By Caroline Stauffer
CURITIBA, Brazil (Reuters) - Brazilian prosecutors on Thursday formally charged executives of six of the country's largest engineering firms with forming a cartel to funnel kickbacks from state-run oil company Petrobras (PETR4.SA) to the ruling political party and its allies.
They were also indicted on charges of corruption and money laundering in a landmark case that has shaken President Dilma Rousseff's government and may further weaken a stagnant economy.
The corruption scandal, in which billions of dollars were allegedly paid by the companies in bribes to win Petrobras contracts, threatens to paralyze infrastructure projects because implicated firms could be banned from government contract bids.
Prosecutors charged 36 people, 22 of them from engineering firms OAS [OAS.UL][OAEP.UL], Camargo Correa [PMORRC.UL], UTC Engenharia, Galvao Engenharia [QGDI.UL], Mendes Junior (MEND5.SA) and Engevix, including board members and vice presidents of the companies.
"These people stole the pride of the Brazilian people," said top Brazilian prosecutor Rodrigo Janot at a news conference. He vowed the investigation "will go to the very end."
The case is expected to implicate dozens of politicians and weaken Rousseff's already fragile governing coalition as she begins a second term on Jan. 1.
The indictments said the companies formed a "club" to corner billion-dollar contracts with Petrobras and paid 1 percent to 5 percent in bribes to land them. The funds were paid through false contracts with front companies that in most cases had no employees.
Prosecutors said they are seeking the return of about 1.18 billion reais ($448 million) from the companies involved in the alleged bribery scheme, and executives of other engineering firms could face charges.
The executives, some of whom have been held for nearly a month at the federal prison in Curitiba, where the scheme was discovered, could face sentences of more than 20 years in prison.
None of the companies would immediately comment.
The indictments included Paulo Roberto Costa, a former director at Petroleo Brasileiro SA, as the $52 billion oil company is formally known. Costa named many of those involved in a plea bargain he struck after his arrest in March.
Janot called earlier this week for the replacement of the top management of Petrobras and punishment of everyone involved in a scheme. The company's shares have lost 18 percent of their value since police raided the contractors' offices and arrested the executives on Nov. 14.
Lawyers in the case said they expect federal Judge Sergio Moro, a specialist in white-collar crime in the southern state of Parana, to wrap up the case by August 2015.
Rousseff was the chair of Petrobras' board of directors from 2003 to 2010, when allegedly more than 10 billion reais ($3.9 billion) in transfers to her Workers' Party and its allies are thought to have occurred.
She has emphatically denied knowledge or involvement of the scheme and urged investigators to uncover all wrongdoing.
Separately, Brazil's comptroller general in Brasilia is investigating eight firms suspected of participating in the kickback scheme.
Prosecutors in Brasilia are expected to file a case early next year in the Supreme Court against politicians who may have benefited from the alleged graft scheme. Under Brazilian law, the Supreme Court is the only court in the country that can judge elected officials.
(Writing by Anthony Boadle; Editing by Brian Winter, Andrew Hay and Steve Orlofsky)