It Just Does Not Stop…

Brazilian Prosecutors Allege Corruption at Health Ministry, Caixa Economica

Ghost companies were set up to channel funds to politicians, prosecutor says

By

ROGERIO JELMAYER and LUCIANA MAGALHAES/WSJ

Updated April 10, 2015 11:28 a.m. ET

SÃO PAULO—Brazilian prosecutors investigating corruption at state-controlled oil company Petroleo Brasileiro SA, or Petrobras, said Friday they have found evidence of fraud at the country’s health ministry and at state-owned bank Caixa Economica Federal as well.

The ministry and the bank hired advertising companies for various services, and channeled 10% of the amount billed for some contracts to ghost companies, federal prosecutor Carlos Fernando Lima said at a press conference in the southern city of Curitiba. The extra money was passed on to various politicians, Mr. Lima alleged.

Representatives from the health ministry and Caixa Economica Federal had no immediate comment.

Investigators say that Petrobras suppliers regularly inflated the price of contracts with the oil company. Petrobras executives involved in the scheme then allegedly skimmed off the extra money, keeping some for themselves and passing some on politicians, including members of the PT and allied parties in Congress.

“We’re talking about the biggest case of corruption in the history of the country, so you can expect that has reached other public institutions as well,” said Igor Romario de Paula, a top official at Brazil’s Federal Police.

Police have already arrested several executives of construction companies that work with Petrobras, and last month got permission from Brazil’s Federal Supreme Court to investigate dozens of politicians.

The police arrested three former Congressmen earlier Friday as part of the widening investigation. André Vargas, a former member of President Dilma Rousseff’s Workers’ Party, or PT was arrested, as was Luiz Argôlo of the Solidariedade party and Pedro Corrêaof the Progressive Party, or PP.

Mr. Vargas and Mr. Argôlo are accused of involvement with currency dealer Alberto Youssef, who was previously arrested by the federal police as part of “Operation Car Wash,” as the Petrobras investigation is known. Messrs. Vargas and Argolo have previously denied involvement in the alleged corruption scheme. It isn’t clear what the accusations are against Mr. Correa.

Since the start of the so-called Car Wash probe in March 2014, four former Petrobras executives and at least 23 construction executives have been charged with crimes such as corruption and money laundering. Some have admitted wrongdoing in exchange for lesser punishment, prosecutors say, while others have denied involvement and await trial.

The investigation gets its name from the fact that a big break in case came at a gasoline station that had a carwash.

Lawyers representing the companies and their executives either denied involvement, said they were cooperating or didn’t return requests for comment. So far, there have been no trials or convictions.

—Jeffrey T. Lewis in São Paulo contributed to this article.

Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and Luciana Magalhaes atLuciana.Magalhaes@dowjones.com

Corrections & Amplifications: 
André Vargas is a former member of President Dilma Rousseff’s Workers’ Party, An earlier version of this article incorrectly identified him as a current member.

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