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Brazil awoke in shock last week, as federal police surrounded the home of former president Luiz Inácio “Lula” da Silva and took him away for three hours of questioning. Lula’s detention is related to a massive corruption case known as the Lava Jato investigation.

In the run-up to the 2014 presidential elections, a task force of prosecutors and federal police began investigating corruption at Petrobras, Brazil’s state-owned oil company. While on the trail of a money launderer who laundered ill-got gains through a car wash (in Portuguese, a high pressure wash is known as a “lava jato”), they found an unexplained gift of a Land Rover to a Petrobras executive. The ensuing investigation uncovered millions of dollars of theft by white-collar criminals. More importantly, the investigation also turned up evidence of significant off-the-books kickbacks by Brazil’s largest construction firms to politicians and political parties, including the governing Workers’ Party (PT) and its allies in the PMDB and PP, political parties that are part of the ruling coalition. The Lava Jato investigation could be the single largest corruption investigation ever undertaken, anywhere. At this stage, Lava Jato is on target to surpass Italy’s Mani Pulite investigation in terms of the total volume of money allegedly stolen. The task force has already recovered $700 million, and they are seeking a further $3.6 billion. Petrobras has marked down its value by $17 billion – $2 billion of that total was from corruption. Prosecutors have signed more than 40 plea agreements, filed more than 1,000 charges against 180 individuals, and obtained convictions against 84. Most impressive is the jailing of Brazil’s long prison-immune elite: top executives from the country’s leading construction firms, lawyers, bankers, party treasurers, a former presidential chief of staff, and a sitting senator have all seen the inside of a jail cell.

Together with other ongoing investigations, these prosecutions have struck fear throughout the capital Brasília, threatening former president Lula, his successor Dilma Rousseff, the president of the lower chamber, and a score of influential lawmakers. Why was Lula arrested? Trick question: Lula wasn’t arrested. He was brought in by the police for questioning under “coercive conduction,” which is when police compel a witness to testify by taking them to a precinct under police custody. Prosecutors presumably used coercive conduction because they feared Lula might not otherwise testify. We do not yet know the content of Lula’s testimony, but the urgency of it may be associated with new developments in the case of a prominent PT senator, Delcidio Amaral, who is reported to have reached a plea bargain with prosecutors. Press reports suggest that Amaral’s new revelations may tie President Rousseff to Petrobras corruption and provide evidence that illegal contributions were made to her 2010 election campaign. Press reports also point to new signs of personal enrichment by Lula, who had earlier been accused of receiving a beachfront apartment and country home from corrupt construction firms. What does this mean for Brazilian democracy? There are two interpretations. Many social scientists (including Melo and Pereira and Praça and Taylor) have noted the significant improvements in accountability since Brazil’s return to democracy in 1985. Accountability agencies have gained autonomy, capacity, funding, and high-level political support (including, ironically, from Workers’ Party presidents). New laws on plea bargaining, racketeering, and money laundering passed in the last 10 years are partly responsible for the Lava Jato task force’s effectiveness. Likewise, many of the task force members belong to a generation raised since the 1985 transition to democracy, and have worked together and learned from the failures of past corruption cases. Finally, popular support – including massive demonstrations against corruption – has provided public backing for the investigations, making it harder for politicians to sweep wrongdoing under the rug, as they often did in the past. In short, the Lava Jato investigation is emblematic of significant improvement in accountability in Brazil.

The less positive spin on this is that Brazil has returned to where it was before the commodity boom in the early 2000s, when the U.S. Commerce Department caused a minor diplomatic snafu by writing that corruption was “endemic.” Social scientists such as Lazzarini and Musacchio and Latif and Lisboa have noted that Brazilian state capitalism is particularly attentive to special interests and has been plagued by rent-seeking. It is no coincidence that the country’s five leading construction firms were among the top 10 largest campaign contributors in the 2014 elections, retaining the oversized influence they have wielded since the 1950s. Partly as a consequence of interest group pressures, as Montero and Hochstetler and I have found in our research, there has not been much reform of the Brazilian state capitalist system, even under the so-called reformist governments of the 1990s. Furthermore, the hugely congested, delay-ridden, and procedurally formalistic court system throws a wrench in the works. The result, as Tim Power and I have argued, is that scandals often play out with a depressing script, with bombastic revelations followed by glacial court cases that all too often result in impunity. Will Lava Jato be any different? So far, the case seems to be leading to important revelations and the incarceration of powerful elites. But it is likely to trigger important partisan confrontation in coming months. Lula’s first response after he police released him Friday was to hold a combative meeting at the Workers’ Party headquarters in São Paulo, casting aspersions on the neutrality of the judge and prosecutors at the heart of the case. Rousseff has replaced her justice minister, reportedly because he did too little to control the Federal Police under his command. Brazil is deeply polarized, which may contribute to considerable volatility: Lula called Friday for the Workers’ Party to take to the streets, a few days before anti-government protests scheduled for March 13. The new evidence in Lava Jato has resurrected discussion of an impeachment motion against Rousseff. Brazil’s democratic institutions are strong, but passions are running high.

More than any other politician, Mr. da Silva embodied Brazil’s rise as a global powerhouse. Universally known as Lula, he helped usher his country onto the international stage as president from 2003 through 2010, winning admiration at home and abroad. But as a sweeping corruption scandal rips apart the political establishment, the once towering political figure is coming to symbolize something else: Brazil’s crashing ambitions. In an operation that began at 6 a.m., officers from the Federal Police swarmed Mr. da Silva’s home in São Paulo. He was taken to a federal police station, but he was not arrested or charged. He was released after about three hours of questioning, which he later derided as a “media show.” The expanding criminal investigation comes at a time of growing political and economic turmoil in Brazil. Mr. da Silva’s chosen successor, President Dilma Rousseff, is grappling with a downturn in global commodity prices and with soaring discontent over reports of corruption at nearly every level of government. Ms. Rousseff is already facing dismal approval ratings and impeachment proceedings over her use of funds from state banks to cover budget gaps. Beyond that, an array of politicians, including several from her governing Workers’ Party, are in jail or on trial for corruption at the national oil company, Petrobras. For years, prosecutors say, hundreds of millions of dollars were siphoned from the company and channeled into political campaigns. Now, with the deepening inquiry into Mr. da Silva, her most powerful supporter is facing doubts about his own legitimacy and political future.

If that were not enough, both Ms. Rousseff and Mr. da Silva are on the defensive over reports that a senator from their own party is negotiating a plea deal in which he is claiming they tried to undermine the graft investigation. Both the president and the former president deny doing so. The souring economy is also raising pressure on Ms. Rousseff, with the authorities this week reporting the worst decline in 25 years: a 3.8 percent plunge in gross domestic product in 2015. The economic crisis has contributed to a surge in unemployment, erasing some of the gains achieved during the boom years. The move against Mr. da Silva raises serious questions about his political future and the ambitions of the governing Workers’ Party to retain the presidency. As recently as last week, he defiantly signaled in public statements that he planned to run for president again in 2018.

“They’re going to have to defeat me on the street,” he told supporters at a party celebrating the anniversary of the party, founded 36 years ago, during Brazil’s military dictatorship. “I’ll be 72, but as hot and ready to go as a man of 30.” Groups of Mr. da Silva’s opponents and supporters squared off in front of his home in São Paulo on Friday, shouting insults at one another. A man in a red shirt, the signature color of the Workers’ Party, was captured on television punching another man amid the confusion. Prosecutors are examining whether OAS and Odebrecht — two construction companies that profited enormously from government contracts under both Mr. da Silva’s and Ms. Rousseff — may have gotten special consideration for government contracts by renovating properties intended to be used by the former president and his family, including a country estate and a beachfront apartment. “No one is exempt from the investigations,” said Carlos Fernando Lima, a prosecutor at the helm of the inquiry. He said Mr. da Silva and his foundation had received the equivalent of about $7.8 million from construction companies seeking government contracts, including funds for speeches and the improvements at the luxury properties. “We are analyzing evidence that the ex-president and his family received advantages in return for actions inside the government,” Mr. Lima added. The former chief executive of OAS has been sentenced in connection with a bribery plot involving Petrobras, and the billionaire former chief of Odebrecht has been charged and jailed pending trial. Mr. da Silva has denied owning the properties refurbished by the construction companies, and delivered an angry rebuke on Friday after his release from questioning, calling the episode the combination of a “media show” and a “fireworks spectacle.” Some of his most prominent supporters went further. Maria do Rosário Nunes, a congresswoman and former minister of human rights, said his detention was part of a “nefarious conspiracy.” “The script of the coup has changed,” she said on Twitter, alluding to a conspiracy theory popular within the Workers’ Party that media groups and conservative politicians are maneuvering to oust Ms. Rousseff and prevent Mr. da Silva from running again for president. “But the class struggle is the same.” Various confidants of the former president are already in prison on corruption charges, including José Dirceu de Oliveira e Silva, his former chief of staff. Investigators have also focused scrutiny on the business dealings of Mr. da Silva’s son Luis Cláudio Lula da Silva, who owns a sports marketing company and who is suspected of receiving illegal payments in connection with a plan to reduce tax penalties for large corporations. The raid on Mr. da Silva aroused passions around the country.

“If Lula is involved in this scandal, he should go to jail,” said Álvaro Luís de Araújo, 51, a mechanic in Rio de Janeiro. “He brought hope to the heart of the people, but he deceived us.” Others expressed support for Mr. da Silva, citing his humble origins and expansion of social welfare programs as president. “Lula did a great deal for Brazil and that’s something we cannot forget,” said Valdenepe da Silva Sousa, 22, an attendant at a bakery in Rio. “This is about a power game, with everyone piling on Lula when he’s weak.” Almost no corner of Brazil’s political establishment has been untarnished by corruption scandals in recent months. Another former president, Fernando Henrique Cardoso, is facing an investigation into payments made to his former mistress, Mirian Dutra, and into their ties to a company that operated a chain of airport duty-free shops. Mr. Cardoso has acknowledged providing financial support for Ms. Dutra but has denied that he violated any laws in doing so. Eduardo Cunha, the conservative speaker of Brazil’s lower house of Congress, is also facing a trial at the Supreme Court on a charge of pocketing millions of dollars of bribes in the Petrobras scheme. He has refused to step down, heightening the sense of gridlock in Brasília as scandals simultaneously shake various governing institutions.

“The viscera of Brazil are finally being revealed,” said João Paulo Machado Peixoto, a scholar of government at the University of Brasília. “We see the Brazil we’d like to have, rich and full of potential, but with a political system that is diseased.”