Lula Detained During Brazil Police Raid Into Graft Scandal (4)

Brazil’s former President Luiz Inacio Lula da Silva was detained for three hours after heavily armed police raided his home earlier today in a sweeping corruption probe that has targeted the nation’s elite and shaken Latin America’s largest country.

Lula was released from custody at Congonhas airport in Sao Paulo after questioning on Friday morning. Prosecutors say they have evidence that companies rewarded him with donations and speaking fees in return for government favors. The investigation is part of a probe known as Carwash into allegations that business executives bribed politicians for contracts at state-run oil company Petrobras.

Leaders of Lula’s Workers’ Party called on supporters to take to the streets to defend the former president and protect the current administration, led by his hand-picked successor Dilma Rousseff. Government critics called for protests Friday night and a mass demonstration on March 13 in favor of Rousseff’s impeachment. Crowds gathered outside Lula’s residence, with the two sides at times coming to blows.

Lula’s detention was arbitrary, illegal and unjustified, given that the former president had cooperated with the police inquiry, the Lula Institute said in a statement. The only result of Friday’s police action is "subjecting the former president to public embarrassment," it said. Lula is expected to hold a press conference at 2 p.m. local time in Sao Paulo.

Latest Twist

Friday’s detainment is the latest twist in the two-year Carwash probe. It may put on ice the career of Brazil’s most prominent politician in decades and is reviving a frenzied debate surrounding Rousseff’s future. Eurasia Group, the political consulting firm, said in a note that "Rousseff is now unlikely to finish her term in office," with the detention further polarizing Brazil with major demonstrations on both sides.

Equity and currency markets rallied, making the real the second-best performer Friday among major currencies tracked by Bloomberg. Investors speculate the scandal could bring down the administration and force an end to Brazil’s political turmoil. Lula’s legal troubles also eliminate any chance of him making a comeback and winning the presidency in 2018, said Andre Cesar, political analyst and founder of consulting firm Hold Assessoria Legislativa.

"The image of Lula being taken away means the end of him," Cesar said. "He’s no longer viable as a candidate."

The federal police said in a statement published earlier Friday on their website that they are carrying out 33 search and seizure warrants and 11 detention warrants to testify. No arrest warrant was issued.

‘Zombie Government’

A mentor to Rousseff who President Barack Obama once called the most popular politician on Earth, Lula in recent months had moved to the center of numerous investigations. Police have been probing allegations about his involvement in a scheme of Money Laundering from kickbacks and granting benefits to companies in Exchange for favors. Lula, 70, has repeatedly denied wrongdoing.

Lula himself escaped calls for impeachment over a decade ago after a cash-for-votes scandal that toppled his chief of staff and finance minister, leading to the imprisonment of key party leaders.

During the Rousseff administration, the arrest of business executives and leading Workers’ Party members have prompted scuffles and shouting matches in parliament. The former president’s troubles risk weakening Rousseff as she seeks to stem a contracting economy and fight off several attempts in Congress and in court to oust her. The president called an emergency meeting with her closest ministers to discuss Lula’s detention, newspaper Folha de S. Paulo reported.

"We’re talking about a zombie government that’s been dead for a long time, but this zombie is still walking around," said Claudio Couto, professor of political science at the Getulio Vargas Foundation in Sao Paulo.

(Updates with Lula press conference in fourth paragraph.)

--With assistance from Anna Edgerton Carla Simoes Gerson Freitas Jr. and David Biller To contact the reporters on this story: Raymond Colitt in Brasilia at rcolitt@bloomberg.net, Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net, Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net. To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Randall Woods, Raymond Colitt

By: Raymond Colitt, Arnaldo Galvao and Mario Sergio Lima

©2016 Bloomberg News