PBR Petroleo Brasileiro ADR

By Jeffrey T. Lewis 

SÃO PAULO -- The fledgling administration of Brazil's acting President Michel Temer was rocked by fresh corruption allegations on Wednesday following the release of plea-bargain testimony implicating him in a sprawling graft scandal centered on the country's state oil company.

Mr. Temer, who replaced Dilma Rousseff in May when she stepped aside to face an impeachment trial, allegedly asked the then-head of the transportation unit of Petróleo Brasileiro SA in 2012 to arrange illegal campaign contributions to Mr. Temer's party, according to a plea agreement released Wednesday by Brazil's Supreme Court.

It was the first time Mr. Temer has been directly implicated in the blockbuster corruption investigation known as Operation Car Wash, which has ensnared dozens of high-profile business and political figures, including leading members of Mr. Temer's Brazilian Democratic Movement Party, or PMDB.

Mr. Temer on Wednesday denied ever asking for illegal campaign contributions and called the allegations "absolutely untrue."

The developments are the latest corruption allegations leveled at the administration of Mr. Temer, who has been Brazil's acting president for barely a month.

Two of his cabinet members -- including the former minister of transparency -- resigned from their posts last month in response to allegations that they sought to subvert the probe into massive graft at Petrobras, as the state oil company is known.

"This deepens his government's crisis," said Pedro Fassoni Arruda, a political science professor at the Pontifical Catholic University of São Paulo. "But a plea bargain doesn't prove anything, it's just the start of the investigation."

Sergio Machado, the former head of Petrobras Transporte SA, said in the newly released plea agreement that he organized, at Mr. Temer's request, a donation of 1.5 million reais ($434,000) from a construction firm to Mr. Temer's party. In exchange, according to the testimony, the builder was to be given a leg up on winning contracts.

Mr. Temer, who was Brazil's vice president at the time, told Mr. Machado he was worried that his party's candidate for mayor of São Paulo, Gabriel Chalita, needed more financing, Mr. Machado said in the document.

Petrobras had no immediate comment. Mr. Chalita, who lost his 2012 mayoral bid, said all his campaign contributions were legal.

Some analysts played down the significance of the developments.

"There's nothing illegal about asking for donations," said Pierre Moreau, a São Paulo-based lawyer, adding that it would be a problem "if Temer knew there was something illegal," such as that benefits were being offered in return for campaign donations.

Mr. Machado sought out prosecutors in the Petrobras corruption investigation and offered to negotiate a plea agreement after other people accused in the case said he participated in the bid-rigging and bribery scheme, according to a spokeswoman for the probe.

Brazilian news media have reported leaked portions of Mr. Machado's plea testimony in recent weeks, including the allegation about Mr. Temerand others that resulted in two of Mr. Temer's cabinet ministers stepping down.

It could be difficult for Mr. Temer, whose government received an 11.3% approval rating in a recent poll, to sink much more in the polls, said Carlos Melo, a political science professor at São Paulo business school Insper.

"It's not a surprise for public opinion because everyone knows Temer has been in politics for a long time," Mr. Melo said.

In his plea deal, Mr. Machado also alleged that other prominent members of Mr. Temer's party accepted millions of reais in bribes, including Senate President Renan Calheiros, former Brazilian President José Sarney and the acting president's former planning minister, Senator Romero Jucá.

Mr. Machado accused Senator Aecio Neves, who was the Brazilian Social Democracy Party's candidate for president in 2016, of accepting illegal payments.

All four men have denied the allegations.

Mr. Machado also said he had heard from various senators that Brazilian company JBS SA, the world's biggest meat packer, would make a donation of 40 million reais to the PMDB.

The money was to be distributed among the party's senators, for the 2014 elections, said Mr. Machado. Mr. Machado told prosecutors he didn't know if JBS got anything in return.

JBS said all its campaign donations were legal. The company's shares fell 3.2% on Thursday, to 9.76 reais.

Luciana Magalhaes and Rogerio Jelmayer contributed to this article.

(END) Dow Jones Newswires

June 16, 2016 02:48 ET (06:48 GMT)

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