Brazil President Dilma Rousseff's most powerful foe suffers blow in kickback scandal

President of Brazil's Chamber of Deputies Eduardo Cunha participates in a session of the chamber in Brasilia, Brazil, on Sept 22, 2015.
President of Brazil's Chamber of Deputies Eduardo Cunha participates in a session of the chamber in Brasilia, Brazil, on Sept 22, 2015.PHOTO: REUTERS

(Bloomberg) - Eduardo Cunha, the head of Brazil's lower house and President Dilma Rousseff's most powerful adversary, suffered a political body blow this weekend that reduces his ability to spearhead attacks against the government.

Reports of a corruption scandal involving Cunha were stamped on the front pages of the country's three largest newspapers Saturday. He allegedly used accounts in Switzerland to receive kickbacks from a Petrobras contract in Africa, Folha de S. Paulo, Estadao and O Globo reported Saturday.

"This is almost a deadly blow on Dilma's main rival," Andre Cesar, founder of political consultancy firm Hold, said in a phone interview.

"But he still has legal means to attack the president by leaving the door open to impeachment proceedings."

News of the scandal comes as media reports say Cunha was working with members of the opposition to kick-start impeachment proceedings. It also follows a decision by the country's audit court that may have granted legal grounds to request Rousseff's ouster, by recommending Congress reject her 2014 accounts on charges she broke fiscal law.

Cunha's Power Cunha denies he is maneuvering with the opposition to impeach Rousseff. He also said Thursday that he may start assessing pending impeachment requests on Tuesday.

As head of the lower house, he has the power to accept impeachment requests. If he rejects them, the opposition can try to overrule his decision on the floor.

Cunha allegedly received money that was funneled from a $34.5 million contract signed by state-controlled Petroleo Brasileiro SA to buy an oil field in Benin, Folha said, citing documents held by Brazil's public prosecutor and based on information handed over by Swiss authorities.

Cunha has denied any wrongdoing.

Cunha's attorneys say that they haven't been informed or had access to any investigation related to their client, according to a statement posted on Cunha's Web page Friday. Cunha finds it odd that information protected by secrecy laws in Brazil is being leaked to the press, the statement says.

Cunha broke ties with the government in July and said he was joining the opposition, despite being member of the Brazilian Democratic Movement, a party in Rousseff's ruling coalition.

The government has suffered defeats in Congress since the start of the year and last week was unable to ensure a quorum to uphold presidential vetoes on spending increases.

Rousseff ordered her main political aides to appoint allies to posts in the lower echelons of the government and state companies as part of a plan to rebuild her support in Congress, Estadao reported, citing a person with access to the president. She said members of her own Workers' Party can be removed from posts to give room to allies that have been dissatisfied with the government, the Sao Paulo-based newspaper reported.

The President's press office declined to comment on whether Rousseff is distributing posts to allies as part of plan to rebuild her coalition. Cunha's press office declined to make comments beyond those in the statement published Friday.