EDITORIAL COMMENT: Scandals soil clean reputation

Thursday, January 30, 2003

Chile's reputation as a shining light amid the shady goings-on of its Latin American counterparts has been dimmed by two widely publicized corruption cases, known locally as Caso Coimas and Caso GATE.

The ruling Coalition's worst corruption scandal has seen the arrest of a former minister and several officials, and the lifting of five pro-government legislators' immunity from prosecution, as well as the Coalition's most serious bout of infighting.


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Caso Coimas (a "coima" in Chilean slang is a bribe) first came to light in mid-2002. It started innocuously enough, with local entrepreneur Carlos Fillipi being investigated for falsifying vehicles' technical revisions from his Rancagua workshop, but soon snowballed as it was revealed that he had paid bribes to government agencies, some of which had been funneled into election campaigns for some of the ruling Coalition's left-wing members.

The ensuing government investigation - initially through the public works ministry's (MOP) transport department - opened a can of worms that led to the expulsion of five left-wing members of congress - including former transport undersecretary Patricio Tombolini, former MOP chief of staff Alejandro Chaparro and lower house VP Juan Pablo Letelier - for their alleged involvement. The Coimas investigation continues.

Caso GATE goes back to 1997, when ex-transport department official Hector Peña Veliz created the company Gestion Ambiental y Territorial S.A. (GATE), which offered consultancy and outsourcing services to government agencies.

The company started modestly, with a seed capital of just 5mn pesos (some US$11,900 in 1997 exchange terms) and two employees, Peña and his secretary. But things picked up the following year, when GATE obtained a string of lucrative contracts with MOP, including one worth 1.4bn pesos in September 1999 to carry out support work for MOP's concessions unit, which at the time was heavily involved in the highway concession process. This contract included the payment by GATE of specialized personnel who worked for the concessions unit.

GATE's final contract was in July 2000 to carry out an EIA for the concessions unit for 49mn pesos.

In September 2000, Peña reported the disappearance of 190mn pesos from his company. The police suspected an inside job, and ordered the detention of GATE secretary Sara Oliva and her mother, Maria Martinez, both close friends of Peña, who were jailed for several months. Peña eventually recovered 172mn pesos of the missing funds.

During their subsequent interrogation, Oliva and Martinez accused GATE of being a shell company that diverted funds to political campaigns, but the judge didn't believe them.

The accusations against GATE went no further until April 2001 when a routine audit of the MOP detected irregularities in one of its contracts with GATE; the trifling sum of around 1.4mn pesos (some US$2,200 at the time). The auditor determined that part of the works stipulated in the contract was never carried out, despite being paid for.

The auditor recommended legal action against MOP lawyer Sergio Cortes, who also happened to be the collector for parliamentary campaigns in 2000 for Chile's Socialist Party (PS) members of the MOP. The PS is a key member of the ruling Coalition parties.

The cat was out of the bag. In November 2002, a full-scale investigation, initially headed up by judge Carlos Aranguiz, found that GATE paid extra salaries (sobresueldos) to MOP employees, and that GATE had received overpayments from the ministry to the tune of some 311mn pesos.

Two MOP officials who gained infamy in the Caso Coimas fiasco, Tombolini and Chaparro, were again found to have been among those who received the extra payments in Caso GATE.

They weren't the only ones to fall. On December 13 last year MOP's concession unit head, Eduardo Arriagada resigned. Five days later, public works director Carlos Uribe - who had been tasked with helping coordinate the investigation against GATE - joined him on the sidelines. It was found he had received 2.2mn pesos or US$3,000 in extra payments from GATE.

The ministry officially confirmed the finding in January that GATE had paid salaries to MOP employees, but maintained that no money from GATE had bankrolled political campaigns.

On January 7 judge Aranguiz ordered the arrest of former MOP minister Carlos Cruz, over the GATE irregularities for fraud against both the ministry and GATE. GATE's owner Peña, Cruz and MOP lawyer Cortes are now facing charges of fraud amounting to 311mn pesos.

Another former MOP minister, Jaime Toha, who signed contracts with GATE in 1999 is now being questioned over the dealings.

Aranguiz then stepped down from the investigation, and on January 21 the Supreme Court passed on the responsibility in Caso GATE to special prosecutor Gloria Chevesich.

One of the most surprising aspects of these two scandals is the relatively small amount of money involved. In Caso Coimas, it is alleged that no more than 30mn pesos (some US$44,000 at today's exchange rate) was taken by any one person, often far less. Why would a wealthy man like Juan Pablo Letelier risk his political career and his reputation for peanuts? Surely, there is more to these cases than has so far been revealed.

As the case develops, other engineering and contracting companies have become implicated in similar shading dealings, including a consortium made up of the Chilean subsidiary of Brazilian constructor Mendes Junior, Ingecol and Sical and Chile's Belfi, who are being questioned over a 100mn peso-payment to GATE.


But the amounts, baffling as they are, are beside the point. The most important aspects of these cases are the political and business fallout and the shattering of the myth that corruption in Chile is unsubstantial.

Politically the government has taken the right steps by ousting the people implicated in the scandals, although there is a feeling that some at least were branded "guilty until proven innocent." It sends a clear message that no corruption will be tolerated, and President Ricardo Lagos - himself a former MOP minister - has said as much several times since the scandals broke.

Chile's opposition parties, led by the right-wing coalition of the UDI (Independent Democratic Union) and their slightly more central allies RN (National Renewal) have been somewhat subdued in their tub-thumping, for three reasons: no one knows how far this scandal will go, Lagos' administration was quick to dump those involved and there is the knowledge that these cases are bad news for everybody.

As opposition congressman Pablo Longueira was quoted as saying: "These occurrences have an adverse effect on the country and its institutions. It's a mistake to think that this situation only affects those involved."

The removal of five ruling Coalition legislators, some of them very senior, has weakened the government's position in congress. It will have less scope to govern, and the whole legislative process, already compromised by the existence of the rightward-leaning bloc of "designated senators", could be seriously affected.

Business-wise, these cases have stalled MOP's admirable efforts to boost private investment in Chile's infrastructure. Under Lagos and his predecessor President Eduardo Frei, MOP has undertaken, and mostly completed, a very ambitious plan to concession out Chile's highways, and is in the process of doing the same for the country's airports and ports. But Coimas and GATE will make some players pause before investing in Chile, at least until MOP has sorted itself out and cleaned up its image.

Which leads us to the third aspect of these cases, the end of the myth that Chile is immune from government corruption. It isn't immune, and it never was.

Now a few things have to be done to restore faith in MOP and other institutions. Judge Chevesich must not drop the ball as the investigation continues, nor must she be hindered in any way from doing her work. The opposition should continue to keep a sharp eye on the government, and criticize any shady practices when they come to light, but it should not keep MOP's concessions program off the rails just to make a nuisance of itself. That helps nobody. Nor does their wilder rhetoric about the government losing all credibility with the people over these two isolated cases.

Meanwhile, the government must follow through on its commitment to nip corruption in the bud and boost transparency in all public dealings. If it needs any urging to do this, it should look across the Andes to see how dire the consequences of corruption can be.

Whether innocent or guilty, former minister Carlos Cruz and his colleagues are paying the price of an antiquated and opaque remuneration system for public servants, which encourages undeclared additional payments to supplement inadequate official salaries. The onus is now on legislators to clean up the system and on prosecutors to squeeze out those who abuse it.