Brazil Probe Alleges Lula Aide Implemented Kickback Scheme

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Jose Dirceu
Brazil's former chief of Staff, Jose Dirceu. Photographer: Dida Sampaio/Agencia Estado via AP Images

Brazilian police arrested Jose Dirceu, who served as chief of staff under former President Luiz Inacio Lula da Silva, saying he helped put into place an alleged system of kickbacks at the state-run oil company.

The “operation goes beyond Jose Dirceu as a recipient and a beneficiary,” federal police investigator Carlos Fernando dos Santos Lima said at a press conference in Curitiba. The probe “seeks Jose Dirceu as an instituter of the Petrobras scheme even as he was chief of staff.”

The investigation into inflated contracts at Petrobras has roiled Latin America’s largest nation since allegations spread from oil executives to builders and politicians, drawing closer to the ruling Workers’ Party. The latest allegations come as Lula’s protege, President Dilma Rousseff, labors to rebuild support in Congress as her popularity languishes amid an economic downturn.

Police carried out 40 court orders in the 17th phase of the “Carwash” probe on Monday. Dirceu received at least 35 million reais ($10.2 million) through his consulting firm JD Assesoria e Consultoria in connection with suspect contracts, Santos Lima said at the press conference.

News of Dirceu’s arrest was reported before markets opened. Brazil’s real declined 0.85 percent to 3.4508 per U.S. dollar at 2:00 p.m. in Sao Paulo, the biggest drop among 16 major currencies tracked by Bloomberg. The benchmark Ibovespa stock market fell 1.4 percent to 50,154.77.

Preventive Detention

Dirceu, once one of the most powerful figures in the Workers’ Party, will be held under preventive detention. He is currently serving the remainder of a prison term under house arrest for his role in a previous cash-for-votes scandal known as the “Mensalao,” or “big monthly payment.” His lawyer, Roberto Podval, was unavailable to comment immediately after the press conference.

During Lula’s administration, Dirceu was responsible for approving appointments within Petrobras and accepted the indication of Renato Duque to head the company’s engineering and services division, Santos Lima said. Duque then implemented the framework of contractors paying kickbacks in exchange for works in that division, he said.

More than 50 politicians are being investigated as part of the Petrobras probe, including former President Fernando Collor, who had cars including a Lamborghini and Ferrari seized in police raids in July. The Workers’ Party’s former treasurer, Joao Vaccari, remains under arrest, and Lula is under investigation for alleged influence peddling in a separate case. Both have denied wrongdoing.

Lower House

After allegations that lower house President Eduardo Cunha received kickbacks in connection with a Petrobras contract last month, he announced that he was joining the opposition to Rousseff’s government. He, too, has denied wrongdoing.

Standard & Poor’s cited “political uncertainties” stemming from the investigation among reasons for cutting Brazil’s credit outlook to negative last week. Congress returns from recess this week.

Dirceu’s arrest comes after Rousseff’s disapproval rating fell to a new low of 15.3 percent in July from 18.9 percent in March, according to a July 12-16 MDA poll published by the National Transport Confederation. Her government has an even lower approval rating -- 7.7 percent -- and is bracing for a mass street demonstration scheduled for Aug. 16.

Brazil policy makers are facing the fastest inflation in more than a decade and the prospect of the deepest recession in a quarter-century. Brazil will contract 1.8 percent this year as consumer-price increases reach 9.25 percent in December, according to a central bank survey of analysts published on Aug. 3.

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