Police arrest Lula aide in widening Petrobras scandal

Brazilian police on Monday arrested a top aide of former president Luiz Inacio Lula da Silva in the widening corruption probe into state oil company Petrobras that has engulfed the political and business establishment.

Prosecutor Carlos Fernando dos Santos Lima told reporters that Jose Dirceu -- Lula's chief of staff between 2003 and 2005 -- was a "chief instigator" in the creation of the massive kickbacks scheme, which is estimated to total at least two billion dollars.

Dirceu was detained at home, where he is already serving a sentence of seven years' house arrest for his role in a separate political corruption case.

Officials allege that top Petrobras executives colluded with construction companies to inflate contracts and to bribe politicians.

Prosecutors said Dirceu laundered some 39 million reais ($11.7 million) received from various companies and paid to his firm JD Consulting in exchange for services that were never rendered.

Dos Santos said Dirceu was not only a beneficiary of the payments but one of the "creators" of the scheme -- all while he was serving as Lula's chief of staff.

The case has further weakened President Dilma Rousseff, who has not been directly implicated, but was chairwoman of Petrobras for seven years coinciding with the period of corruption.

The former treasurer of her Workers' Party, Joao Vaccari, was arrested in April on charges that he funneled bribes skimmed from the top of fake Petrobras contracts.