US embassy cable - 05BRASILIA2902

UNCLAS SECTION 01 OF 02 BRASILIA 002902 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV, PREL, ECON, BR 
SUBJECT:  BRAZIL CORRUPTION SCANDAL UPDATE, WEEK OF 24-28 
OCTOBER 2005 
 
REF: BRASILIA 2820 AND PREVIOUS 
 
1. SUMMARY.  The Lula government's hopes that the political 
crisis of the past five months will abate before the onset 
of next year's campaign season were dampened by the week's 
events, which suggest scandal investigations will roil on 
for the foreseeable future.  Delays in the final judgment on 
expulsion from Congress of former minister Jose Dirceu are 
giving rise to frustration, although that result is not in 
much doubt.  Delicate issues continue to be raked over by 
the congressional investigatory committees without great 
signs of progress. And the opposition now seems bent upon 
pursuing a more aggressive approach to these inquiries as 
far into the new year as possible.  END SUMMARY. 
 
ETHICS COMMITTEE TO EXPEL DIRCEU, SUPREME COURT INTERFERES 
--------------------------------------------- ------------- 
 
2.  The defense of Lula's former chief of staff, Jose 
Dirceu, suffered two sharp setbacks in the Chamber of 
Deputies this week.  But a subsequent Supreme Court decision 
could conceivably further delay the definitive vote on 
impeachment proceedings against him by the whole Chamber. 
On October 26 the Chamber's Constitution and Justice 
Committee rejected, 39 votes to 15, a motion by Deputy Darci 
Coelho, which argued that the case against Dirceu should be 
overturned because the original plaintiffs (the PTB and 
former Deputy Roberto Jefferson) had since withdrawn their 
charges.  In addition, on October 27, the Ethics Committee 
approved Deputy Julio Delgado's report recommending Dirceu's 
impeachment, by an overwhelming 13 to 1 margin.  The vote in 
the Ethics Committee had been previously delayed by a series 
of procedural maneuverings and appeals undertaken by Dirceu 
and his lawyers.  With the approval of Delgado's report by 
the Ethics Committee, the final step in the impeachment 
process was to be a full floor vote, which had already been 
scheduled for November 9.  But it may now be delayed again 
because of a subsequent Supreme Court decision favoring the 
defendant, at least temporarily, on technical grounds. 
 
3.  Before the Ethics Committee voted on Dep. Delgado's 
recommendation, Dirceu had filed various appeals with the 
STF, one of which aimed at overturning the proceedings 
against him on grounds that Delgado unduly employed 
confidential information obtained by the Congressional 
 
SIPDIS 
Inquiry Committees (CPIs) in his report.  On October 26, 
Supreme Court Justice Eros Grau partially accepted this 
contention. He did not order the termination of the 
proceedings, but he required that the report be reformulated 
to remove the questionable references and then reintroduced 
within the Ethics Committee.  In order to avoid further 
delays, Delgado decided to merely drop some parts of his 
report in which such information was directly cited.  But, 
on October 27 -- just after that version of the report had 
successfully passed, 13-1 -- the Justice released a note 
stating that deletion of a few paragraphs did not constitute 
the reformulation previously required. Hence the vote on it 
was invalid. 
 
4.  The president of the Ethics Committee expressed 
frustration with the court's opinion -- which he considered 
"undue interference by the judiciary branch in legislative 
affairs".  But he accepted annulment of the vote and 
promptly scheduled another session for Monday, October 31 -- 
at which time a freshly reformulated report will be 
submitted.  It is likely that Deputy Angela Guadagnin, 
Dirceu's sole ally on the Committee, will again assert her 
right to study the new version -- which would delay a vote 
into the following week. If the Ethics Committee does not 
vote the report by the end of that time, the decisive 
plenary balloting -- presently set for November 9 -- might 
have to be postponed.  In the face of this ongoing tactical 
maneuvering, the Committee will now have to work hard to 
keep to its schedule.  Whatever the exact day of reckoning 
may eventually be, it cannot be delayed much longer and will 
almost certainly result in Jose Dirceu's expulsion. But his 
unwillingness to concede defeat aggravates an already 
contentious climate in Congress. 
 
A WEEK OF CONFRONTATIONS IN THE CPIs 
------------------------------------ 
 
5.  During this week the Congressional Investigatory 
Committees (CPIs) continued their work -- providing an 
addictive product for Brazilian television audiences.  The 
main event of hearings of the CPI on corruption in bingo 
operations and municipal governments was a long-awaited, 
face-to-face confrontation between the brothers of the mayor 
of Santo Andre, Celso Daniel -- who was murdered under 
suspicious circumstances in January of 2002 -- and Lula's 
present personal chief-of-staff, Gilberto Carvalho.  In a 
previous testimony before the CPI, Daniel's brothers had 
affirmed that shortly after Mayor Daniel's murder, Carvalho 
told them about a corruption scheme to funnel payoffs on 
municipal contracts to PT campaign coffers.   They also said 
that Carvalho confessed his involvement in the scheme, 
together with that of Celso Daniel and other high-level PT 
members, including Jose Dirceu.  The 
Daniels'brothers'testimony was a reiteration of charges they 
have made for some time about involvement of Carvalho and 
Dirceu in corruption activities by the PT that the brothers 
assert may have been linked to their Celso Daniel's 
abduction and murder.  Cavalho and Dirceu have repeatedly 
denied the allegations, and Dirceu stated he would sue the 
Daniel brothers for slander.  The purpose of the 
confrontation was to shed light on the true facts of the 
case by bringing these adversaries together in front of the 
panel.  It did produce some dramatic and emotional moments, 
but both sides stuck firmly to their previous stories. Lula 
had reportedly been concerned about the prospect of his 
present chief of staff giving testimony, but Carvalho did 
well enough to keep his job and nothing said in the session 
incriminated the President directly. 
 
6.  In the "Mensalao" (vote-buying) CPI, a similar 
confrontation was held on October 27 between some prominent 
recipients of illegal funding -- former PL president, 
Valdemar Costa Neto; the ex-treasurer of that party; and a 
PP staffer/conduit, Joao Claudio Genu -- and those that 
provided it -- former PT treasurer, Delubio Soares; bagman- 
businessman, Marcos Valerio, and Simone Vasconcelos, one of 
Valerio's employees.  The purpose of the session was to 
clarify the exact amount of money that was actually 
transferred and how/by whom it was effected.  Some 
interesting details emerged, but much of the testimony 
proved contradictory, with the receivers claiming they had 
gotten much less than the providers said they had given out. 
This pattern considerably irritated some of the congressmen 
conducting the inquiry -- leading to both intra-mural 
bickering and harsh words against the witnesses, as well as 
the government.  Nonetheless, the open affirmations by the 
witnesses of the existence of extensive illegal campaign 
funding activities caused a few indignant opposition 
legislators to again call for banning of the PT party from 
elections for electoral crimes and consideration of 
impeachment investigations of President Lula for any 
possible responsibility in the illicit funding. 
 
7. Late in the week PSDB party president Eduardo Azeredo 
resigned from that post after news stories seemed to lend 
credibility to charges that he had engaged in campaign 
finance practices (during his unsuccessful 1998 bid for the 
governorship of Minas Gerais) uncomfortably similar to those 
his party is alleging against the PT and the Lula 
government.  But this seems to be a decision intended to 
partially take his case off the table so that the PSDB-led 
opposition can (per paragraph above) perhaps increase 
pressure against the incumbent administration in the run-up 
to next year's elections.  In this regard, the Bingo CPI has 
already authorized prolongation of its activities until 
April.  PSDB spokesmen have begun demanding establishment of 
a new one focused specifically on illicit fund-raising 
practices during the 2002 and 2004 elections. And criminal 
indictments that could lead to long trials are now possible 
against Delubio Soares, Marco Valerio and even legislators 
involved with them, who -- through resignation or 
impeachment -- have lost, or will loose, their congressional 
immunity. 
 
DANILOVICH