Brazil's Trial Of The Century: Corruption Charges May Finally Undo 'Lula' Da Silva, The Country's Most Popular Politician

BRASILIA, Brazil -- The legacy of Brazil's hugely popular leftist former president, Luis Inacio "Lula" da Silva, who led South America's largest economy from 2002 to 2010, is under threat from what observers are calling the "biggest corruption trial of the century." That may be a little hyperbolic, considering that the case hinges on alleged payments amounting to the equivalent of US$50 million. By the standards of global corruption, not a giant sum.

But the trial's other numbers -- and the potential political impact of them -- are big indeed: Thirty-eight politicians, bankers, businessmen and advertising executives are facing Brazil's 11-member Supreme Court in a trial that began on August 3 after seven years of compiling and transcribing the testimony of 700 witnesses into 60,000 pages of court documents. Lula himself is not on trial, but top officials of his Workers' Party (PT) are and he possibly faces a permanently besmirched reputation.

Lula's safety net and anti-poverty programs as well as his economic successes have made him into a revered public figure -- a recent poll put his approval rating at 77 percent, higher than that of his successor and current president, Dilma Rousseff -- but the president nearly got impeached in 2005 when the scandal broke and now he may find his legacy destroyed by the scandal.

A "Big Monthly Allowance"

The defendants are accused of running a payola and embezzlement scheme from 2003 until 2005, in which money was diverted from federal coffers through shady bank loans to finance monthly payouts to politicians of parties allied with Lula's. Called the mensalão in Portuguese, which roughly translates as "big monthly allowance," the payments were allegedly meant to ensure the support of political allies when key legislation came up for a vote on the floor of the Brazilian Congress. Prosecutors say the entire top level of the PT was involved.

The scheme supposedly paid R$30,000 a month (US$15,000 today) to politicians allied with the PT in Congress, according to whistleblower Roberto Jefferson, who was a federal deputy of the PTB party at the time.

The scandal first broke in May 2005 when the weekly newsmagazine Veja exposed a corruption scheme within the state-owned Correios, or post office. An official was filmed receiving wads of cash in order to award a contract to an undercover reporter posing as a businessman who claimed he had the backing of Jefferson.

Amid the outrage that followed, Jefferson revealed to the Folha de Sao Paulo newspaper the existence of the mensalão. He claimed he personally had been paid US$2.25 million to vote in favor of government-sponsored legislation, and said that his party had been paid more than four times that amount by Lula's party. The money to finance the scheme, he said, came from state-owned firms and private companies that had government contracts, and that the negotiations for the payments were held in a room right next to the office of Lula's chief of staff himself, Jose Dirceu. (He denies any wrongdoing.)

Almost Impeached

The PT has insisted that Lula never knew of any payola scheme, but at least another figure very close to him was implicated: Duda Mendonça, a political consultant who worked on the president's campaign, admitted in 2005 that he had received R$10.5 million from the PT in leftover, undeclared election funds which were deposited directly into a secret bank account overseas. He admitted to money laundering and tax evasion.

The president narrowly escaped impeachment after he went on national television in August 2005 and apologized for his party's actions, while steering clear of admitting any knowledge.

The justice minister at the time, Marcio Thomaz Bastos, insisted that the money Mendonça was speaking of was in fact left over from the previous election and was being used by the PT to pay off the campaign debts of its various allied political parties. Incidentally, today he is a lawyer for one of the 38 accused, and many of the other defense attorneys at the trial got their start working in his practice.

The trial has polarized the country into two camps: those who support the PT and think the whole thing is a political witch-hunt, and those who believe that massive corruption and embezzlement of public funds did take place.

Animosity reached a fever pitch in May of this year when a Supreme Court justice, Gilmar Mendes, claimed that Lula had, at a private get-together at the house of former defense minister Nelson Jobim, pressured him to try and get the court to postpone the trial until at least 2013 because of municipal elections being held across Brazil this October. In exchange, Lula allegedly promised to offer Mendes protection from any involvement in another congressional and criminal probe of Carlinhos Cachoeira, the notorious head of an illegal gambling network, who is currently in prison. Lula and Jobim both denied the story.

But why is the trial at the Supreme Court? Under Brazilian law, only politicians have the privilege of being tried before the court without having to go through the lower courts first. And only three of the 38 defendants meet the standard. The other 35 have been added only because the Supreme Court itself voted to keep everybody together in a single trial.

A Key Weakness In The Prosecution

The outcome of the trial is far from a foregone conclusion.

In his opening statement, the prosecutor general of Brazil, Roberto Gurgel, spoke for five hours. He said the main figure in the whole mensalão scheme was Dirceu, but that like any head of a criminal gang worth his salt, he had used other people to do his dirty work and left little trace of illegal acts that could be directly attributed to him. Gurgel based much of his conclusions on testimony from witnesses and on bank records that showed how aides or close relatives of key politicians withdrew large amounts of money just before important votes in Congress. But a key weakness has been in following the money trail to show a clear connection between withdrawals and congressional votes.

"I don't think that the evidence presented so far by Gurgel is that compelling," said Mamede Said, a law professor at the University of Brasilia. "It is easy to find that certain crimes did occur, such as the use of undeclared campaign funds, the sending of money to overseas bank accounts, and shady loans to help pay off campaign debts. In this sense, I understand that several crimes were committed, such as money laundering and tax evasion, but whether or not they involved public funds remains to be proved."

Valdir Pucci, a professor of political science at the University of Brasilia, disagrees. "From what I have seen so far, the prosecutor general really does have enough evidence to convict the defendants. There are many witnesses, as well as facts and evidence. As long as these are not heavily contested, then I believe that there is sufficient material so that the Supreme Court decides to convict them," he said.

What Did The President Really Know?

In the meantime, Lula remains popular. During his two terms as president, the former trade union leader started programs to help Brazil's vast masses of uneducated, poor workers.

Initiating a pseudo-socialist economy, he created new ministry called the Ministry of Social Development and Eradication of Hunger. One of his first decisions after taking office in 2003 was to institute the "Bolsa Familia" or family allowance, a program that paid subsidies for food and cooking gas to poor families, as well as for education, on condition of mandatory school attendance. According to federal data, the program cost 2.5 percent of government expenditures in 2006; the World Bank has praised it, and The Economist called it a successful investment. He also took action against teenage pregnancy and hunger, and initiated a $300 bililon "Growth Acceleration Program" in which the government and private investors cooperate to build infrastructure.

Much of his support comes in fact from the lower classes, who do not regularly read newspapers or watch political news on television, according to Maria do Socorro Braga, a political science professor at the University of Sao Paulo.

"There is a great lack of information and disinterest in this issue among a large part of the population for various reasons, but especially because President Lula is very popular among the poorer sections of society," she said.

But many analysts do not buy that Lula did not know what his subordinates were doing during in his first term in office. "From what we know of political practices in Brazil, it is very difficult to believe that the ex-president didn't know of the scheme," said Pucci, the political science professor, in an interview. "For the scheme to have functioned as well as it did, Lula must have given his consent."