Chile’s Penta Case Pulls Dozens into Corruption Scandal

EspañolAndrés Velasco, Finance Minister during the first term of President Michelle Bachelet (2006-10) and a candidate in 2013’s presidential elections, is the latest politician to be called before investigating authorities to give evidence on the campaign finance scandal currently engulfing Chile. Velasco was summoned on Wednesday, January 14, to answer questions on the “Pentagate” case, named after its most most prominent alleged corporate participant.

Authorities questioned Velasco on whether he may have received illegal financing by the business group Penta during his 2013 campaign as a primary candidate for New Majority (NM), the governing coalition currently headed by President Bachelet.

Velasco joins former officials of the administration of former President Sebastián Piñera (2010-2014), current deputies, and other former presidential candidates who have been investigated.

In essence, a raft of current and former officials are accused of receiving illegal payments from the Penta Group under the cover of services rendered by third parties, prior to and after elections.

While receipts were made out to relatives or third-party associates, large amounts of money were deposited into officials’ bank accounts, allegedly in return for political influence. The majority of those accused belong to the conservative Independent Democratic Union (UDI) party, although few have remained untouched by the scandal.

“Andrés Velasco is called to give evidence on Thursday on the Penta case.”

After a long period of preliminary investigations, formal charges began to be delivered in January. Chile’s attention is now fixed upon Penta, a conglomerate of firms dealing with securities, finance, health, property, and education.

Hugo Bravo and Manuel Antonio Tocornal, the former and current directors of the group respectively, have already given evidence before the public prosecutor. According to their testimony, 10 days prior to NM primaries, Velasco took part in a private lunch with Penta’s principal shareholders, Carlos Alberto Délano and Carlos Eugenio Lavín, for which he received CHL$20 million (approximately US$33,000).

The receipt for this transaction was signed after the primaries, although no motive is yet known as to why Penta would want to bribe Velasco, as the official investigation would suggest.

On January 8, investigating authorities requested that Santiago’s eighth judge of guarantee formally begin processing the accusations against Penta’s major shareholders for crimes related to tax evasion and bribery.

FUT-Gate: the First Link to Penta

In August 2014, an anonymous individual sent two unsigned letters to the legal department of Chile’s Internal Revenue Service (SII), requesting the investigation of an SII official, Iván Álvarez.

The SII discovered that Álvarez had allegedly made illicit modifications to internal data-storage systems in 2007, changing previous tax declarations and data to cause the SII to return more money to certain taxpayers than they were due.

The authorities in turn investigated some 122 taxpayers for being involved in the scheme, who apparently gave a commission on their inflated tax returns to Álvarez in exchange for modifying records in their favor. The scandal was dubbed “FUT-gate,” after Chile’s mechanism for legal tax deductions in certain circumstances.

Álvarez admitted having collaborated with public auctioneer Jorge Valdivia, who worked with the Penta Group, issuing receipts under Hugo Bravo’s name. Investigators discovered false receipts on a computer belonging to the former director of the group, but these initially pointed to Lavín and Délano’s wives as the beneficiaries.

“Penta tribunals begin: judge calls Délano y Lavín to given evidence on Bravos’s employment claim.”

The Plot Thickens

When investigated himself, however, Bravo denounced the irregular financing by the Penta Group of four presidential primary candidates and deputies of the Independent Democratic Union (UDI): Jovino Novoa, Ena Von Baer, Pablo Zalaquett and Ivan Moreira. Also implicated were the independent Deputy Laurence Golborne, Christian Democracy Deputy Alberto Undurraga, and former Finance Minister Velasco.

Those involved had allegedly given fake receipts to the Penta Group for services that were never delivered, as a means of financing their political campaigns. In total, 258 fake records were made, among them IVA receipts and payments for fictitious services, adding up to a total of some US$1.2 million.

Chile’s law on the financing of political parties prohibits any juridical person from deducting over 5 percent of their annual earnings from their tax bill for the financing of political parties or candidates, which may be done anonymously via a central government body. The levels at which anonymous campaign donations may be made is also capped.

Bravo was fired from the Penta Group in July 2014, subsequently filing a claim against the business group for unlawful dismissal, and requesting compensation of $3.7 million. In statements to investigators since August 2014, Bravo has admitted his responsibility in the SII case.

 Piñera Administration Dragged into Scandal

On January 9, investigators announced that Pablo Wagner, subsecretary for mining during the government of Sebastián Piñera (2010-14) would be the first politician to be formally charged in the Penta case. Wagner renounced his membership of the UDI on the same day.

The former official was accused of bribery and money-laundering, having supposedly received a payment of $5,000 twice a month. Wagner received a total of 14 payments while a member of the Piñera administration. To hide the existence of the payments, the Penta Group issued fake invoices in the name of relatives of Wagner.

“Former sub-secretary Wagner leaves the UDI.”

“To do this, Wagner send a receipt to his sister-in-law, whose amount was deposited in Wagner’s own current account in cash or via a check from Penta. The sister-in-law, or the third party, delivered no services for Penta,” Bravo alleged.

Gonzalo Medina, Wagner’s attorney, argued that the accusations against the former official were fabricated: “There’s no crime of bribery, there’s no crime of money-laundering, and we’re just dealing with tax circumstances,” he said.

The lawyer explained that mistakes were made which Wagner will pay in due course, but that as the payments corresponded to services rendered before he became a government official, they don’t constitute bribes from the company or persons linked to it.

On Wednesday, January 14, a series of emails came to light between Wagner, Lavín, and Délano sent while the former was a government official. In them, Wagner expressed his gratitude for the years he worked with Penta, saying that without this experience he wouldn’t have been able to come to work in government.

The emails also reveal that Wagner asked for any kind of “help” that they could offer to be able to determine the destination of $150,000 that the company still owed him upon his leaving to work for Piñera’s administration.

In another message, Wagner said that he couldn’t formally name Lavín as a member of the board of director’s of state copper firm Codelco, despite Wagner’s lobbying in Lavín’s favor to then-President Piñera.

Legal proceedings against the former mining official began in March 2014, alongside major shareholders Carlos Lavín and Carlos Alberto Délano, and another group of executives.

UDI leaders have decided that their colleagues affected by the Penta case should face accusations individually and renounce or suspend their membership of the party until the nature of their participation or otherwise in the scandal becomes clearer.

Translated by Laurie Blair.

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