By Sergio Spagnuolo
CURITIBA, Brazil (Reuters) - Brazilian police on Monday arrested former government minister Jose Dirceu, one of the most senior members of the ruling Workers' Party to be detained so far in a corruption scandal engulfing state-run oil company Petrobras.
Dirceu, popular former President Luiz Inacio Lula da Silva's chief of staff between 2003 and 2005, was already under house arrest for running a vote-buying scheme. His involvement in an even larger scandal threatens to bring the investigation closer to Lula and his protégé and successor President Dilma Rousseff.
Federal prosecutor Carlos Fernando dos Santos Lima called Dirceu a key instigator of the Petrobras scandal, saying he took bribes from contractors while in office and continued to receive payments even when he was jailed in late 2013 for the vote-buying scandal in Lula's first term.
Lima said neither Lula nor Rousseff are currently targets of the widening probe but added during a news conference: "No one is exempt from investigation."
Police served seven other arrest warrants, including one for Dirceu's brother, and 26 search-and-seizure warrants in the latest phase of a graft investigation that has undermined Rousseff's popularity and led to calls for her impeachment.
Workers' Party Treasurer Joao Vaccari was arrested in April and stepped down to focus on his defense.
At least one government witness has said Rousseff's 2014 re-election campaign was financed in part with money originating from a scheme to siphon funds from overpriced engineering and construction contracts with Petrobras, or Petroleo Brasileiro SA, to pay bribes to company executives and politicians.
The Workers' Party denied any wrongdoing and said in a statement that all its campaign donations were strictly legal bank transfers duly reported to electoral authorities. But opponents said prosecutors and police now had to investigate party founder Lula and President Rousseff.
"There is no doubt that Dirceu's arrest puts Lula and Dilma in the sights of Operation Car Wash," Senator Aloysio Nunes of the main opposition party PSDB said in a Facebook (NASDAQ:FB) message.
Lima said the bribery and kickback scheme began during the Lula administration, and there was no evidence of involvement by former Petrobras Chief Executive Officer Graça Foster, whom Rousseff had appointed.
Dirceu's lawyer, Roberto Podval, said at a news conference on Monday that he would appeal his client's imprisonment and said he was being treated like "today's scapegoat".
Dirceu was arrested early on Monday in Brasilia. By late afternoon, the Supreme Court approved his transfer to Curitiba, where the Petrobras graft investigation is centered in southern Brazil.
Lima said Dirceu was responsible for hiring two ex-Petrobras executives involved in the scandal, former refining and supply chief Paulo Roberto Costa and former head of engineering and services Renato Duque.
Curitiba-based law firm Arns de Oliveira & Andreazza said on Monday it would start negotiating a plea deal for Duque this week, which could lead to damaging testimony on Dirceu's role.
The investigation into corruption at Petrobras, which began in March 2014, has also led to jail for some of Brazil's most senior engineering executives and caused the oil company to write off more than $2 billion in losses related to the case.
Dozens of lawmakers, mostly from Rousseff's governing coalition, are being investigated for receiving money in the alleged scheme, which prosecutors suspect went beyond Petrobras to other state-run companies.
Lima said that, while corruption has long existed in Brazil, political kickbacks became systematic during the Lula years.