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Brazil Probe of Palocci Shelved for Lack of Evidence

Brazil shelved a request to start a criminal investigation into influence-peddling allegations against Cabinet Chief Antonio Palocci, saying there wasn’t enough evidence to justify the probe.

Opposition lawmakers asked Prosecutor Roberto Gurgel to investigate Rousseff’s top aide after Folha de S. Paulo newspaper reported Palocci earned 20 million reais ($12 million) last year in consulting fees while he was working in President Dilma Rousseff’s election campaign and her transition team. In 2006, when Palocci was elected to Congress, he reported assets worth 375,000 reais.

The prosecutor’s office, in a ruling sent by e-mail late yesterday, said any inconsistency in Palocci’s wealth and declared income is not in itself a crime though it could constitute an administrative “impropriety.”

Yields on longer-maturity futures contracts declined today partly because the prosecutor’s decision eased concern the political infighting over Palocci will derail the administration’s campaign to stem inflation, said Luciano Rostagno, chief strategist at Sao Paulo-based CM Capital Markets.

“He’s a very important piece in the economic team, so if he leaves, it would be a big loss for the government,” Mauricio Junqueira, who helps manage $300 million at Squanto Investimentos, said in a telephone interview from Sao Paulo yesterday.

Yields Fall

Yields on interest rate futures maturing in January 2015 fell five basis points to 12.43 percent at 11:50 New York time, fueled by a report that consumer prices rose the least since September and by the Palocci ruling.

“The prosecutor’s ruling was positive, but its impact may not last,” Eduardo Galasini, head of proprietary trading at Banco Banif Primus in Sao Paulo, said.

A separate civil probe by prosecutors in the federal district of Brasilia is still going forward.

Rousseff’s main opposition party will maintain its push to summon Palocci for a public hearing and plans also to have Gurgel explain his decision to Congress, said Duarte Nogueira, leader of the Social Democracy Party in the Lower House.

“There is pressure only from the opposition for Palocci to leave the government,” Romero Juca, leader of the ruling coalition in the Senate, said. “The government always understood that there has been no irregularity and the decision of the prosecutor leaves Palocci in a more comfortable position.”


Palocci, in an e-mailed statement sent after the ruling was issued, said he felt vindicated by the prosecutor’s decision.

“I hope this decision restores reason, balance and justice to what is a clash of politics,” Palocci said.

Palocci has been under scrutiny for a surge in his personal wealth after a Folha de S. Paulo report on May 15 that he paid 6.6 million reais for a Sao Paulo apartment last year. On May 20, Folha reported he earned 20 million reais from his consulting business in 2011.

In a June 3 interview on TV Globo, he said “not a single cent” of his earnings last year was related to work on Rousseff’s campaign. All of his income had been reported to tax authorities and his consulting work ended when he was named Cabinet chief, he said. Palocci said he cannot name the 20 to 25 banks, investment funds and other companies he provided consulting services to because the contracts are confidential.

Corruption Allegations

Palocci, who served as President Luiz Inacio Lula da Silva’s finance minister from 2003 to 2006, has battled accusations of corruption before.

He resigned as finance minister in March 2006 after lawmakers accused him of illegally obtaining and leaking the private banking records of a witness in a bribery investigation that targeted senior officials of Lula’s Workers’ Party.

The witness, a caretaker, placed Palocci at a Brasilia residence where politicians and lobbyists allegedly negotiated bribes and partied with prostitutes.

Palocci denied any wrongdoing. The Supreme Court cleared him of breaking bank secrecy laws in 2009.

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