By Eduardo Simões and Brad Brooks

By Eduardo Simões and Brad Brooks

SAO PAULO (Reuters) - Brazil's federal police on Monday sought corruption charges against former finance minister and presidential chief of staff Antonio Palocci and accuse him of running a bribery scheme that funneled money to the former-ruling Workers Party's (PT).

Police said in their investigation sent to federal prosecutors that Palocci conspired with construction firm Odebrecht SA [ODBES.UL] to pay 128 million reais ($41 million) from 2006 to 2013 to the party, politicians and other officials in return for winning bloated contracts from state-run oil company Petrobras.

Police are also seeking corruption charges against former Odebrecht Chief Executive Officer Marcelo Odebrecht and powerful political strategist Joao Santana, the force behind the PT's presidential campaigns.


Odebrecht is already serving a 19-year sentence for a separate case in the Petrobras probe, while Santana faces other corruption charges in the investigation.

Under Brazilian law, only prosecutors can file charges, a process that can typically takes a month or longer.

Palocci's lawyer Jose Batochio said in a statement that his client was innocent and that the police accusation amounted to "literary fiction."

Reuters was not immediately able to reach lawyers for Odebrecht. It was not clear if Sanata had an attorney.

Nearly 200 executives and former politicians have been charged and 83 have already been found guilty in the Petrobras probe. Prosecutors are seeking 38 billion reais ($12 billion) in damages from companies and individuals involved.

Brazil's top prosecutor Rodrigo Janot is investigating 66 politicians - many sitting lawmakers - for participation in the scheme, a number that could grow significantly as more of those charged turn state's witnesses.

Palocci, a medical doctor by training, was former President Luiz Inacio Lula da Silva's finance minister and a key player in the 2002 election campaign that put the PT leader in the presidential seat.

He also served as chief of staff to Lula's hand-picked successor, Dilma Rousseff, ousted in an August impeachment trial that ended 13 years of PT rule.

Palocci helped Lula change his image from leftist radical into a business friendly and socially progressive leader who finally secured election on his fourth bid.

As finance minister from 2003, he continued the anti-inflation and pro-market policies of the previous centrist government, helping calm financial markets' concerns about Lula's presidency.

But Palocci was forced to resign in 2006 amid allegations he lied to Congress about meeting with lobbyists at a mansion in the capital Brasilia.

Witnesses testified before a congressional inquiry that lobbyists and businessmen paid bribes to politicians at the mansion in return for government contracts. Palocci maintained his innocence and never faced charges in that scandal.

He joined Rousseff's administration as chief of staff. However, he stepped down six months later amid media reports that his personal wealth jumped by a factor of 20 as a consultant for private companies while also serving in Congress from 2006 to 2010.

($1 = 3.12 reais)

(Reporting by Eduardo Simões and Brad Brooks; Writing by Brad Brooks; Editing by Daniel Flynn and Lisa Shumaker)

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