The first phase of the Minas Gerais mensalão scandal could end this year.

by Lúcia Azevedo, special for Current Brazil Network

Belo Horizonte – The witness hearing phase of one of the PSDB mensalão cases, currently being processed in the 9th Criminal Court of Belo Horizonte, may be concluded this year. The scheme of illegally raising funds for the 1998 reelection campaign of then-Governor of Minas Gerais, Eduardo Azeredo, and his vice-governor, Clésio Andrade, of the PMDB party, involves a tangled web of lawsuits. Azeredo, now a congressman, and Clésio Andrade, currently a senator, are both facing charges in the Supreme Federal Court (STF).

Although the initial rapporteur was Joaquim Barbosa, the same one from Criminal Action 470, the federal government's mensalão scandal seems to have sparked more interest in the minister, who ended up setting aside the trial of the Minas Gerais case, seven years older and considered by himself to be the genesis of the irregularities that would later be brought to Brasília.

Yesterday (14), Judge Neide da Silva Martins heard defense witnesses for three defendants implicated in the release of funds from the Water and Sanitation Company of Minas Gerais (Copasa) and the Mining Company of Minas Gerais (Comig) in 1998 for sponsorship of sporting events. According to the Public Prosecutor's Office, this was one of the aspects of the diversion of funds for the election campaign, which also used fictitious loans and illegal resources from private companies. According to the judge, about 50 prosecution and defense witnesses have already been heard. She expects to conclude the hearing phase by November and has scheduled the next hearing for November 21.

The next phase will involve questioning the defendants, which should take place next year. The Minas Gerais case involves well-known figures such as businessman Marcos Valério and former directors of Banco Rural. The Minas Gerais scheme was denounced in 2007 by the Federal Public Prosecutor's Office, based on an investigation by the Federal Police, and has resulted in several lawsuits currently being processed in the courts of Minas Gerais and Brasília.

In the 9th Criminal Court of the Court of Justice of Minas Gerais, where the proceedings are public, the defendants are facing criminal charges for the crime of embezzlement – ​​committed by public officials against the public administration – in the first instance. Among them are former Vice-Governor Walfrido dos Mares Guia, former Secretary of State and financial coordinator of the 1998 campaign, Cláudio Mourão, former Secretary of the Civil House and Communication Eduardo Guedes, former presidents and directors of the defunct state bank Bemge, and of the public companies Copasa and Comig. Because they are parliamentarians and possess privileged jurisdiction, federal deputy Eduardo Azeredo (PSDB-MG) and senator Clésio Andrade (PMDB-MG) are defendants in a criminal case before the Supreme Federal Court (STF).

According to the Public Prosecutor for Public Assets of the State Public Ministry, João Medeiros, only two defendants still need to testify. Regarding the progress of the cases, he believes that the proceedings in the state court cannot be compared to the procedural progress of the Supreme Federal Court (STF), where the cases against Eduardo Azeredo and Clésio Andrade are located. “They are different procedures, and the process in Minas Gerais is moving forward. There are many defendants, and many allegations have already been submitted. It's a normal pace that, unfortunately, isn't progressing as it should, but this isn't a problem unique to the Minas Gerais justice system; it's a reality throughout Brazil,” he explains.

With the exception of the parliamentarians, the following are also defendants in the case being processed in the 9th Criminal Court of Belo Horizonte: former directors of the advertising company SMP&B, Ramon Hollerbach and Cristiano de Mello Paz; former financial director of Copasa, Fernando Moreira Soares; former directors of Comig, Lauro Wilson de Lima Filho and Renato Caporali; former directors of the defunct state bank Bemge, José Afonso Bicalho, Jair Afonso de Oliveira, Sylvio Romero; and former commercial manager Eduardo Mundim. They are accused of being jointly responsible for the release of funds for the sporting events Enduro da Independência, Iron Biker – Desafio das Montanhas, and the Motocross World Championship in 1998/99.

The complaint filed by the Federal Public Prosecutor's Office, almost a decade after the scheme began, concerns the embezzlement of public funds from the state of Minas Gerais, directly or through state-owned companies, which went to the election campaign of the then-governor of Minas Gerais, Eduardo Azeredo. At that time, the PSDB (Brazilian Social Democracy Party) declared having used R$ 8,5 million, but at least R$ 53 million were fraudulently applied to companies belonging to Marcos Valério. What directly implicates the then-governor in the case is a receipt signed by him, for R$ 4,5 million, to SMP&B and DNA, Valério's advertising agencies.

Another aspect of the scheme involved the transfer of funds from private companies with economic interests in state government business, such as contractors and construction firms. These operations were carried out through the companies of Marcos Valério and his partners at the time, Clésio Andrade, Cristiano Paz, and Ramon Holllerbach, in conjunction with Banco Rural, which authorized fictitious loans.

According to the Federal Public Prosecutor's Office (MPF), they used professional and paid money laundering services operated by the partners of SMP&B Comunicação to give the operations an appearance of legality, making it impossible to identify the origin and nature of the funds. At least R$ 3,5 million were identified as having come from public coffers. The money was destined for the unsuccessful reelection campaign of the Azeredo-Clésio Andrade ticket.

The president of the PSDB party in Minas Gerais, federal deputy Marcus Pestana, denies the existence of the PSDB scheme. “There was no monthly payment scandal in Minas Gerais. Eduardo Azeredo was a candidate for governor and did not handle campaign finances. Other people took care of that, and if they made mistakes, they will pay for it. Azeredo is one of the most honorable people I know, and this matter is being dealt with in court,” he stated.

At the time of the investigation, the Attorney General of the Republic, Antônio Fernando de Souza, now retired, denounced the involvement of Eduardo Azeredo and Walfrido dos Mares Guia, then governor and vice-governor, respectively, for the embezzlement of public funds from Copasa and Comig, totaling R$ 1,5 million each, and the embezzlement of R$ 500 from the Financial Group of the Bank of the State of Minas Gerais – Bemge. The alleged crimes were embezzlement, money laundering and, in the case of the former bank directors, fraudulent and reckless management. These accusations resulted in several ongoing lawsuits in both the state and federal courts, as well as in the Supreme Court.

The leader of the Minas Sem Censura bloc, in opposition to the PSDB state government, state deputy Sávio Souza Cruz (PMDB), disagrees: “It has been demonstrated that the 'Valerioduto' scheme was invented in Minas Gerais, during the PSDB government, headed by Governor Eduardo Azeredo.” He criticizes the slow pace of the trial in the Minas Gerais case, which is at least five years prior to the PT case. “They are managing, until now, to omit the original scandal of the use of the 'Valerioduto' scheme, which is the triangulation of advertising companies and banks, with the diversion of public funds, which is basically the logic of the scheme. This was invented in Minas by the PSDB. It is incredible that these actors still have the hypocrisy to come out publicly demanding a serious investigation of the PT case, to position themselves against appeals and the suppression of instances.”

Senator Clésio Andrade, currently with the PMDB party, is identified by the Federal Public Prosecutor's Office as one of the participants in the Minas Gerais scheme involving the embezzlement of public funds and money laundering during the 1998 campaign, when he was a candidate for vice-governor on Azeredo's ticket. Sávio Souza Cruz, a critic of the slow pace of the state judiciary, questions why Senator Clésio is being tried in the Supreme Federal Court: “He wasn't a member of parliament, he was simply a candidate for vice-governor for the then-PFL party, and he was unsuccessful. What I've heard from people close to him is that he hopes to be acquitted and would like to be judged before 2014. At the time he wasn't with the PMDB, he joined later, but we hope that this will happen and that he will demonstrate his innocence in this process.”

In the Chamber of Deputies in Brasília, Eduardo Azeredo's communications office reported that the congressman is awaiting a ruling from the courts before commenting on the matter. In the Senate, Clésio Andrade's communications office reported that he was traveling and requested an email, but had not yet responded by the time this report was finalized.

How it worked

The size of the sponsorship deal for the 1998 International Independence Enduro was what drew the Federal Police's attention to the scheme. SMP&B Publicidade had exclusive rights to exploit the event, to which the sponsorship money from state-owned companies was transferred, amounting to about ten times more than the funds allocated to the race itself. Two other events, the Iron Biker – The Mountain Challenge and the Supercross World Championship, were also included in an attempt to conceal the true volume of resources allocated to the Enduro.

But the Federal Police investigations revealed financial transactions directly related to the Supercross World Championship, involving Lonton Trading and the company Action Group International Limited, SMP&B, in an accounting triangulation that evidenced the money laundering cycle.

In citing the workings of the scheme in Minas Gerais in the 2007 indictment, the Federal Public Prosecutor's Office described: “With the alleged advertising contracts approved, Marcos Valério advanced financial resources to the participants in the scheme and to the campaign of Eduardo Azeredo and Clésio Andrade, distributing them to his 'collaborators'. To this end, he took out loans from financial institutions that were later repaid with public funds obtained illicitly or by the banking institution itself. In the latter case, the financial institution's funds were transferred through simulated advertising contracts, sham agreements in the Judiciary, and onerous amortizations for the financial institution.”

The former directors of Grupo Rural and Grupo Bemge were also accused of crimes against the national financial system, for reckless loans, with the aim of moving funds for the electoral campaign for the state government and remunerating the accused for services rendered.

The link between the monthly payments

The individuals involved in the two schemes, the federal and the state, are interconnected through different processes underway in the Judiciary. When the Supreme Federal Court opened an investigation into the complaint related to the Workers' Party (PT), it ordered the splitting of the inquiry into several others, which were sent to the federal prosecutor's offices in the states for investigation.

During the investigation in Minas Gerais, the Federal Public Prosecutor's Office found a link between the two schemes, with the difference that the one involving Eduardo Azeredo and 14 other people occurred in 1998. The then Attorney General of the Republic, Antônio Fernando de Souza, stated that “(...) the criminal scheme verified in 1998 was the origin and laboratory of the facts described in the indictment already offered in the investigation,” which resulted in Action 470. And with the participation of the same characters: Marcos Valério, his companies, and Banco Rural. However, the final procedure of the Supreme Federal Court (STF) was different in the two cases. While all the defendants in the federal scheme were judged by the Court itself, the PSDB case ended up being separated, and only defendants with privileged jurisdiction answer to the Supreme Court.