Mexican Tax Scandal Heats Up

Mexican officials have moved against what they believe to be a vast tax fraud conspiracy engineered by a prominent Mexico City legal and accounting firm, implicating foreign-owned and local corporations. The country's attorney general has already issued indictments against 15 corporate executives, charging them with defrauding the government of $209 million in tax payments. More indictments are expected soon.

The complex scheme was allegedly devised by Jess Dalton and Harold Campbell. The Texas-born naturalized Mexican citizens, who are directors of the local law firm Goodrich, Dalton, Little and Riquelme, are closely associated with the U.S. business community in Mexico. According to the charges, Dalton and Campbell helped corporations inflate their expenses by establishing a "paper" company, Dynamic Advertising S.A. The corporations made payments to Dynamic for goods and services never received, thereby reducing their apparent profits and tax liabilities. After keeping "fees" worth 10 percent of the bogus contracts, the two lawyers funnelled the money back to the client companies.

All told, 80 local and foreign corporations are under investigation. Five of the arrested executives-all affiliated with Mexican firms holding bottling contracts with the U.S. soft drink multinational Coca Cola-have faced preliminary hearings. Coca Cola owned an equity stake in one of the indicted bottlers, Delaware Punch Co., from 1959 until November, when it sold its stake to a major Mexican conglomerate. U.S. companies under investigation include f=ashion Fit Sweaters and Arco Gas.

The complicity of Dalton and Campbell surprised the U.S. Commerce Department. According to Commerce official Fred Tower, the law firm was "blue chip" and honest, and was high on the embassy's list of recommended firms for multinationals doing business in Mexico. Dalton was a "pillar of the American community in Mexico," says Tower. Dalton and Campbell continue to evade Mexican authorities, having fled the country in late January with $18 million.

Salvador Campos, counsellor officer at Mexico's U.S. embassy, sharply criticized Mexico City's daily newspapers for whipping up "hysterical" anti-American sentiments over the tax fraud scheme. "This is not a political move at the transnationals," he emphasizes. "it is a routine tax investigation."

Routine or not, publicity surrounding the scandal is having its positive side effects. Campos says that in the first IS days after initial reports of the investigation, tax collections by the Mexican government shot up by 400 percent compared to the same period in 1979. "Once in a while this sort of campaign spurs on the collection of taxes," he explains. "This time it worked."