Reuters International

By Alonso Soto and Sergio Spagnuolo

BRASILIA/CURITIBA, Brazil (Reuters) - Brazil's federal police said they had arrested two people and raided properties on Tuesday over alleged corruption at building firm Queiroz Galvao, widening a sweeping investigation focused on state-run oil company Petroleo Brasileiro SA.

"Operation Carwash" was launched two years ago to tackle price fixing, bribery and political kickbacks at Petrobras, as the company is commonly known. It has led to dozens of convictions for bribery and money-laundering, and several top politicians are being investigated.

Former Galvao Queiroz senior executive Ildefonso Colares Filho and current employee Othon Zanoide de Moraes were arrested, authorities said in a press briefing in the southern city of Curitiba. Police were also carrying out an arrest warrant against a third unidentified person.

Queiroz Galvao's press office said it was going to issue a statement responding to the accusations later on Tuesday.

The charges all fall under the types of crime encompassed by "Carwash" probe, including illegal campaign donations, obstruction of justice and corruption, federal prosecutor Carlos Fernando Lima told reporters.

The investigation is hunting for additional evidence that Queiroz Galvao participated in a cartel that systematically paid bribes to win over contracts with Petrobras, prosecutors said.

They said evidence already in hand showed Queiroz Galvao paid nearly 10 million reais ($3.07 million) in bribes to Petrobras executives to gain an upper hand in the public auction of projects.

Some of those bribes were also transferred as campaign donations to politicians with close links to Petrobras, they said.

In addition, authorities are investigating if Queiroz Galvao passed 2.4 million reais ($784 million)in bribes to the re-election campaign of former president Luiz Inacio Lula da Silva in 2006, Lima said.

A Lula spokesman said via e-mail that the campaign accounts are under the responsibility of its treasurer and the ruling Workers' Party. He added that Lula's lawyers have filed a disciplinary action against Lima for publicly raising these suspicions without enough evidence.

Lula, one of Brazil's most popular politicians and a potential contender to run for president in 2018, is due to stand trial for charges of trying to obstruct the investigation.

Investigators said they have a video that proves that the company paid another 10 million reais ($3.07 million)in bribes to thwart a congressional inquiry into corruption at Petrobras in 2009.

The "Carwash" probe, which has expanded to include other state firms and projects, has hobbled investment and fueled a political crisis that led to the suspension of President Dilma Rousseff in May.

Rousseff, a leftist re-elected for another four-year term in 2014, is not under investigation in the "Carwash" probe, but the arrest of members of the Workers' Party and other political allies sparked calls for her impeachment. The Senate is expected to vote on her removal from office in late August or early September on impeachment charges of manipulating budget data.

Police chief Igor Romario said on Tuesday the Olympic Games due to start on Friday will not hinder the investigation but acknowledged it could reduce the amount of officers available for future raids and arrests.

On July 6, police arrested 19 people as part of an investigation of a graft scheme at a nuclear power plant owned by state-led utility Eletrobras.

Queiroz Galvao was part of a consortium working on the construction of the plant, which included other major firms. But the consortium pulled out in August last year.

Some of Brazil's largest construction companies, such as Odebrecht and Andrade Gutierrez, have been accused of overcharging Petrobras for work and passing on kickbacks to executives and politicians.

They are also being investigated for graft on venues for the 2014 World Cup and upcoming Olympics.

($1 = 3.2608 Brazilian reais)

(Reporting by Alonso Soto in Brasilia and Sergio Spagnuolo in Curitiba; Writing by Raissa Kasolowsky; Editing by Bernadette Baum and W Simon)

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