Brazil police arrest former Workers' Party leaders in graft probe

[SAO PAULO] Brazilian police detained former leaders of the ruling Workers' Party over an allegedly fraudulent loan on Friday, the latest stage of a sweeping corruption investigation centered on state-run oil company with Petroleo Brasileiro SA.

The 27th phase of the so-called "Operation Car Wash" focused on a decade-old loan from local bank Banco Schahin that resulted in losses for Petrobras, as the company is known. Prosecutors say the the loan of 12 million reais (S$4.46 million) was never paid back.

In a further blow to embattled President Dilma Rousseff's party, a former party treasurer was detained for questioning, while a former general secretary and a local newspaper owner were arrested, investigators said at a press conference.

The two-year old investigation has uncovered systemic corruption across multiple companies and the highest level of government since the Workers' Party took power in 2003. The findings have given powerful momentum to impeachment proceedings against Ms Rousseff even though she herself is not being investigated.

Friday's raids built on the November arrest of Jose Carlos Bumlai, a powerful rancher and friend of former president Luiz Inacio Lula da Silva.

Mr Bumlai is accused of seeking Mr Lula's help to obtain a US$1.6 billion Petrobras contract on the Vitoria 10,000 drillship for a unit of Schahin Group. In return for that, Mr Bumlai arranged for the Schahin Group's bank to forgive the loan.

The proceeds from the forgiven loan were laundered through various businessmen tied to the Workers' Party and ultimately used to pay bribes, prosecutors said.

Prosecutors said many of the businessmen investigated in the scheme were also involved in the "mensalao" or "big monthly payment" scandal, a landmark case that led to the arrest of former politicians in 2013 after a decade of trials.

"There are some peculiarities of this case that are very similar to the mensalao," prosecutor Diogo Castor de Mattos told journalists in the southern city of Curitiba, the epicenter of Brazil's largest-ever corruption investigation.

Dozens of executives from Brazil's top construction and engineering firms have been charged with bribery and money laundering, and about 50 politicians are being investigated for receiving kickbacks off contracts with Petrobras.

Mr Lula is under investigation for benefiting from the scheme but denies any wrongdoing and says he is the victim of a witch hunt. He and Ms Rousseff have likened opposition efforts to impeach her over unrelated accusations of mismanaging public accounts to a military coup.

REUTERS