Brazil seized by corruption allegations against President

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Brazil's top prosecutor has charged the President of the country with being a member of a criminal organization – just one of the jaw-dropping developments on Friday as the country's political crisis metastasized swiftly.

The Supreme Court released the full contents of plea-bargain testimony from a pair of billionaire meat-baron brothers, whose decision to turn state's witness has created the most tumultuous moment in Brazil's modern political history.

Its contains depositions as well as audio and video recordings created while one of them, Joesley Batista, worked with police to gather evidence of corruption on the part of the country's most powerful politicians.

Read more: Breaking down the corruption crisis causing political turmoil in Brazil

The testimony produced a blizzard of extraordinary revelations:

• Mr. Batista, who with his brother Wesley runs meat packer JBS SA, said he transferred $150-million (U.S.) to two overseas bank accounts for former presidents Dilma Rousseff and Luiz Inacio Lula da Silva. Both have in the past denied any involvement in corrupt activities, and Mr. Batista did not say whether the money was intended as campaign financing or for their personal use. He did not name the bank or even the country to which he sent the funds, but this is one of the most serious allegations about either of the former presidents yet made in the course of the three-year-long Lava Jato scandal.
• JBS promised to pay a total of $46-million to 30 members of Congress in an unsuccessful effort to buy enough votes to stop the impeachment of Ms. Rousseff, who was being ousted for financial irregularities in government accounts, according to Mr. Batista. (In the end, the company paid $4.6-million to five congressmen, he said.) JBS was a huge beneficiary of low-interest loans from a government development bank under Ms. Rousseff’s and Mr. da Silva’s administrations; the Batista brothers were charged with financial crimes in relation to that funding, and they negotiated immunity from prosecution with this plea bargain.
• JBS delivered illegal funds to 1,829 political candidates from 28 parties, of whom 179 became deputies in the lower house, 28 were elected senators and 16 governors, according to Mr. Batista’s testimony.
• President Michel Temer took $4.6-million in illegal funding from JBS for his party during the 2014 federal election, according to the plea bargain, but kept $300,000 for himself.

Presented with all this, prosecutor-general Rodrigo Janot laid charges of corruption, obstruction of justice and "membership in a criminal organization" against the President.

Mr. Temer did his best to maintain the image of normal government function on Friday, even as calls for his resignation intensified – but Brazilians were mesmerized, and eventually numbed, by the tidal wave of news. In a terse address to the nation on Thursday, he said he had done nothing wrong and would not resign.

The newspaper O Globo, until recent days an enthusiastic backer of Mr. Temer, published an editorial Friday demanding that he step down: "The president has lost the moral, ethical, political and administrative conditions to continue governing Brazil." The newspaper is owned by one of Brazil's wealthiest families and it is seen as a mouthpiece of the elite – who seem to have turned on Mr. Temer en masse.

The right-wing magazine Veja ran the word "Enough" on its cover, saying "the millions of honest Brazilians should not have to pay for the gall and greed of those in power." Joaquim Barbosa, the retired chief justice of the Supreme Court and one of the most respected figures in the country, told Brazilians in a tweet that they must go to the streets and stay there until Mr. Temer leaves.

Meanwhile, the Supreme Court also released audio recordings made by the federal police of political leader Aecio Neves in which he asks Gilmar Mendes, a justice of the Supreme Court, to intervene to assist with an effort to obstruct Lava Jato.

And Brazil's securities watchdog CVM launched an investigation into JBS's currency and stock trades after reports that the company bought more than a billion American dollars on currency markets before the plea bargain news broke. JBS said in a statement that it bought dollars as part of "a policy of financial protection and risk management." The Brazilian currency, the real, lost more than 8 per cent of its value when the testimony was made public. The securities commission is now investigating the transactions.

The scope and contents of the JBS plea bargain, which involves the Batista brothers and five executives at the firm, is of an order of magnitude more damning than that in Lava Jato to date, and it speaks to the nature of the company's business. Most of the evidence in the prosecutions has come from giant construction and infrastructure companies that paid kickbacks for public-works contracts.

Those companies, such as Odebrecht SA, where 78 executives made plea bargains, rely on government contracts and had to exercise caution, said Felippe Serigati, a professor of agricultural economics at the Getulio Vargas Foundation in Sao Paulo who has studied JBS. But 80 per cent of the meat packer's business, on the other hand, is outside Brazil – in exports or processing plants located in other countries. So JBS is largely inured to any political or economic upheaval. "It makes little difference to them: people are still going to eat meat and other JBS products," he said.

The drama is battering Brazil's already crippled economy. Mr. Temer took office as president after Ms. Rousseff's impeachment, promising a package of economic austerity measures that would pull the country out of its worst recession in nearly a century. But two key laws – to curtail pension benefits and labour protections – are stalled in Congress, and seem unlikely to pass now regardless of whether Mr. Temer somehow holds on to his office.

Ibovespa, the Brazilian bourse, has largely recovered from its precipitous fall when the JBS news first broke, and the country narrowly retained its credit rating on Friday.

But even if Mr. Temer steps down soon, economic growth is unlikely to reach 1 per cent this year, Sergio Vale, chief economist at the financial consultancy MB Associates told O Globo. "Without a rapid resolution, we could have further recession this year, and unemployment could rise to between 15 and 17 per cent."

With a report from Elisangela Mendonca