Pension fraud scandal threatens stability of Lula government in Brazil

Yahoo

03-06-2025

SANTIAGO, Chile, June 3 (UPI) -- Brazil's federal court has authorized freezing assets that belong to suspects, including former officials from the National Institute of Social Security, or INSS, and consulting firms, in connection with a massive pension fraud scheme that affected millions of retirees and pensioners.
The pension fraud scheme, which operated between 2019 and 2024, diverted roughly 6.3 billion reais -- more than $1.1 billion -- through unauthorized deductions from the benefits of more than 6 million INSS recipients.
While initial investigations suggest the unauthorized deductions began during the presidency of Jair Bolsonaro, the scheme's growth under President Luiz Inácio Lula da Silva has placed his administration in a politically uncomfortable position -- particularly because one of the unions involved is led by Lula's older brother, Frei Chico.
For Lula, who was previously jailed and later acquitted on corruption charges, these incidents pose a direct challenge to his image and his promise of a transparent government.
A poll published May 30 by AtlasIntel showed disapproval of Lula's administration reached 53.7%, the highest since the start of his current term. Approval fell to 45.5%, down slightly from the previous month.
The decline in support is attributed primarily to the pension scandal, as well as rising food and service prices and a perception of weak government response to economic problems.
The Federal Police investigation, known as "Operation No Discount," identified at least 11 organizations, including unions and retiree associations, that received diverted funds over several years.
About 97% of affected pensioners did not notice the deductions, which were often small amounts withdrawn monthly from modest pensions.
Lula's government has moved to contain the fallout from the scandal, emphasizing in public statements that it was his administration that granted the Federal Police the autonomy to investigate and dismantle the scheme.
The scandal already has triggered political fallout. Social Security Minister Carlos Lupi resigned, and several other officials, including INSS President Alessandro Antonio Stefanutto, were dismissed.
The Federal Police have carried out more than 200 search and seizure operations and confiscated assets worth over 1 billion reais. The government has pledged to reimburse all affected pensioners by Dec. 31. More than 2 million people have submitted reimbursement requests.
Since returning to office in January 2023, Lula has faced a difficult political landscape. His Workers' Party government has made some progress in stabilizing the economy and restoring social programs, but deepening political polarization and a fragmented Congress have complicated legislative efforts.
Lula's relationship with Congress has been a key factor. He has been forced to make concessions to secure support for major reforms, including a tax overhaul, while Brazilians voice growing concern over issues such as public security and economic performance.
Opposition lawmakers have called for a congressional investigation, a move that could keep the scandal in the public and media spotlight for months and increase political pressure on the administration.
Beyond the political fallout, the pension fraud scandal highlights a sensitive and urgent issue: the long-term viability of Brazil's pension system.