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FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4388
INFO RUEHSO/AMCONSUL SAO PAULO 4117
RUEHRI/AMCONSUL RIO DE JANEIRO 7790
RUEHRG/AMCONSUL RECIFE 9586
RUEHAC/AMEMBASSY ASUNCION 7520
RUEHBU/AMEMBASSY BUENOS AIRES 6221
RUEHPE/AMEMBASSY LIMA 4226
RUEHMN/AMEMBASSY MONTEVIDEO 7751
RUEHZP/AMEMBASSY PANAMA 0336
RUEHSG/AMEMBASSY SANTIAGO 0944

UNCLAS SECTION 01 OF 07 BRASILIA 000671 
 
SIPDIS 
 
DEPARTMENT FOR H/CTO, WHA/BSC, S/CT, WHA/EPSC, WHA/PPC 
 
E.O. 12958: N/A 
TAGS: OREP PTER KCRM SENV KGHG ENRG ECON ETRD EINV EFIN
PREL, BR 
SUBJECT: BRAZIL SCENESETTER: CODEL THOMPSON MAY 27-28 
 
¶1.   This message is sensitive but unclassified, please treat 
accordingly. 
 
¶2.   (U) SUMMARY AND COMMENT:  Your visit comes at a time when the 
relationship between the United States and Brazil is accelerating 
and being given added weight with the rapid growth of Brazil's 
regional and global economic and political clout.  Brazil has 
assumed a larger role in promoting regional stability by leading the 
UN peacekeeping contingent in Haiti and views itself as a potential 
member of an expanded UN Security Council. Through the financial 
crisis, Brazil has played a leading role globally in the G20 and 
also led efforts to conclude the Doha round of World Trade 
Organization (WTO) negotiations.  Further, the country has the 
potential to play a major role in promoting global energy security. 
The Brazilian government seeks to develop a global market for 
biofuels and also to bring into production its vast, new off-shore 
oil and gas discoveries.  In spite of its relatively clean energy 
matrix, Brazil is a major carbon dioxide emitter, largely as a 
result of deforestation, which makes it a critical player in the 
discussion on climate change.  Your visit presents an opportunity to 
underline our strong interest in continuing to expand our 
cooperation, including in areas such as counterterrorism and 
combating transnational crime.  END SUMMARY AND COMMENT. 
 
------------------ 
Political Overview 
------------------ 
 
¶3.   (U) With democracy re-established in 1988 after a period of 
military dictatorship, Brazil's democratic institutions are 
generally strong and stable.  President Lula remains a popular 
president - one of the most popular in Brazil's history and indeed 
in the world today, with recent approval ratings as high as 78% - as 
a result of his orthodox economic policies and expanded social 
programs.  In the Congress, ongoing public scandals involving the 
leadership of the Senate and various members of congress have led to 
low ratings for the institution among the Brazilian public. 
Increasingly, the court system has taken steps to curb impunity 
among public officials. These steps have been well received by a 
public accustomed to abuses by authorities. 
 
¶4.   (U) The United States and Brazil share the basic goals of 
fostering hemispheric stability and preventing terrorist and drug 
transit activity.  The attainment of a permanent seat on the United 
Nations Security Council has been a central goal of Brazil's foreign 
policy under President Lula's government.  Regionally, Lula has 
maintained Brazil's historic focus on stability, seeing dialogue and 
good relations with all parties as the best way to achieve this 
goal.  As a result, Brazil maintains an active dialogue with 
Venezuela and Cuba, has worked to foster good relations with 
Bolivia, has given its assistance in resolving the FARC hostage 
crisis in Colombia, and has stood firmly on the principle of respect 
for sovereignty in the region. 
 
------------------------- 
Counterterrorism Overview 
------------------------- 
 
¶5.  (SBU) The Brazilian government continues to be a cooperative 
partner in countering terrorism and related activities that could 
contribute to the facilitation of attacks in the region or 
elsewhere--to include investigating potential terrorism financing, 
document forgery networks, and other illicit activity. 
Operationally, elements of the Brazilian Government responsible for 
combating terrorism, such as the Federal Police, Customs, and the 
Brazilian Intelligence Agency, effectively work with their U.S. 
counterparts and diligently pursue investigative leads provided by 
U.S. intelligence, law enforcement and financial agencies regarding 
terrorist suspects.  The senior levels of the Brazilian government, 
however, publicly deny the possibility that terrorist groups or 
individuals connected to such groups operate or transit through 
Brazilian soil and vigorously protests any claims made by U.S. 
authorities to the contrary. 
 
AREAS OF CONCERN: SAO PAULO, TRIBORDER AREA 
 
¶6.  (SBU) Brazil's intelligence and law enforcement services are 
concerned that terrorists could exploit Brazilian territory to 
support and facilitate terrorist attacks, whether domestically or 
abroad, and have focused their efforts in the areas of Sao Paulo 
(where the vast majority of Brazil's estimated 1.2-1.5 million 
 
BRASILIA 00000671  002 OF 007 
 
 
Muslims live), the triborder areas of Brazil, Argentina, and 
Paraguay; Brazil, Peru and Colombia; and the Colombian and 
Venezuelan borders.  Brazil's recognition of the potential threat 
from terrorism prompted a reform of the Brazilian Intelligence 
Agency (ABIN) that raised the profile of the issue by upgrading the 
counterterrorism division to the department level and establishing 
the Brazilian Intelligence System (SISBIN) -- an NCTC-like entity 
within ABIN to coordinate intelligence gathering and sharing across 
the GOB. 
 
¶7.  (SBU) As Brazil has focused resources on monitoring and 
suppressing illegal activity in the Triborder Area (TBA) of Brazil, 
Argentina and Paraguay, during the past decade, the government has 
achieved visible results from its investments in border and law 
enforcement infrastructure that were executed with a view to 
gradually control the flow of goods--legal and illegal--through the 
TBA, the proceeds of which could be diverted to support terror 
groups.  The inspection station at the Friendship Bridge in the TBA 
that was completed by Brazilian Customs (Receita Federal) in 2007 
has continued to take effective action to suppress the smuggling of 
drugs, weapons, and contraband goods along the border with Paraguay. 
 According to Brazilian Customs (Receita Federal) in 2008 the agency 
interdicted more than $76 million in smuggled goods, including 
drugs, weapons, and munitions, an increase of eight percent from 
¶2007.  As a result of the effective crackdown on the Friendship 
Bridge, most smuggling operations now take place through the Parana 
River and Lago Itaipu and some have migrated to other sections of 
the border such as the towns of Guiara and Ponta Pora.  The Federal 
Police has Special Maritime Police Units in both Foz de Iguacu and 
Guaira that aggressively patrol the maritime border areas but 
because of the scale and complexity of the endeavor to curtail 
smuggling and trafficking activities through the waterways, Brazil 
is currently considering using an Unmanned Aerial Vehicle to assist 
law enforcement in monitoring the border, a development that could 
further improve border security. 
 
INTERNATIONAL AND BILATERAL COOPERATION 
 
¶8.  (SBU) Brazil's intelligence and law enforcement forces work 
closely with regional and international partners.  In 2008, ABIN 
hosted a multilateral conference on counterterrorism involving the 
security services of several South American countries. Also in 2008, 
the Federal Police and ABIN, together with the United Nations 
Organization for Crime and Drugs, co-hosted an international 
conference on terrorism finance.  In addition, Brazil actively 
participates in international counterterrorism fora such as the 3+1 
Mechanism on Security in the Triborder Area, Mercosul's Working 
Group on Terrorism and the Subworking Group on Financial Issues, the 
latter of which discusses terrorism financing and money laundering 
among the Mercosul countries. 
 
¶9.  (U) Bilaterally, the USG provided a variety of training courses 
throughout Brazil in counterterrorism, combating money laundering, 
detection of travel document fraud, container security, and 
international organized crime.  In 2008, Brazil and the United 
States began exchanging information on critical infrastructure 
protection issues. 
 
¶10.  (U) In 2008, the GOB and the USG continued to work together 
through the Container Security Initiative in Santos, Brazil to 
promote secure containerized cargo to the United States and through 
the establishment of a Trade Transparency Unit to detect money 
laundering through trade transactions. 
 
TERRORISM FINANCING, MONEY LAUDERING 
 
¶11.  (SBU) Brazil is capable of monitoring domestic financial 
operations and effectively utilizes its financial intelligence unit, 
the Financial Activities Oversight Council (COAF) to identify 
possible funding sources for terrorist groups.  Through the COAF, 
Brazil has carried out name checks for persons and entities on the 
UNSCR 1267 and 1373 terror finance lists, but has so far not found 
any assets, accounts or property in the names of persons or entities 
on the UN terror-finance lists. 
 
¶12.  (U) Brazil also continues to undertake steps to enhance its 
capabilities to combat money laundering.  Since 2003, fifteen 
specialized money laundering courts have been established, including 
two in Sao Paulo, with each court headed by a judge who receives 
specialized training in national money laundering legislation. In 
addition, in 2008, the United States and Brazil established a 
 
BRASILIA 00000671  003 OF 007 
 
 
working group with money laundering judges to share best practices 
and training needs. 
 
¶13.  (U) A 2006 national anti-money laundering strategy goal was 
formed aimed to build on the success of the specialized courts by 
creating complementary specialized federal police financial crimes 
units in the same jurisdictions. In 2008, the Federal Police 
established such units in the Federal District (Brasilia), and the 
states of Rio de Janeiro and Sco Paulo.  In addition, the Ministry 
of Justice funded the creation of technology centers to combat money 
laundering in the Federal District and Rio de Janeiro, the latter of 
which received two such centers, one embedded with the Public 
Ministry and one with the state Civil Police.  In 2008, the Ministry 
signed accords to establish additional centers in Bahia, Goias, and 
Rio Grande do Sul. 
 
AREAS FOR IMPROVEMENT 
 
¶14.  (SBU) Brazil's overall commitment to combating terrorism and 
the illicit activities that could be exploited to facilitate 
terrorism is undermined by the GOB's failure to significantly 
strengthen its legal counterterrorism framework.  Two key CT-related 
legislative initiatives continued to languish in 2008.  An 
anti-terrorism bill that would have established the crime of 
terrorism and other associated crimes was drafted but shelved before 
its introduction in Congress and a long-delayed anti-money 
laundering bill has not been approved by Congress. If passed, the 
latter bill would facilitate greater law enforcement access to 
financial and banking records during investigations, criminalize 
illicit enrichment, allow administrative freezing of assets, and 
facilitate prosecutions of money laundering cases by amending the 
legal definition of money laundering and making it an autonomous 
offense. 
 
¶15.  (SBU) The Brazilian government has also been willing to accept 
the political cost of taking positions that undermine its commitment 
to combating terrorism.  Brazil has angered Israel over its refusal 
to condemn the actions of HAMAS and Hezbollah or to consider them 
terrorist groups, while at the same time senior government officials 
have called Israel's action's "State terrorism".  In 2006 Brazil 
upset Colombia by granting refugee status to the FARC's 
international representative in Brazil, whose extradition for murder 
was sought by the Colombian government.  In 2007, the suggestion 
that planning for the 1994 bombing of AMIA, an Argentine Jewish 
center, might have taken place in Brazil caused the GoB to abstain 
in an international vote over whether to issue Interpol warrants for 
Iranian officials accused in the case, an action that disappointed 
and irritated Argentina.  And in a case that is currently pending 
before the Brazilian Supreme Court, in 2008 the GOB granted refugee 
status to an Italian leftist terrorist wanted in connection for four 
murders, creating a row between the two countries. 
 
---------------------- 
Law Enforcement Issues 
---------------------- 
 
CYBERCRIME 
 
¶16.  (SBU) Brazil is an OAS leader in addressing cybercrime and has 
worked with other South American states to push forward Cyber threat 
issues in cooperation with DOJ's Criminal Division's Computer Crime 
and Intellectual Property Section.  Additionally, Brazil is a member 
of the G-8's 24/7 High Tech Crime Network.  The 24/7 Network enables 
member states to assist each other to quickly identify and preserve 
electronic evidence located in another state. 
 
¶17.  (SBU) The DPF is moving towards an intelligence-driven, 
proactive investigative force with initiatives to combat Cyber 
Intrusion crimes particularly committed against the financial 
sector; crimes in the proliferation of child pornography/child 
sexual exploitation facilitated by online computer users; and in 
general crimes via the internet. 
 
------------------- 
Defense Cooperation 
------------------- 
 
¶18.   (SBU) The first potential watershed in achieving a more robust 
defense relationship with Brazil will be the decision on a next 
generation fighter aircraft.  Boeing's F-18 Super Hornet is a 
finalist along with the French Rafale and Swedish Gripen.  A 
 
BRASILIA 00000671  004 OF 007 
 
 
decision will be made in June 2009, with a final contract award in 
October.  It would be difficult to overstate the significance of 
Brazil's Air Force committing to a U.S. aircraft as its primary 
fighter for the next generation.  Boeing's proposal combines 
cutting-edge technology with a strong package of industrial 
cooperation.  To be successful, Boeing will have to make a strong 
case that its offset package offers economic benefits to Brazil far 
greater than its competitors. 
 
----------------------- 
Expanding Economic Ties 
----------------------- 
 
¶19.   (U) Brazil is the tenth largest economy in the world and 
received investment grade from Standard and Poor's and Fitch in 
¶2008.  Annual Gross Domestic Product (GDP) grew 5.1 percent in 2008, 
and inflation was 5.8%. Prospects for 2009 have been dimmed by the 
global economic crisis, taking previous predictions for annual GDP 
growth from 4 per cent to .01 percent with some analysts predicting 
a recession.  Despite this decline in immediate prospects, Brazil 
has thus far weathered the crisis better than most major economies, 
due in large part to its conservative macroeconomic policies. 
 
¶20.   (U) Despite progress in recent years, income distribution in 
Brazil remains grossly unequal, with 10 percent of the population 
holding over 50 percent of the nation's wealth.  Brazil is home to 
50 percent of the people who live in extreme poverty in Latin 
America.  President Lula's social programs, combined with formal 
sector job growth and real increases in the minimum wage, have 
reduced income inequalities each year since 2004. 
 
¶21.   (U) Major structural challenges to long-term growth include a 
complicated and onerous tax structure, high interest rates, and 
cumbersome labor and business regulations.  As a result of its 
regulatory structure, Brazil ranks 125th in the World Bank Group's 
Doing Business assessment of regulatory climate in 181 countries. 
The informal sector (one of the largest among large developing 
economies) constitutes an estimated 40 percent of Brazil's economy, 
in large part in response to the onerous tax and regulatory 
requirements to participate in the formal economy. 
 
¶22.   (U) Brazil is a major producer and exporter.  Agriculture 
makes up 36 percent of exports, and the agribusiness sector accounts 
for 25 percent of Brazil's GDP.  Brazil is a leading exporter of 
soybeans, beef, sugar, coffee, and orange juice.  Brazil also 
distinguishes itself as a major exporter of civilian aircraft, 
steel, and petrochemicals.  The United States is Brazil's top 
trading partner, and China has moved into position as number two. 
Brazil was a significant leader in the World Trade Organization's 
Doha Round negotiations and was active in trying to broker a deal 
between the United States and India. 
 
¶23. (U) Brazil is the tenth largest economy in the world and 
received investment grade from Standard and Poor's and Fitch in 
¶2008.  Annual Gross Domestic Product (GDP) grew 5.1 percent in 2008, 
and inflation was 5.8%. Prospects for 2009 have been dimmed by the 
global economic crisis, taking previous predictions for annual GDP 
growth from 4 per cent to .01 percent with some analysts predicting 
a recession.  Despite this decline in immediate prospects, Brazil 
has thus far weathered the crisis better than most major economies, 
due in large part to its conservative macroeconomic policies. 
 
¶24.    (U) In recognition of Brazil's growing importance as a world 
economy, the U.S. government seeks opportunities for positive 
bilateral cooperation on economic issues.  Brazil and the United 
States are in discussions over a possible Bilateral Tax Treaty. 
After both countries agreed in June 2008 to significantly expand 
civil aviation opportunities, two U.S. airlines were granted 
approval for 21 new frequencies.  Further frequency allocations for 
2009 under the agreement have been tentatively allocated. 
 
----------------------- 
Global Financial Crisis 
----------------------- 
 
¶25.   (U) The global financial crisis has affected Brazilian 
companies' exports and access to credit. Brazil's Finance Minister 
continues to assert that Brazil is well-positioned to weather the 
crisis while he and Central Bank contacts confirm moves to try to 
mitigate the effects of the crisis.  President Lula, taking a 
leading role in the debt over how to handle the economic crisis 
 
BRASILIA 00000671  005 OF 007 
 
 
including through the G20 process, has criticized actors in 
developed countries for sparking a crisis that affects developing 
countries. He has called for increased regulation of the global 
financial system, increased global access to trade finance, and an 
expanded role for large emerging countries like Brazil in 
international financial institutions such as the International 
Monetary Fund (IMF).  Presidents Lula and Obama agreed to work 
together to advance our common interests through the G20 process 
and 
have established working groups to that end. 
 
¶26.   (U) Over the past quarter Brazil has posted a series of poor 
economic results that confirm the country will not escape the 
current global financial crisis unscathed.  A February 3 report 
detailing a 14.5 percent drop in industrial output in December 2008 
versus December 2007 (the biggest drop in 17 years), finally 
prompted President Lula to admit that his country's economy may be 
contracting.  The government has reacted to the economic downturn 
thus far with a series of piecemeal announcements and actions aimed 
at increasing liquidity in the banking system, stimulating growth 
through a series of targeted tax cuts, and seeking to shore up 
exports.  President Lula has announced his intention to develop a 
comprehensive response plan for release in the coming weeks. 
However, details still remain under interagency discussion. 
 
------ 
Energy 
------ 
 
AREA FOR COOPERATION: BIOFUELS 
 
¶27.   (U) For Brazil, turning ethanol into a world commodity is a 
key aspect of increasing energy security.  Though Brazilian ethanol 
is produced from sugar cane, Brazil sees expansion of the global 
ethanol market, regardless of feed stock, as a key interest.  In 
March 2007, the United States and Brazil signed a Memorandum of 
Understanding (MOU) on biofuels cooperation.  As a result, 
scientists and laboratories from the two countries are 
collaboratively researching next generation biofuels technologies. 
We are also working together in various multilateral fora to develop 
international biofuels standards and sustainability criteria.  By 
making it easier to treat biofuels as a tradable commodity, these 
standards should foster the emergence of a vibrant global biofuels 
market. 
 
¶28.   (U) The United States and Brazil are jointly assisting a group 
of developing countries in creating their own biofuel markets, with 
the goal of reducing their dependence on imported oil.  The joint 
cooperative effort initially targeted four countries: Haiti, St. 
Kitts, El Salvador, and the Dominican Republic.  In November 2008, 
five new countries joined the group:  Guatemala, Guinea-Bissau, 
Honduras, Jamaica, and Senegal.  Brazil would like to see the United 
States aggressively expand these cooperation efforts to include 
developing countries in Africa and Southeast Asia, both as a 
development tool and as a way to increase the commodity market for 
ethanol. 
 
¶29.   (U) Modest tax breaks have stimulated the Brazilian domestic 
ethanol market and have led new car purchasers to opt overwhelmingly 
for "flex-fuel" cars that can run on gasoline, ethanol, or any 
combination of the two.  In 2008, ethanol surpassed gasoline as the 
dominant automotive fuel.  Domestic demand consumes 85 percent of 
all production.  The other 15 percent is exported, primarily to the 
United States, making our ethanol import surcharge a continuing 
irritant in bilateral relations.  The GOB also uses mandates to 
promote greater use of biodiesel. 
 
VAST OIL AND GAS DISCOVERIES 
 
¶30.   (U) The discovery in 2007 of potentially massive offshore 
("pre-salt") reserves of oil and gas estimated to contain between 
30-80 billion barrels of oil equivalent could put Brazil within the 
top ten oil countries by reserves.  Though the discoveries have 
generated a great deal of excitement, industry observers caution 
that developments will probably be slow in coming due to the 
expensive technological challenges involved with ultra-deepwater 
drilling, including a worldwide shortage of equipment such as 
drilling rigs. 
 
¶31.   (U) Petrobras is hamstrung by limited equipment resources. 
However, it has launched a multi-billion dollar procurement 
 
BRASILIA 00000671  006 OF 007 
 
 
initiative and is reexamining its international priorities so that 
it can focus on domestic opportunities, though it remains to be seen 
how the global financial crisis will may affect those plans.  U.S. 
oil companies are poised and ready, in many cases, to take on more 
exploration opportunities.  Brazil is currently reexamining its oil 
sector structure to make the most use of these finds.  Interim 
reports suggest that the GOB may be leaning towards developing a 
state-owned company to manage the rights to the oil fields as they 
contract out the exploration.  Brazil has expressed interest in 
having U.S. companies involved in the exploitation of Brazil's oil 
reserves. 
 
FURTHER ENHANCING ENERGY COOPERATION 
 
¶32.   (U) Brazil and the United States have many other common areas 
of interest in the energy sector.  The convergence of our interests 
offers opportunities to enhance both countries' national energy 
security.  Building on the success of the biofuels relationship, 
Brazil and the United States have identified three new areas of 
possible collaboration under a preexisting Memorandum of 
Understanding between the U.S. Department of Energy and Brazil's 
Ministry of Mines and Energy and established new working groups in 
the areas of energy efficiency, clean coal, and nuclear energy.  The 
United States also has commercial interests, particularly in nuclear 
energy, as Brazil looks to expand its civilian nuclear energy 
program.  For example, Westinghouse is in the running to build four 
to eight new nuclear reactors in Brazil over the next ten years. 
 
¶33.   (U) The United States would like to parlay these and other 
shared interests into support for a hemispheric energy partnership. 
There are many opportunities for joint cooperation including 
research and development, energy efficiency, and green technologies. 
 It is important that prominent Brazilian policymakers perceive the 
level of importance the USG accords to this efforts.  Any 
appropriate opportunities for the delegation to reinforce this 
message would be invaluable as we pursue this major policy 
initiative. 
 
---------------------------------- 
The Environment and Climate Change 
---------------------------------- 
 
¶34.   (U) Brazil pursues two sometimes-conflicting goals with regard 
to the Amazon region.  On the one hand, it seeks to preserve the 
natural resources and biodiversity found there.  To that end, the 
government requires landowners to preserve eighty percent of forest 
on their lands and has placed large amounts of the forest into 
protected areas, such as national parks and indigenous reserves.  At 
the same time, the Brazilian government seeks economic growth and 
redistribution of land.  Thus, since the 1970s it has built a 
network of roads through the Amazon, which has opened the region to 
timber and agriculture (mainly cattle and soybean) interests. 
 
¶35.   (U) Massive and ongoing clearing of the Amazon Forest releases 
large quantities of carbon dioxide into the atmosphere.  The GOB 
estimates that about 75 percent of the country's green house gas 
emissions come from changes in land use and deforestation. The GOB 
has stepped up enforcement efforts to stop illegal clearing and has 
displayed great interest in the use of programs which pay people to 
avoid deforestation. These efforts, combined with a drop in 
agriculture commodity prices, are expected to result in a 
significant decrease in the deforestation rate this year.  In 
December 2008, the GOB announced a domestic goal of reducing the 
deforestation rate by about half by 2017.   In international climate 
change negotiations, Brazil has been far less bold and innovative, 
contending that only developed countries should be required to 
assume emission reduction targets. 
 
---------------------- 
Goldman Abduction Case 
---------------------- 
 
¶36.  (U) American David Goldman is currently pursuing a Hague 
Abduction Case, involving his son Sean who was brought to Brazil by 
his mother and wrongfully retained here over 4 years ago.  The case 
has been remanded to the 16th Federal Court in Rio de Janeiro.  The 
Court has two cases before it: the return motion from Mr. Goldman 
under the Hague Convention on International Child Abduction, and the 
custody motion by Sean's Brazilian stepfather which was originally 
filed in a Rio state court.  The Ambassador and numerous elements 
within the Mission have been working firmly but quietly behind the 
 
BRASILIA 00000671  007 OF 007 
 
 
scenes to remind the GOB of its obligations under the Hague 
Convention.  We are cautiously optimistic that the move to the 
Federal Court will result in a more just decision on the Hague case. 
 We remain in constant touch with David Goldman and his Brazilian 
attorney to ensure that their interests are represented effectively 
in Brasilia. A decision may be announced soon.