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Brazil's Temer faces new graft charges over JBS testimony

By Ricardo Brito and Anthony Boadle

BRASILIA (Reuters) - Brazilian President Michel Temer was charged with obstruction of justice and racketeering on Thursday, according to a statement posted on the prosecutor general's office website, threatening to delay the government's economic reform agenda in Congress. It is the second set of criminal charges filed against the president based on the plea-bargain testimony of the owners of the world's largest meatpacker, JBS SA.

They accused Temer of taking bribes in return for political favors and of conspiring to buy the silence of a witness who could implicate the leader.

In a statement on Thursday, Temer strongly rejected all allegations of wrongdoing.

Temer's earlier corruption charge, that he took bribes from JBS officials, was blocked in August by Temer's allies in the lower house of Congress, which has the power to decide whether a president should stand trial by the Supreme Court.

Despite the lower house's move to block the charges, they remain valid and can be pursued by prosecutors once Temer leaves office. His term ends on Jan. 1, 2019.

Brazil's top public prosecutor Rodrigo Janot has also filed charges against Joesley Batista, the billionaire former chairman of JBS who implicated Temer. Batista was arrested on Sunday for concealing other crimes in his plea bargain deal.

Batista's lawyer Antonio Carlos Kakay rejected the charges brought by Janot, arguing in a statement that the prosecutor had violated the rules of plea bargains by using his client's testimony to incriminate him.

On Wednesday, Batista's brother Wesley, the chief executive officer of JBS SA, was also arrested for alleged insider trading to avoid hefty losses related to the May plea deal.

Late on Thursday, Supreme Court Justice Edson Fachin converted Joesley and executive Ricardo Saud's temporary detentions into preventative detention and gave them 10 days to respond before ruling on Janot's request to withdraw their plea deal.

The arrests of the Batista brothers have improved Temer's prospects of surviving the new charges and serving out his term through 2018. Temer and his allies expect the new charges to be voted in the lower house next month with wider support than he obtained in the 263-227 vote last month blocking a trial.

Fachin heeded a request from Temer's defense not to deliver the accusation to the lower house until after a supreme court plenary vote on the matter. The vote should be held before Wednesday. The allegations are part of Brazil's sprawling corruption probes that have resulted in ex-President Luiz Inacio Lula da Silva's conviction and four pending trials; investigations and charges implicating three former presidents and dozens of members of Congress; and guilty verdicts against well over 100 powerful business and political figures.

Most of the schemes involve political kickbacks in return for contracts at government-run enterprises or cheap loans from Brazil's state development bank.

The racketeering charge against Temer was based on the plea bargain testimony of Lúcio Funaro, a businessman who accused the president and his closest aides in the ruling PMDB party of operating a criminal organization to collect bribes in exchange for political influence.

The obstruction of justice charge was based on testimony by Joesley Batista that Temer endorsed payments of hush money to try to keep Funaro from talking.

A short legislative agenda ahead of an election year, the absence of public pressure to oust Temer and the lack of any convincing replacement for him are also likely to weigh in the president's favor.

"Given the short timetable, the general public apathy and lack of a viable alternative, it is quite possible that Brasilia will continue to punt this down the road," said Matthew Taylor, a professor at the American University in Washington.

(Reporting by Ricardo Brito and Anthony Boadle; Editing by Andrew Hay and Richard Borsuk)