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UNCLAS SECTION 01 OF 04 BRASILIA 000855 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PGOV KCOR KJUS KCRM KDEM EAIR BR
SUBJECT:  Brazil: Do All the Corruption Scandals Matter? 
 
REF: A) Brasilia 41, B) Brasilia 207, C) Brasilia 286, D) Brasilia 
674, E) 07 Brasilia 921, F) 07 Brasilia 1670, G) Sao Paulo 292, H) 
Brasilia 196 
 
¶1.  (SBU) Summary.  Fresh scandal news appears daily in major 
newspapers, and there are now investigations into at least seven 
major corruption scandals involving politicians.  Experience 
suggests courts and congressional inquiries will mete out little or 
no punishment.  The constant parade of corruption scandals involving 
government officials and politicians, often ending in impunity, 
results from factors that perpetuate the status quo, including weak 
institutions, the special status of politicians, and voter behavior. 
 Nonetheless, public and media indignation are beginning to generate 
pressure for greater government accountability, as public opinion 
increasingly finds unethical behaviors intolerable.  While scandals 
do not matter much in day to day politics, they are harmful to 
Brazil's consolidation of democracy because they erode confidence in 
democratic institutions and the rule of law among youth, who have no 
memory of the military dictatorship.  While citizens must hold 
authorities accountable for their actions, substantial progress 
against corruption also will require going beyond the ad hoc 
measures that are fitfully implemented by the government to a 
serious effort to strengthen democratic and judicial institutions. 
There are no signs that such an overhaul will happen soon.  End 
summary. 
 
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Corruption and Impunity: The Numbers Tell the Story 
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¶2.  (U) According to leading newsweekly Veja, 31 (38 percent) of 
Brazil's 81 senators, and 185 (36 percent) of the 513 federal 
deputies are currently accused of "serious crimes" or have already 
been convicted.  The most common charges are buying votes, using 
prohibited campaign advertising, and misappropriating public funds. 
The newsweekly Epoca recently reported that of the 3,712 people 
arrested by the Federal Police on corruption-related changes in the 
2003-2006 period, 1,098 were public officials.  Of these, only 432 
(about 11 percent), were convicted. Of those, only 265 (7 percent of 
the total) actually ended up in prison. 
 
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...While Current Cases Provide the Headlines 
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¶3.  (SBU) Following is a list of the major ongoing scandals making 
headlines on an almost daily basis in major Brazilian newspapers. 
 
--Government Credit Card Scandal:  A joint Congressional Committee 
of Inquiry (CPI) into alleged abuses of government-issued credit 
cards in the Lula Administration (refs B, C, and D) issued a report 
on June 4 that declared the Presidential Palace had not compiled 
incriminating data on credit card abuses during the Cardoso 
Administration (1995-2002) and it held no one accountable for the 
Lula Administration credit card abuses, which it dismissed as mere 
errors of judgment.  Federal Deputy Luiz Sergio (Workers' Party, the 
lead party in the government coalition; of Rio de Janeiro) wrote the 
report, which completely exculpated Minister Dilma Rousseff, head of 
the Civilian Household (presidential chief of staff equivalent). 
The opposition had accused her of involvement in the creation and 
leaking of a "dossier" to embarrass and neutralize the opposition by 
showing similar government credit card "abuses" in the Cardoso 
Administration. 
 
--Varig and VarigLog Scandal: In recent weeks a second scandal has 
emerged involving Dilma Rousseff.  A former director of National 
Civil Aviation Agency (ANAC) has accused Rousseff of improperly 
using her influence to pressure ANAC to accept a bid from Gol 
Airlines to buy Varig Airlines, even though TAM, a competitor, bid 
higher.  This allegedly occurred because Gol's lawyer, Roberto 
Teixeira, is close to President Lula.  Rousseff is also accused of 
pressuring ANAC to exempt a Brazilian group, operating as a front 
for the American firm Matlin Patterson, from mandatory financial 
checks in the purchase of the VarigLog air cargo service.  Under 
Brazilian law a foreign firm may not own more than 20% of a 
Brazilian airline, and Rousseff's actions, which led to Matlin 
Patterson's ownership of VarigLog, may have been improper or 
illegal.  On June 18, media reported that in December 2006, ANAC's 
legal expert determined that the sale of VarigLog was actually in 
violation of regulations.  Although the sale had been authorized six 
months earlier, ANAC apparently took no action to reverse it. 
 
--Operation Razorblade Scandal: On May 13, 2008, the Federal 
 
BRASILIA 00000855  002 OF 004 
 
 
Prosecutor's Office formally charged 61 people for numerous crimes, 
including public corruption and crimes against the financial system 
in connection with Operation Navalha (ref E), or razorblade, a fraud 
scheme in which politicians, businessmen, public servants, and 
others defrauded the government on public works contracts or took 
kickbacks or bribes.  Former Minister of Energy Silas Rondeau, who 
resigned under fire last year, is accused of receiving R$ 100,000 
(USD 60,000) from the Gautama construction firm.  Also charged are 
Jackson Lago, governor of Maranhao, Teotonio Vilela, governor of 
Alagoas, and Joao Alves Filho and Jose Reinaldo, former governors of 
Sergipe and Maranhao.  Gautama is accused of defrauding the largest 
amounts, R$ 300 million (USD 180 million), from public funds.  The 
case is before the Superior Court of Justice (STJ). 
 
--National Development Bank Scandal: Federal Deputy Paulo "Paulinho" 
Pereira da Silva (Democratic Labor Party, PDT, government coalition; 
of Sao Paulo) and Carlos Lupi, Minister of Labor and president of 
the PDT (on leave) are implicated in a scandal involving diversion 
of funds from the National Bank for Economic and Social Development 
(BNDES).  As president of the Forca Sindical union, Paulinho is 
closely identified with the interests of organized labor, and he is 
said to have had the pull to install Lupi as Labor Minister.  They 
are accused of facilitating loans to several companies in exchange 
for a cut for themselves.  This developing scandal will also end up 
in the STJ.  Per ref G, Paulinho is also facing an investigation by 
the Chamber of Deputies' Ethics Council that could lead to his 
expulsion and loss of political rights. 
 
-- SUDAM Scandal, Alstom/Eletronorte Scandal:  Federal Deputy Jader 
Barbalho (Brazilian Democratic Movement Party, PMDB, a 
non-ideological party in the government coalition; of Para state) is 
also in trouble.  According to prosecutors, Barbalho influenced the 
now-defunct SUDAM (Amazon Development Company), a state firm, to 
sign a contract in 1998 with Imperador, a private company, and in 
exchange received 20% of the value of the contract. The case is 
before the Federal Court and the Court has seized all of Barbalho's 
assets.  Federal Police have accused Senator Valdir Raupp (PMDB, of 
Roraima), leader of PMDB in the Senate, of receiving money for 
intermediating a business deal between the French company Alstom and 
the paristatal Eletronorte. The police asked the STJ for 
authorization to investigate further Raupp's alleged involvement. 
 
--Zeca do PT Scandal:  "Zeca do PT," whose real name is Jose Orcirio 
Miranda dos Santos, former federal deputy and two-term governor of 
Mato Grosso do Sul, is accused by prosecutors of receiving more than 
R$ 30 million (USD $18 million) from the public administration to 
pay off people in the state to support his administration while 
governor from 1999 to 2007. 
 
--Alvaro Lins Scandal:  Alvaro Lins, a state deputy and the former 
chief of Rio de Janeiro state Civil Police, was recently arrested 
and charged with illegal gang activity which included using his 
former office for extortion and money laundering.  According to the 
Federal Police, Lins and other Rio state government officials 
(former Governor Anthony Garotinho was also implicated) "sold" high 
level police jobs in exchange for payments of around USD 10,000 per 
month.  These jobs were turned into cash cows by extorting companies 
vulnerable to prosecution for environmental crimes.  The state 
Legislative Assembly voted to release Lins, but a decision is still 
pending on whether to impeach him from his legislative seat.  No 
state legislators want to lead the impeachment proceedings, which 
opens the question of whether he has incriminating information about 
members of the assembly or whether they fear police retribution. 
 
--Operation Megabyte:  In early June, Federal Police discovered a 
scheme of fraudulent contracts for technology products and services 
between the Government of the Federal District (GDF) and seven firms 
from 2002 to 2007, with losses to public funds estimated at 720 
million dollars.  Authorities ordered the seizure of boats, luxury 
cars, jewels, companies, banks accounts, and real estate, but no one 
has yet been arrested.  The suspected architect of the scheme is the 
GDF's Secretary of Institutional Relations, a former civil police 
investigator who reportedly once used illegal wiretaps to blackmail 
enemies and fortify a corrupt cadre of as many as 80 other 
investigators in the Federal District civil police. 
 
--Operation Ovenbird:  On June 20, Federal Police carried out an 
operation against an alleged conspiracy by construction contractors 
and federal and municipal officials, including two federal deputies, 
who police believe defrauded the federal government of 1.2 billion 
dollars in funds from the Accelerated Growth Program (PAC), a major 
public works initiative of President Lula's second term (ref H). 
Federal Police deployed 1000 agents to carry out 38 arrests and 230 
 
BRASILIA 00000855  003 OF 004 
 
 
search and seizure actions in seven states and the Federal District, 
including 119 municipalities in Minas Gerais. 
 
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The Sub-Text: Weak Institutions, Limited Reform Efforts 
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¶4.  (SBU) The pervasiveness of scandals involving government 
officials and the apparent lack of accountability result from 
several factors: a general weakness in the rule of law; a judiciary 
hampered by huge workloads; underfunding of key agencies; and 
political pressure on key decision-makers.  Prosecutors do not 
always use all the tools at their disposal, such as undercover 
investigation, wiretaps, etc.  Democratic institutions are 
inadequate for the task: for example, politicians are entitled to 
have their cases tried in "special fora" (high courts) and political 
parties may not prioritize ethics in their choice of candidates to 
put forward, which can result in the election of corrupt men and 
women.  Corruption cases are a drag on the many institutions that 
investigate and prosecute them, and they distract the attention of 
lawmakers and others from other important business.  But there are 
signs of ad hoc progress: on June 11, a special congressional 
committee passed a draft constitutional amendment to eliminate the 
"special forum" for authorities, and on June 19 a congressional 
working group decided to cull, consolidate, and propose the best of 
the many existing bills on electoral ineligibility.  Also on June 
19, the presidents of all of Brazil's 26 regional electoral courts 
voted unanimously - and against a 4-3 split decision this month by 
the Superior Electoral Tribunal (TSE) - to bar candidates with prior 
criminal convictions or pending criminal cases.  The TSE had decided 
to allow such candidacies but encouraged parties to choose 
candidates carefully, and would have made the "dirty" names public. 
 
¶5.  (SBU) Scandal news is plentiful, but conviction news is scarce. 
Politicians who have been indicted continue to go about their 
business, and cases can drag on for years.  The Ministerio Publico, 
an independent federal prosecutorial body with extensive powers, is 
recognized as unusually free of corruption, although it often gets 
involved in investigations too late or fails to act at all. 
Sometimes the only investigating body is the legislative branch, 
usually acting through a CPI.  Acquittal for lack of evidence or 
political motives is common, and even when a CPI does conclude that 
a crime was committed, it has no law enforcement or judicial powers. 
 Federal elected officials, and high-level executive and judicial 
officials, are entitled to have their cases tried in the Supreme 
Court (STF) or the Superior Court of Justice, but the former has 
never convicted anyone on a corruption charge.  Politicians can 
postpone or escape judgment through delaying tactics in this special 
forum; in one recent case, the the defendant resigned from office 
before judgment was passed, removing the case from the special forum 
and sending it to a local court, where the process--and the delaying 
tactics--could start all over again (Ref A).  The STF has a chance 
to break this dismal record with any of the 40 defendants in the 
"mensalao" congressional vote-buying scandal (ref F).  For its part, 
the STJ has only managed convictions on five occasions. 
 
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Comment: No Happy Ending in Sight 
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¶6.  (SBU) President Lula is untouched by these events, indeed he is 
more popular and influential than ever.  The indictments last August 
in the mensalao case (ref F) offer some hope that the Supreme Court 
is ready to show the way, but even if courts begin to hand down 
convictions, many voters still fail to hold politicians accountable. 
 Federal Deputy Ciro Gomes (Brazilian Socialist Party, of Ceara) 
told PolCouns June 18 that the deeper significance of these endless 
reports of corruption is the effect on Brazil's young people, who 
have no memory of the military regime (1964-85), which combined 
hidden corruption with repression.  Although Gomes holds the view 
shared by many Brazilians that the corruption scandals are evidence 
of a positive trend--the result of more professional media, greater 
transparency, and democratic principles at work--the youth are 
increasingly disillusioned with democratic institutions that seem to 
be hopelessly corrupt. 
 
¶7. (SBU) Despite some positive signs, there is no concerted effort 
to address the systemic flaws that create an environment so 
conducive to corruption.  The change in societal attitudes that 
encourages citizens to hold politicians and other authorities 
accountable for their actions has only begun. Moreover, substantial 
progress in the fight against corruption in Brazil will require 
going beyond today's ad hoc measures to more profound reforms that 
 
BRASILIA 00000855  004 OF 004 
 
 
strengthen democratic and judicial institutions, including the 
judiciary, police, and executive branch accountability organs. We do 
not expect the Lula Administration to lead the way during its 
remaining two and a half years, and it is not clear that anyone else 
with influence is prepared to raise the standard. 
 
SOBEL