Brazilian Prosecutors Investigating Former President Lula da Silva

March 7, 2016

Brazilian prosecutors said for the first time that former President Luiz Inácio Lula da Silva is under investigation in connection with a high-profile corruption scandal for actions allegedly committed during his term.

Authorities said in public documents that Mr. da Silva, a charismatic former union leader who left office with the highest approval ratings of any president in the country’s history, is suspected of profiting from a bid-rigging-and-bribery scandal that has rocked the highest levels of Brazil’s business and government.

Prosecutors overseeing the mammoth investigation say they suspect that two construction firms implicated in the graft probe renovated a luxury beachfront apartment and sprawling country estate for Mr. da Silva as possible rewards for giving them the inside track on government contracts.

In a motion sent to Brazil’s Supreme Court late Monday, prosecutors said “part of the advantages subject to this investigation were presumedly obtained by [Mr. da Silva] during the presidential mandate.”

The former president, who led Brazil from 2003 through 2010, has repeatedly denied wrongdoing in a scandal that has ensnared several high-ranking members of his ruling Workers’ Party. A spokesman for the former president on Tuesday said Mr. da Silva “always acted within the law before, during and after his two terms as president.” The spokesman said Mr. da Silva never owned the properties under investigation, adding that although Mr. da Silva did visit the home in the country, he never benefited from any upgrade work done to the property.

No formal charges have been filed against Mr. da Silva.

The revelation that Mr. da Silva is under scrutiny by prosecutors is a blow to the former leader, who has talked of another possible presidential run in 2018. “From a criminal perspective, it’s enormous news, and of course it dents the reputation of the former president in a way that has not previously occurred,” said Matthew Taylor, a political-science professor and expert in corruption and Brazilian affairs at American University in Washington, D.C.

It is also a setback for his protégée, Brazil’s President Dilma Rousseff, who is battling impeachment charges amid a deep recession and the ever-widening Car Wash probe that threatens to engulf her administration.

Ms. Rousseff faces impeachment over claims she manipulated public accounts to mask a growing deficit, allegations she denies. She hasn’t been implicated in the Car Wash scandal and has repeatedly denied involvement.

But the investigation has moved steadily closer to her and to Mr. da Silva, as prosecutors charged one powerful business or political figure after another as part of its probe of an alleged graft ring centered on state oil company Petróleo Brasileiro SA.

Prosecutors say company suppliers skimmed billions of reais from Petrobras through inflated contracts, using some of the profit to bankroll politicians and political campaigns on behalf of the ruling Workers’ Party and its allies, who have repeatedly denied the allegations.

Last week, police arrested João Santana, an influential political consultant who helped Ms. Rousseff win Brazil’s highest office in 2010 and 2014 and engineered Mr. da Silva’s 2006 re-election. Authorities allege Mr. Santana accepted at least $7.5 million in funds diverted from Petrobras and stashed it in offshore accounts. Mr. Santana has denied wrongdoing.

“The investigation is getting closer and closer to Lula,” said Thiago de Aragão, a political analyst for consulting firm Arko Advice in Brasília. “It is getting closer because of [the two luxury residences] and even more so because of João Santana.”

Still the most prominent figure in Brazilian politics, Mr. da Silva has seen his reputation suffer, with the explosion of the Car Wash scandal, as well as by separate allegations against him by investigators of influence peddling on behalf of Odebrecht SA, Brazil’s biggest construction company.

Several Odebrecht executives have been jailed in connection with the Car Wash scandal. In the documents filed with the Supreme Court on Monday, prosecutors said evidence suggests Odebrecht was involved in the real-estate improvements under the da Silva investigation, as was another builder, OAS SA.

Lawyers for Odebrecht and its executives have repeatedly denied wrongdoing. On Tuesday, Odebrecht said it “is collaborating with the authorities and all clarifications are being made in regards to the investigation under way.”

OAS declined to comment. It has denied wrongdoing in the past.

As prosecutors press ahead in their Car Wash investigation in general, the flow of ground-shaking news coming from the probe is likely to last for months, analysts say. Brazil’s capital has been all but paralyzed by the investigations, worsening the nation’s economic downturn, as lawmakers have been unable to agree on badly needed economic overhauls.

“We entered a tunnel, and now need get to its end,” said Mr. De Aragão, the politician analyst.