Court links Te­mer to or­ga­nized crime

The Globe and Mail (Alberta Edition) - - NEWS - STEPHANIE NOLEN RIO DE JANEIRO With a re­port from Elisan­gela Men­donca

Brazil­ian Supreme Court re­leases plea-bar­gain tes­ti­mony that sug­gests $150-mil­lion paid for ben­e­fit of two for­mer pres­i­dents

Brazil’s top pros­e­cu­tor has charged the Pres­i­dent of the coun­try with be­ing a mem­ber of a crim­i­nal or­ga­ni­za­tion – just one of the jaw-drop­ping developments on Fri­day as the coun­try’s po­lit­i­cal cri­sis metas­ta­sized swiftly.

The Supreme Court re­leased the full con­tents of plea-bar­gain tes­ti­mony from a pair of bil­lion­aire meat-baron broth­ers, whose de­ci­sion to turn state’s wit­ness has cre­ated the most tu­mul­tuous mo­ment in Brazil’s mod­ern po­lit­i­cal his­tory.

It con­tains de­po­si­tions as well as au­dio and video record­ings cre­ated while one of them, Joes­ley Batista, worked with police to gather ev­i­dence of cor­rup­tion on the part of the coun­try’s most pow­er­ful politi­cians.

The tes­ti­mony pro­duced a bl­iz­zard of ex­traor­di­nary rev­e­la­tions: Mr. Batista, who with his brother Wes­ley runs meat packer JBS SA, said he trans­ferred $150-mil­lion (U.S.) to two over­seas bank ac­counts for for­mer pres­i­dents Dilma Rouss­eff and Luiz Ina­cio Lula da Silva. Both have in the past de­nied any in­volve­ment in cor­rupt ac­tiv­i­ties, and Mr. Batista did not say whether the money was in­tended as cam­paign fi­nanc­ing or for their per­sonal use. He did not name the bank or even the coun­try to which he sent the money, but this is one of the most se­ri­ous al­le­ga­tions about ei­ther of the for­mer pres­i­dents yet made in the course of the three-year-long Lava Jato scan­dal. JBS promised to pay a to­tal of $46-mil­lion to 30 mem­bers of Congress in an un­suc­cess­ful ef­fort to buy enough votes to stop the im­peach­ment of Ms. Rouss­eff, who was be­ing ousted for fi­nan­cial ir­reg­u­lar­i­ties in gov­ern­ment ac­counts, ac­cord­ing to Mr. Batista. (In the end, the com­pany paid $4.6-mil­lion to five con­gress­men, he said.) JBS was a huge ben­e­fi­ciary of low-in­ter­est loans from a gov­ern­ment de­vel­op­ment bank un­der Ms. Rouss­eff’s and Mr. da Silva’s ad­min­is­tra­tions; the Batista broth­ers were charged with fi­nan­cial crimes in re­la­tion to that fund­ing, and they ne­go­ti­ated im­mu­nity from pros­e­cu­tion with this plea bar­gain.

JBS de­liv­ered il­le­gal funds to 1,829 po­lit­i­cal can­di­dates from 28 par­ties, of whom 179 be­came deputies in the lower house, 28 were elected sen­a­tors and 16 gov­er­nors, ac­cord­ing to Mr. Batista’s tes­ti­mony. Pres­i­dent Michel Te­mer took $4.6-mil­lion in il­le­gal fund­ing from JBS for his party dur­ing the 2014 fed­eral elec­tion, ac­cord­ing to the plea bar­gain, but kept $300,000 for him­self.

Pre­sented with all this, pros­e­cu­tor-gen­eral Ro­drigo Janot laid charges of cor­rup­tion, ob­struc­tion of jus­tice and “mem­ber­ship in a crim­i­nal or­ga­ni­za­tion” against the Pres­i­dent.

Mr. Te­mer did his best to main­tain the image of nor­mal gov­ern­ment func­tion on Fri­day, even as calls for his res­ig­na­tion in­ten­si­fied – but Brazil­ians were mes- mer­ized, and even­tu­ally numbed, by the tidal wave of news. In a terse ad­dress to the na­tion on Thurs­day, he said he had done noth­ing wrong and would not re­sign.

The news­pa­per O Globo, un­til re­cent days an en­thu­si­as­tic backer of Mr. Te­mer, pub­lished an edi­to­rial Fri­day de­mand­ing that he step down: “The pres­i­dent has lost the moral, eth­i­cal, po­lit­i­cal and ad­min­is­tra­tive con­di­tions to con­tinue gov­ern­ing Brazil.” The news­pa­per is owned by one of Brazil’s wealth­i­est fam­i­lies and it is seen as a mouth­piece of the elite – who seem to have turned on Mr. Te­mer en masse.

The right-wing magazine Veja ran the word “Enough” on its cover, say­ing “the mil­lions of hon­est Brazil­ians should not have to pay for the gall and greed of those in power.” Joaquim Bar­bosa, the re­tired chief jus­tice of the Supreme Court and one of the most re­spected fig­ures in the coun­try, told Brazil­ians in a tweet that they must go to the streets and stay there un­til Mr. Te­mer leaves.

Mean­while, the Supreme Court also re­leased au­dio record­ings made by the fed­eral police of po­lit­i­cal leader Ae­cio Neves in which he asks Gil­mar Men­des, a jus­tice of the Supreme Court, to in­ter­vene to as­sist with an ef­fort to ob­struct Lava Jato.

And Brazil’s se­cu­ri­ties watch­dog CVM launched an in­ves­ti­ga­tion into JBS’s cur­rency and stock trades af­ter re­ports that the com­pany bought more than a bil­lion Amer­i­can dol­lars on cur­rency mar­kets be­fore the plea bar­gain news broke. JBS said in a state­ment that it bought dol­lars as part of “a pol­icy of fi­nan­cial pro­tec­tion and risk man­age­ment.” The Brazil­ian cur­rency, the real, lost more than 8 per cent of its value when the tes­ti­mony was made pub­lic. The se­cu­ri­ties com­mis­sion is now in­ves­ti­gat­ing the trans­ac­tions.

The scope and con­tents of the JBS plea bar­gain, which in­volves the Batista broth­ers and five ex- ec­u­tives at the firm, is of an or­der of mag­ni­tude more damn­ing than that in Lava Jato to date, and it speaks to the na­ture of the com­pany’s busi­ness. Most of the ev­i­dence in the prose­cu­tions has come from giant con­struc­tion and in­fra­struc­ture com­pa­nies that paid kick­backs for pub­lic­works con­tracts.

Those com­pa­nies, such as Ode­brecht SA, where 78 ex­ec­u­tives made plea bar­gains, rely on gov­ern­ment con­tracts and had to ex­er­cise cau­tion, said Felippe Seri­gati, a pro­fes­sor of agri­cul­tural eco­nom­ics at the Ge­tulio Var­gas Foun­da­tion in Sao Paulo who has stud­ied JBS. But 80 per cent of the meat packer’s busi­ness, on the other hand, is out­side Brazil – in ex­ports or pro­cess­ing plants lo­cated in other coun­tries. So JBS is largely in­ured to any po­lit­i­cal or eco­nomic up­heaval. “It makes lit­tle dif­fer­ence to them: peo­ple are still go­ing to eat meat and other JBS prod­ucts,” he said.

The drama is bat­ter­ing Brazil’s al­ready crip­pled econ­omy. Mr. Te­mer took of­fice as pres­i­dent af­ter Ms. Rouss­eff’s im­peach­ment, promis­ing a pack­age of eco­nomic aus­ter­ity mea­sures that would pull the coun­try out of its worst re­ces­sion in nearly a cen­tury. But two key laws – to cur­tail pen­sion ben­e­fits and labour pro­tec­tions – are stalled in Congress, and seem un­likely to pass now re­gard­less of whether Mr. Te­mer some­how holds on to his of­fice.

Ibovespa, the Brazil­ian bourse, has largely re­cov­ered from its pre­cip­i­tous fall when the JBS news first broke, and the coun­try nar­rowly re­tained its credit rat­ing on Fri­day.

But even if Mr. Te­mer steps down soon, eco­nomic growth is un­likely to reach 1 per cent this year, said Ser­gio Vale, chief econ­o­mist at the fi­nan­cial con­sul­tancy MB As­so­ciates. “With­out a rapid res­o­lu­tion, we could have fur­ther re­ces­sion this year, and unem­ploy­ment could rise to be­tween 15 and 17 per cent.”

DADO GALDIERI/BLOOMBERG

Calls are grow­ing louder for Pres­i­dent Michel Te­mer to re­sign. The news­pa­per O Globo, for one, said he ‘has lost the moral, eth­i­cal, po­lit­i­cal and ad­min­is­tra­tive con­di­tions to con­tinue gov­ern­ing Brazil.’

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