Brazil police arrest former finance minister in Petrobras probe

SAO PAULO (Reuters) - Brazilian police arrested former Finance Minister Guido Mantega on Thursday as a sweeping corruption investigation struck further at the heart of the Workers Party (PT) that ran the country for 13 years.

Brazil's former Finance Minister Guido Mantega is escorted by federal police officers as he arrives at the Federal Police headquarters in Sao Paulo, Brazil, September 22, 2016. REUTERS/Nacho Doce

Police investigators told a news conference they took Mantega, long a confidant of recently impeached former President Dilma Rousseff and an early member of the PT, into custody at the Albert Einstein Hospital in Sao Paulo. He was there accompanying his wife as she prepared for surgery.

Mantega, 67, was ordered released from custody a few hours later.

The investigators said Mantega in 2012 requested a payment of 5 million reais, about $2.5 million at the time, from Brazilian business tycoon Eike Batista, a billionaire who has since lost his fortune, to pay PT campaign debts.

At the time, Batista’s shipbuilding unit OSX Brasil SA was discussing an oil platform project with state-led oil company Petroleo Brasileiro SA, known as Petrobras, and loans from state-owned development bank BNDES.

Brazil’s longest-serving finance minister of the past 70 years, Mantega in 2012 was also the chairman of Petrobras, the company at the center of a sprawling political-kickback scheme.

Mantega’s lawyer, José Roberto Batochio, told reporters late on Thursday that his client never requested money from Batista and said his arrest was “absolutely exaggerated.”

“What I can say and what the minister has affirmed to me with total assurance is that he never discussed a donation of any value to pay campaign debts from Mr. Eike Batista,” Batochio said.

A few hours after his arrest, federal Judge Sergio Moro ordered Mantega released from custody.

Moro ruled that Mantega’s cooperation with authorities, the fact they had already searched his home, and the fact that Mantega was supporting his wife as she fights cancer all suggested the former minister was unlikely to interfere with the investigation.

His arrest came two days after Moro decided to put former President Luiz Inacio Lula da Silva on trial for allegedly accepting more than $1 million in bribes from an engineering company in the Petrobras scandal.

Mantega served as finance minister for almost nine years under Rousseff and Lula, a close friend whom he helped become elected president in 2002.

He helped steer Latin America’s largest economy through a commodities boom at the height of Workers Party rule, but came under withering criticism in 2011 and beyond as the economy began sliding into its worst recession since the 1930s.

Mantega left office in 2015 at the start of Rousseff’s second term after years of complaints from critics about faulty economic forecasts and ineffective industrial policies.

Mantega’s political allies attacked the decision to arrest him.

Workers Party President Rui Falcao called the arrest “arbitrary, inhuman and unnecessary” and questioned the timing of the operation just over a week before municipal elections throughout the country.

Police executed warrants for eight arrests and 32 search and seizure operations in five states and the capital Brasilia on Thursday, according to prosecutors. They said the operation targeted Mantega and engineering firms Mendes Junior and OSX, part of Batista’s former commodities empire.

Police named the latest phase of the two-year-old Petrobras probe “Operation X Files” in a reference to the letter X that Batista included in the name of his oil, mining, shipbuilding, and port-operation and energy companies.

Prosecutors said Batista contacted prosecutors of his own volition to tell them about Mantega’s alleged request in November 2012 for the 5 million real payment to the PT.

Prosecutors said Batista eventually made an overseas payment of $2.35 million, to Joao Santana, Rousseff and Lula’s former campaign adviser, and his wife, Monica Moura. Both were arrested in February for allegedly laundering money in the Petrobras scheme.

Prosecutors said they believe the payment was a bribe destined to pay debt from Rousseff’s 2010 campaign, a conclusion denied by Batista, who is under investigation but was not targeted in Thursday’s operation.

The Globo TV networks Jornal Nacional nightly newscast quoted Batista’s lawyer as saying the payment from Batista had nothing to do with any contracts between his company and the government or Petrobras and that negotiations related to OSX with Petrobras were done by a consortium led by Mendes Junior, not OSX.

A lawyer for Mendes Junior could not immediately be reached for comment.

Additional reporting by Patricia Duarte, Alexandre Caverni, Eduardo Simoes and Nacho Doce in Sao Paulo, and Pedro Fonseca and Jeb Blount in Rio da Janeiro; Editing by Leslie Adler and Sandra Maler