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Brazil's President Temer faces threat of new criminal charges

Brazilian President Michel Temer attends a breakfast at the Alvorada Palace in Brasilia on Wednesday. He has rejected all criminal charges brought forward by chief prosecutor Rodrigo Janot.

Adriano Machado/Reuters

With two days left in his job, Brazil's chief prosecutor is rushing to bring new criminal charges against President Michel Temer, the biggest news so far in a week of corruption-related headlines that has been dizzying even by recent Brazilian standards.

Prosecutor Rodrigo Janot is reported to be preparing to charge Mr. Temer with heading a criminal organization within Congress. The President has angrily rejected the accusations and says that Mr. Janot is waging a personal vendetta against him through the courts.

The Supreme Court on Wednesday rejected a petition from Mr. Temer to take Mr. Janot off cases related to him, citing the vendetta.

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The ticking-clock showdown between Mr. Janot and the President was just one of the developments in Brazil's high-stakes political drama on Wednesday. Former president Luiz Inacio Lula da Silva testified before high-profile anti-corruption judge Sergio Moro on graft charges. Mr. da Silva has already been convicted in one corruption case and faces charges in seven more. Meanwhile, Wesley Batista, chief executive of the world's largest meat company, was arrested on charges related to the case against Mr. Temer.

The stock market, however, is at near-record highs as investors bet on Mr. Temer's survival and the pro-market reforms the beleaguered President has promised.

Federal police say Mr. Temer received up to $12.3-million in kickbacks for contracts at the state energy firm Petrobras and other companies. In a leaked police report, they say the "quadrilhao do PMDB" – or, the gang of the Brazilian Democratic Movement Party, the party Mr. Temer headed until he took over the presidency last year – manipulated the workings of Congress to provide benefits to private industry, particularly large construction firms, in exchange for a total of $136-million worth of "advantages," including cash bribes.

Police say Mr. Temer headed the gang, while former speaker of the house Eduardo Cunha was the intermediary between the politicians and the businesses. Mr. Cunha is currently serving 15 years for corruption and money laundering. Last week, police arrested a former Temer cabinet minister, Geddel Vieira Lima, after they found $20-million in cash in boxes and suitcases in an apartment belonging to him.

This is Mr. Janot's second attempt to prosecute the President: He brought charges against Mr. Temer in May – this criminal prosecution of a sitting president is a first in Brazil – after billionaire beef baron Joesley Batista secretly recorded him as they allegedly plotted to hand over hush money to Mr. Cunha. The Supreme Court, which has to approve cases against the President, let those charges proceed and sent the case to the lower house of Congress. But Congress members shut it down in August, citing insufficient evidence. Analysts noted at the time that Mr. Temer, a legendary political operator, disbursed $820-million in federal funds for members' constituencies and pet projects in the weeks before the crucial vote.

Mr. Temer has angrily rejected the latest round of accusations in the police report.

"Criminals steal truth from the country, thieves build false accounts, reputations are shattered in conversations bred in clandestine actions," he said in an indignant speech to business leaders in Brasilia on Tuesday.

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Should these latest charges be approved by the Supreme Court, they are likely to meet the same fate in Congress, said Thiago de Aragao, director of intelligence at Arko Advice, a Brasilia-based political analysis firm.

In his unsuccessful submission to the Supreme Court to have Mr. Janot removed from cases involving him, Mr. Temer said the prosecutor has a "personal and political agenda" to oust him and has overreached his constitutional powers seeking a way to do it.

Mr. Janot was appointed by Dilma Rousseff, the president whose impeachment a year ago brought Mr. Temer to power – and his mandate as chief prosecutor ends on Friday. Mr. Temer has appointed his successor.

While all of this political upheaval might seem to bode badly for Brazil, the stock market has been surging, up more than 3 per cent this week. Far from being put off by the risk of new charges against Mr. Temer, investors are confident that the high level of political drama in Brasilia means he is likely to ride this out, Mr. de Aragao said – especially as some of the main plea-bargain evidence against him, from the beef tycoons, is now compromised. This increases the chances that Mr. Temer will manage to pass controversial pension-reform legislation that the business community insists is vital for economic recovery.

Mr. de Aragao said investors are focused on economic indicators, which are improving because, or in spite, of the President. The annual inflation rate is running at 2.5 per cent; the rate in August was the lowest since 1994. The economy moved out of recession in this quarter for the first time since the first quarter of 2014.

"One side of Brazil right now demonstrates everything everyone in Brazil believes of politicians, the worst," he said. "But the other side is completely favourable – stable and positive. … Investors are sure that the economy is going forward and it's a major opportunity. For foreign investors, as they get used to living with [U.S. President Donald] Trump, they are starting to understand better how politics and economy could be dissociated."

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Brazilians were riveted last May when beef baron Joesley Batista, negotiated a bombshell plea deal – revealing that his company, JBS S.A., had paid millions of dollars in bribes to politicians in all parties in exchange for favourable legislation. He used the evidence he turned over, including the Temer recording, to negotiate a deal that meant that neither he nor his brother, Wesley, who runs the family holding company J&F Investments, would face jail time. But days before the plea bargain was revealed, the company bought U.S. dollars on the futures market, earning $272-million on the currency trade.

The plea bargain is now falling apart – after another improbable series of events. Auditing the first Temer recording, the federal police came up with another on the same machine. This recording was of Joesley Batista talking with another JBS executive, making reference to other alleged crimes they had not told prosecutors about (full disclosure is a condition of the plea bargain), and bragging about how they would never see the inside of a jail. Joesley Batista turned himself in to police on the weekend; he has said through a lawyer that he was drunk and joking in that recording.

Police have now arrested Wesley Batista on charges of having attempted to profit off the brothers' own plea bargain, through the currency purchases and the sale of hundreds of millions of dollars in JBS shares by the family holding company. Those shares lost more than half their value as the plea bargains became public.

Meanwhile, Mr. da Silva, the former president known as Lula, appeared before Judge Moro to answer questions about two pieces of property is he alleged to have been given by the construction firm Odebrecht S.A. while he was president. In July, he was convicted of having accepted renovations to an apartment from another construction company and was sentenced to 91/2years in jail – the first time a Brazilian president had been convicted. He is appealing; he currently tops polls to win next year's presidential elections and can run again if an appeals court has not upheld his conviction by then.

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About the Author
Latin America Bureau Chief

Stephanie Nolen is the Latin America correspondent for The Globe and Mail.After years as a roving correspondent that included coverage of the wars in Iraq and Afghanistan, Stephanie moved to Johannesburg in 2003 to open a new bureau for The Globe, to report on what she believed was the world's biggest uncovered story, Africa's AIDS pandemic. More

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