BRAZIL: Investigates American Corporation for Spying

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U.S. corporate sleuth Kroll Inc. took out an unusual front-page ad Friday in a Brazilian newspaper to deny wrongdoing when it spied on two men who are now top officials in the Brazilian government.

A day earlier, Brazilian President Luiz Inacio Lula da Silva's top aides had asked justice officials to begin a full investigation into the spying to determine whether Brazilian laws were broken.

New York-based Kroll acknowledged Friday that it had seen the private e-mails of Luiz Gushiken, da Silva's most trusted political and media strategist, as part of an investigation on behalf of the telecommunications firm Brasil Telecom.

Reports that an American firm spied on Gushiken and other top aides to da Silva, a fiery leftist leader distrustful of the United States and U.S. foreign policy in Latin America, are likely to stoke growing anti-American sentiment in Brazil.

A probe into the corporate spying, however, carries risks for da Silva's Workers' Party, too, since some of figures in the investigation are big party names. Negative publicity could hurt the party's showing in nationwide municipal elections in October.

Kroll said in its statement on Folha de Sao Paulo's front page that it had done nothing wrong.

"Kroll does not utilize methods that contradict Brazilian law, American (law) or (the laws of) any other country in which it is active," the company said. The statement also ran Friday in the influential Rio de Janeiro daily newspaper O Globo.

Kroll acknowledged investigating Gushiken - an expert on pension funds - in 2000, along with Cassio Casseb, whom da Silva later named to head the government's Banco do Brasil. At the time, Casseb was an adviser to Telecom Italia, a multinational cellular and landline phone company that's active in Brazil.

Kroll noted that the Workers` Party wasn't voted into power until two years later, and said it wasn't hired to investigate government officials. A front-page story Thursday in Folha de Sao Paulo, which Kroll said included inaccuracies, alleges that the spying continued well into 2003.

The case is complicated: Brasil Telecom, the country's third largest fixed-line operator, and the investment bank Opportunity, which now controls Brasil Telecom, hired Kroll. Kroll's assignment was to determine whether Telecom Italia deliberately overpaid in 2000 when it purchased the Brazilian fixed-line phone company Companhia Riograndense de Telecomunicoes from Spain's Telefonica.

If Telecom Italia overpaid, Kroll's clients want to know whether the money went to kickbacks, bribes or other irregularities involving regulators or company officials?

Brasil Telecom and Telecom Italia have been locked in court struggles since 2000.

Kroll also looked into the affairs of Luiz Roberto Demarco, an ex-partner in Opportunity who'd fallen out with the bank's powerful owner, Daniel Dantas, who now controls Brasil Telecom. It was by spying on Demarco that Kroll obtained access to Gushiken`s private e-mails.

In a statement read to Knight Ridder, a Brasil Telecom spokeswoman said the company hired Kroll to clarify overcharges by Telecom Italia that amounted to $1 billion.

As part of its investigation, Kroll also looked into Luis Favre, a Frenchman who's married to Sao Paulo Mayor Marta Suplicy, the first Workers` Party mayor of South America`s largest and most important city.

Brazilian media reports said Kroll was investigating ties between Favre, who at the time was an international adviser to the Workers' Party, and a Lebanese-born Brazilian businessman, Naji Nahas.

With October municipal elections approaching and his wife trailing badly in the polls, Favre's alleged ties to Nahas may become a campaign issue. Nahas is a powerful speculator whose financial dealings nearly provoked the collapse of the Sao Paulo and Rio stock exchanges in 1989. He was ordered in 1994 to pay the largest fine ever for market irregularities, but was absolved last March.

On Friday, Folha de Sao Paulo reported that Favre denied knowing Nahas and was considering legal action against the newspaper.

AMP Section Name:Corruption