 (USD 10,000 to 50,000).  Some politicians also received 
campaign contributions from Gautama, but they may have been legal. 
 
¶5.  (SBU) A number of prominent political figures have been 
arrested, are under suspicion, or are linked to the scandal in one 
way or another: 
 
- Mines and Energy Minister Silas Rondeau (PMDB) is directly accused 
by Federal Police of taking a bribe of 100,000 reais (USD 50,000), 
and resigned on May 22, reportedly at the urging of his patron, 
Senator Jose Sarney (PMDB, Amapa).  Rondeau denies the accusation. 
 
- Sarney himself is not under suspicion, but the investigation is 
looking at contracting with Gautama stretching back over many years, 
covering a period of time when the Sarney family was dominant in 
Maranhao state politics.  The immediate past governor and a Sarney 
ally, Jose Reinaldo Tavares (PSB), was arrested but released after 
giving a deposition.  He remains under investigation.  The current 
governor of Maranhao and a Sarney adversary, Jackson Lago (PDT), is 
under suspicion of having received bribes in exchange for the 
immediate release of funds to Gautama for contracted work.  The 
state of Maranhao is reported to have paid Gautama over 31 million 
reais for construction projects in the past 16 months. 
 
- In addition to Rondeau, other executive branch figures whose names 
have been appeared in the case include Presidential Chief of Civil 
Household Dilma Rousseff (PT) and Bahia governor Jaques Wagner (PT), 
but Federal Police have not accused them of any wrongdoing.  Wagner 
once hosted Rousseff on a boat belonging to Gautama owner Zuleido 
Veras, although it is not yet clear whether the boat was rented or 
provided without charge, and whether Rousseff or Wagner knew of the 
connection to Gautama. 
 
BRASILIA 00000921  002 OF 002 
 
 
 
- Senate President Renan Calheiros (PMDB, Alagoas) has known the 
prime suspect in the case, Zuleido Veras, for over 20 years, and 
reportedly has met with him multiple times in Calheiros's official 
residence.  This linkage is embarrassing for Calheiros, but he has 
not been implicated in wrongdoing. 
 
- Alagoas Governor Teotonio Vilela Filho (PSDB) is also under 
suspicion, as are Wellington Dias (PT), governor of Piaui, and Joao 
Alves Filho (DEM), a former governor of Sergipe. 
 
- Tourism Minister Marta Suplicy (PT) is reported to have taken a 
campaign donation of 150,000 reais from Gautama. 
 
- Federal Deputy Paulo Magalhaes (DEM, Bahia), a nephew of Senator 
Antonio Carlos Magalhaes (DEM, Bahia), is also accused of 
malfeasance.  A small number of Federal Deputies received campaign 
donations from Gautama, but media reporting suggests they were 
legal.  Senator Delcidio Amaral (PT, Mato Grosso) is also under some 
suspicion for accepting favors from Veras, but he is vigorously 
denying any impropriety. 
 
¶6.  (SBU) Some deputies are calling for a joint bi-cameral 
Parliamentary Inquiry (CPI), but Calheiros and several leaders from 
both the government and the opposition are against the idea, given 
the breadth of the charges across party lines and the potential for 
gridlock if the scandal roils on for months. 
 
¶7. (SBU) Federal Police have searched Gautama and found lists with 
gratuities linked to hundreds of names, including those of many 
politicians, but Justice Minister Tarso Genro is publicly cautioning 
against jumping to conclusions.  Genro said small gifts from 
corporations do not amount to corruption. 
 
¶8.  (SBU) Comment.  The scandal is likely to dominate national news 
for weeks and could affect the Accelerated Growth Program (PAC), 
since PAC contracts are a focus of the investigation.  So far the 
accused come from all large and medium sized parties, and thus the 
scandal is not uniquely prejudicial to Lula's party and coalition. 
Nonetheless, with echoes of the "mensalao" scandal still audible, 
this new sensation will add to perceptions of ethical promiscuity 
within Lula's administration.  More revelations may further undercut 
GOB credibility and could affect the 2008 municipal elections and 
2010 presidential and congressional elections. 
 
SOBEL