Brazil and the United States have had a troubled relationship in the past year, between a bitter trade feud, a high profile child abduction case, and currently, disagreements on Iran. But the latest international debacle between the two countries involves a powerful Brazilian politician and a New York lawyer.

It began in 2007, when the Manhattan District Attorney indicted Maluf, the former mayor of Sao Paulo, for allegedly stealing US$11.6 million from a Brazilian public works project and illegally transferring the stolen funds through a bank in New York. The press release of the indictment reads like a bad movie. Read the full document here, and the full indictment here. Here are some excerpts from the DA’s press release:

“PAULO MALUF, the former Governor and Mayor of the State and City of Sao Paulo, Brazil, and currently a Federal Deputy in the lower house of the National Congress of Brazil, is charged with participating in an over-invoicing and kickback scheme, which generated millions of dollars in criminal proceeds.  The stolen funds were illegally transferred to a bank account in New York secretly controlled by MALUF, and then wired to another account under MALUF’s control in the Isle of Jersey, the Channel Islands.  Some of the kickback funds were used to pay for personal expenses in the United States and Brazil and to finance political campaigns in Brazil.

The investigation disclosed that while MALUF was the Mayor from 1993 to 1997, and continuing thereafter, the defendants conspired to steal and stole massive amounts of money from the City of Sao Paulo.  MALUF used his position to install close friends and allies in key positions within the municipal government to facilitate the scheme.

The MALUFs received the kickbacks through both cash payments and the transmission of funds through illegal black market money operations, known as “doleiros,” to accounts they controlled in New York.  Some of these illegal transmissions were in the form of wire transfers sent to an account at Safra National Bank, 546 Fifth Avenue in Manhattan, maintained under the code name “Chanani.”  The Chanani account was opened by ALVES, who falsely indicated to the bank that ALVES and his wife were the beneficial owners of the Chanani account, when, in fact, it was controlled by the MALUFs.”

While Maluf was briefly imprisoned in Brazil in 2005 on corruption charges, he was released due to health reasons and has since then been free, and is currently serving as a federal congressman. Since Maluf was never extradited, the New York indictment had no real effect. But now, three years later, the district attorney decided to try something new, and placed Maluf on Interpol’s criminal “red list.” Maluf’s son, who was also named in the indictment, was also placed on the red list. Theoretically, if Maluf or his son leave Brazil, they could be arrested, since the red list is effective in over 180 countries.

At first, Maluf shrugged it off as an election year stunt. But now, he’s pissed, and he has decided to sue the New York DA. He has hired white collar crime defense lawyers from Kostelanetz & Fink. In his explanation of the lawsuit, Maluf claims the DA’s move was “arbitrary” and violates international law and Brazil’s sovereignty.

But the Sao Paulo DA, who incidentally is an expert on international law cooperation and an advocate of fighting corruption, disagrees: he says the New York DA has every right to go after Maluf, who is considered a wanted man.