Brazil’s Lula Detained in Corruption Probe, Rousseff Objects

This is the highest profile development in two-year-long corruption investigation in Brazil.

Police picked up Lula (centre) at his home on the outskirts of Sao Paulo and released him after three hours of questioning. (Photo: AP)

Former Brazilian President Luiz Inacio Lula da Silva was briefly detained for questioning on Friday in a federal investigation of a vast corruption scheme, fanning a political crisis that threatens to topple his successor, President Dilma Rousseff.

Lula’s questioning in police custody was the highest profile development in a two-year-old graft probe centered on the state oil company Petrobras, which has rocked Brazil’s political and business establishment and deepened the worst recession in decades in Latin America’s biggest economy.

The investigation threatens to tarnish the legacy of Brazil’s most powerful politician, whose humble roots and anti-poverty programs made him a folk hero, by putting a legal spotlight on how his left-leaning Workers’ Party consolidated its position since rising to power 13 years ago.

Police picked up Lula at his home on the outskirts of Sao Paulo and released him after three hours of questioning. They said evidence suggested Lula had received illicit benefits from kickbacks at the oil company, Petrobras, in the form of payments and luxury real estate.

Brazil’s President Dilma Rousseff (left) expressed her disagreement with the police taking her mentor into custody. (Photo: AP)

The evidence against the former president brought the graft investigation closer to his protege Rousseff. She is already fighting off impeachment for allegedly breaking budget rules, weakening her efforts to pull the economy out of recession.

Rousseff expressed her disagreement with the police taking her mentor into custody, saying it was “unnecessary” after his voluntary testimony. But she repeated her backing for institutions investigating corruption and said the probe must continue until those responsible were punished.

News of Lula’s brief detention sparked a rally in Brazilian assets as traders bet that the political upheaval could empower a more market-friendly coalition.

• Highest profile development in two-year-long investigation
  
• Questioning brings graft probe closer to President Rousseff
  
• Brazil markets rally in hopes of new governing coalition
  

The real currency rose over 3 percent against the US dollar before settling to a 1 percent gain. The Bovespa stock index rose 4 percent, led by a 10 percent surge for the state oil giant Petrobras, formally known as Petroleo Brasileiro SA.

Ex-president Lula, besides being party leader, was the one ultimately responsible for the decision on who would be the directors at Petrobras and was one of the main beneficiaries of these crimes. There is evidence that the crimes enriched him and financed electoral campaigns and the treasury of his political group.

Police said in a statement on his detention. “

Lula was indignant, slamming investigators for “disrespecting democracy” and running what he called a media circus rather than a serious investigation.

He told supporters at Workers’ Party headquarters he had already answered the questions that police asked him on Friday and reiterated that he was not the owner of luxury real estate that investigators have suggested he received as bribes.

Rousseff has also repeatedly denied any wrongdoing. Her labour minister, Miguel Rossetto, said in a public statement that the detention was “a clear attack on what Lula represents.”

“This is not justice, this is violence,” he said.

Underscoring the deep political passions surrounding the former president, TV images from the street outside Lula’s home on Friday showed his supporters clad in red shirts exchanging chants, insults and even blows with opponents.

Dozens of police arrived to break up the altercations, clearing the street by force. Pro-Lula protesters also gathered in a noisy protest outside federal police offices at a Sao Paulo airport where he was taken for questioning.

(Photo: AP)

‘Violence in the Streets’

As the founder and figurehead of his party, Lula’s image has been central to huge street protests over the past year, both for and against Rousseff’s impeachment, and powerful unions have marched repeatedly in his name.

A presidential aide who had not been authorised to comment publicly called the accusations against Lula a “turning point” in a long-simmering political crisis.

“This breaks with standard procedure. If they do not quickly present concrete proof against Lula, there is going to be violence in the streets. It could be a real war,” the aide said.

Lula, 70, was a model for a wave of leftist presidents in Latin America as his government coupled healthy economic growth with popular social programs that lifted more than 30 million people out of poverty during his presidency from 2003 to 2010.

Yet investigators say much of the corruption at Petrobras happened during that period. On Friday, they called him and Rousseff the chief political beneficiaries of a scheme to fund Worker’s Party campaigns with bribe money.