The Multinational Monitor


C O R R U P T I N G    D E M O C R A C Y


by Andrew Wheat

IF MEXICO'S MONOLITHIC RULING PARTY was a hamburger chain, its motto might be: 15 billionaires served.

Forbes Magazine named 15 Mexicans in its July 1996 list of the world's billionaires. Members of this billionaire fraternity tend to enjoy superb access to Los Pinos -- the Mexican White House. Many of the Mexican super-rich reached their dizzying heights with a boost from a common springboard: the Institutional Revolutionary Party (PRI).

For decades, Mexican presidents and other top PRI officials have left office with far more money and property than they had when they were sworn in. Mexican capital flight data reveal multi-billion-dollar spikes every six years as top officials send money abroad at the close of each administration. Nonetheless, graft investigations were unheard of until recently. Impunity has ruled because presidents hand pick successors, the PRI controls the legislature and independence among journalists and judges can be fatal.

Recent years have brought two collision-course changes. Enrichment opportunities have skyrocketed for top officials and tolerance for such shenanigans has plummeted among civil society, the media and some opposition members of Congress.

Business opportunities took off in Los Pinos after the government launched a privatization binge in the 1980s to sell off billions of dollars in public assets. Top PRI officials wield considerable clout over this process, determining what regulations newly privatized businesses face.

An unprecedented probe of this privatization piñata over the past two years has focused on Raúl Salinas de Gortari, brother of former president Carlos Salinas. Raúl was apprehended in 1995 on charges of "unexplained enrichment" and murder conspiracy charges related to the 1994 killing of José Francisco Ruíz Massieu, who was once the PRI's number-two official. That a former top official and member of a first family was suspected of graft and murder did not surprise Mexicans as much as the fact that this suspect was actually thrown into a maximum security prison.

First family first

When then-President Salinas was riding high as a reformer and NAFTA architect, however, there was little talk of the bad smell that NAFTA and privatization cheerleaders now say followed him even then.

"What was suspicious was that Raúl seemed to be everywhere," says Peter Cleaves, director of the Center for the Study of Western Hemispheric Trade in Austin, Texas. "If you wanted to do a deal, you kind of had to talk to Raúl. For some reason, people were so in love with Carlos that they just didn't want to believe that there could have been this back door channeling of either equities or money to the Salinas family through Raúl. The impression was you had some sort of rogue brother ... out there operating on his own watch and not necessarily for his brother. [But] as events have unfolded, it looks like that's the way that President Salinas reaped his rewards for being president."

Serving in a top position at the state food distributor Conasupo, Raúl Salinas was one of Mexico's highest-paid officials. Although his peak salary was a generous $190,000, this income fails to explain the $300 million in worldwide bank accounts that Mexican, U.S. and Swiss officials have traced to him.

Raúl Salinas entrusted many of his discrete financial dealings to Citibank. Using a fake name in 1993, he transferred $80 million to Citibank's New York headquarters, which forwarded the money on to Swiss banks. According to Salinas, Citibank officials also devised a scheme to deposit his money in Swiss banks using just the names of Cayman Islands shell corporations. Raúl Salinas' attorney Eduardo Luengo Creel has confirmed that his client opened half a dozen Cayman Island accounts the day after his brother left the presidency.

Citibank private bank manager Amy Elliot told investigators that Carlos Salinas discussed the management of some of his brother's accounts with her on the telephone. Distancing himself from the brother whom his master's thesis dedication calls a "comrade of 100 battles," Carlos Salinas wrote in a nine-page attempt to clear his name in December 1995, "I never knew of such activities."

Citibank's incentives for conducting these shady operations went beyond service charges. At the time, officials were drafting rules to comply with the North American Free Trade Agreement's (NAFTA's) requirement that foreign banks be allowed into Mexico -- where Citibank had long operated as the lone foreign bank. To Citibank's advantage, Mexico's final rules applied this NAFTA provision narrowly, restricting the operations of Citibank's competitors.

A U.S. criminal probe is investigating whether Citibank's activities violated any money laundering laws. Though Citibank officials did not respond to Multinational Monitor's requests for comment, the company has indicated that its internal investigation found that bank employees broke no laws.

The Criminal Division of the U.S. Justice Department acknowledged possessing records of Raúl Salinas' financial transactions in an August 1996 response to a Multinational Monitor Freedom of Information Act (FOIA) request. But the agency withheld the records under a FOIA exemption that permits it to refuse to release information that could interfere with enforcement proceedings.

Salinas deposits

International investigators have determined that Raúl Salinas salted away at least $300 million in overseas accounts. Initially, the probe focused on narcotics trafficking as a possible source of wealth. More recent developments involving Mexican tycoons have shifted the focus to possible influence peddling.

"My fortune derives from the management and advice that I've provided to Mexican business people," Raúl Salinas told Swiss investigators in December 1995. "The money is not related to any activity as a [government] official ... they are not corruption funds." In fact, the picture that is emerging of Raúl Salinas' investment deals casts him in both the roles of manager and client.

The first source to step forward to discuss Raúl's night job was billionaire Carlos Peralta Quintero, president of Grupo Iusacell. This cellular telephone business was founded on a Salinas administration concession. Iusacell sold a 42 percent share of its cellular business to Bell Atlantic for $1.04 billion in 1993. That same year, Iusacell and two other telecommunications companies, Telmex and Grupo Domos (which purchased Cuban phone installations expropriated from AT&T with the Salinas administration's assistance), kicked in $20,000 each to fund Raúl Salinas' academic stint at the University of California at San Diego.

Iusacell's Peralta shocked the business community in January 1996, when he volunteered that he had given Raúl Salinas $50 million for an investment fund to develop Mexican resorts. Though Salinas had no experience in this work, Peralta said he transferred the money to a New York bank account in April 1994, without keeping any records of the deal. Peralta denied any quid pro quo. "Never have we nor never will we receive any government benefit under the Carlos Salinas de Gortari administration," he said.

Pressed by investigators about the $50 million deal, Raúl Salinas waxed philosophical. "People who are not rich think they have to work for money," he said. "Rich men believe only two things: that they deserve all the money they can get, and that money should work for them."

Peralta suggested that three other rich men also contributed to Salinas' investment fund. These include Mexico's self-described "tortilla king," Roberto González Barrera, and two bankers, Adrian Sada González and Carlos Hank Rhon. Hank has declined to comment on the matter. The other two men denied involvement in the fund.

Salinas withdrawals

Besides these alleged payments to Raúl Salinas, investigators are trying to explain their June 1996 discovery that Salinas' accounts paid out tens of millions of dollars to Mexican tycoons involved in the privatization piñata. These tycoons include billionaire Ricardo Salinas Pliego and Adrian Sada González.

Ricardo Salinas Pliego (no blood relation to the former first family) controls the appliance retailer Grupo Elektra. In 1993, Salinas Pliego made a winning bid to buy Azteca Television from the government. Investigators recently discovered that Raúl Salinas accounts paid Salinas Pliego $29 million around the time that the Salinas administration awarded him the Azteca bid. After initially dismissing rumored business links to Salinas as "tasty gossip," Salinas Pliego acknowledged receiving the money to help finance Azteca. He said the money was a six-year loan at a 12 percent interest rate, a sweet rate in Mexico. "A Mexican businessman was not at the mercy of every whim of Raúl Salinas, but if he showed up and said, `I have this money and want you to invest it for me,' very few people were going to tell him no," Salinas Pliego explained. "I am not a front for Raúl Salinas," he said at a press conference.

In an even murkier case, investigators uncovered a $15 million Salinas payment to Adrian Sada González. Sada is chair of both Vitro, the world's largest glass company, and Grupo Financiero Serfín, Mexico's third largest bank. Sada's group bought the bank from the Salinas administration in 1992; by the end of 1994, Serfín was technically broke.

In July 1996, Sada acknowledged that he received the $15 million from Salinas for an undisclosed business project. He said he returned the money when that project failed to pan out. Government investigators suspect that he had hoped to use the money to outbid Salinas Pliego for Azteca.

Questioned about the deal by El Financiero newspaper, Sada gave an almost theological response. "Those that are involved in business are human beings and are therefore imperfect," he said. "What we should do is look for good examples, and not bad ones, and support our more noble principles and values."

Salinas & associates

Although they have not been tied directly to these Raúl Salinas' bank transactions, other Mexican magnates have acknowledged past dealings with the former president's jailed brother.

Mexican Bankers Association President José Madariaga Lomelín, head of Grupo Financiero Probursa, stepped forward in July 1996 to air a Salinas connection. Probursa was one of Raúl's main Mexican banks, handling accounts worth millions of dollars and even issuing him a credit card in the name of one of his favorite aliases: Juan Guillermo Gómez Gutiérrez.

After the government privatized the MASA bus manufacturing company in 1988, the buyer defaulted on debt payments. Rather than repossess the company, the government agreed to sell it to an industrial group led by Abraham Zabludovsky and financed by Madariaga's Probursa. Madariaga now says that Raúl Salinas was a co-investor in the project, which turned into a gold mine, especially after then-President Salinas deregulated the bus industry. Madariaga says he and Raúl Salinas sold their share in the venture in 1993 for $36 million, more than eight times what they originally invested.

MASA's Abraham Zabludovsky directs the news show "24 Horas" at Televisa, a lion of PRI support. Before Azteca's 1993 privatization, Televisa enjoyed a 20-year run as the government's only private television broadcasting concession. Like Azteca, Televisa has shown its appreciation for this lucrative asset through pro-government broadcasts, according to Mexican Academy of Human Rights research. In the first month of his candidacy in 1994, Ernesto Zedillo appeared 23 times on Zabludovsky's 24 Horas, the academy found. Meanwhile, Zedillo's two main challengers each appeared on the show once.

Billionaire Emilio Azcárraga, who heads Grupo Televisa, occasionally gives more quantifiable support to PRI. Then-President Salinas hosted a discreet fund-raising dinner for 27 of Mexico's richest men in 1993. Leaked accounts indicate that the president urged each tycoon to donate or raise $25 million for the PRI, a humble request for $675 million in one sitting. While some dinner guests tried to dampen presidential expectations, Azcárraga reportedly told Salinas to count on him for $70 million.

Azcárraga's willingness to ante up is consistent with prior comments on the civic responsibility of the rich and powerful. "Mexico is a country of a modest, very fucked class, which will never stop being fucked," Azcárraga explained to actors in his soap opera "The Rich Also Cry" in 1991. "Television has the obligation to bring diversion to these people and remove them from their sad reality and difficult future."

Rich feed on poor

In a different attempt to address the "sad reality and difficult future" of modest Mexicans, the Mexican Congress established an unprecedented graft commission in November 1995. The Commission, which the PRI majority shut down in July 1996, was investigating yet another apparent source of Salinas wealth -- Conasupo. Initially established to subsidize basic goods for the poor, Conasupo built a nationwide chain of stores and became a $1 billion commodities trader. Raúl Salinas was Conasupo's planning director from 1982 to 1990.

At the time of its shut down, the graft commission was probing a host of unsavory allegations about Conasupo, including charges that the agency:

Commission member Adolfo Aguilar Zinser says he suspects that Raúl Salinas profited from the last two alleged scams. Aguilar Zinser was elected to Congress as a member of the left-of-center Revolutionary Democratic Party (PRD) but has since declared partisan independence.

The PRI majority voted to conclude the commission's work after Aguilar Zinser went public in July 1996 with documents that he said suggest that top Salinas administration officials, including then-Budget and Planning Secretary Ernesto Zedillo, maneuvered to illegally settle $6 million in damage charges filed against the government by the company of a close Salinas ally, billionaire Roberto González Barrera. The Zedillo administration and PRI members of Congress responded to Aguilar Zinser's documented charges with blistering attacks on Aguilar Zinser, but have not produced any evidence to contradict his allegations.

"Tortilla king" Roberto González Barrera is president and chair of the Gruma holding company. In recent years, Gruma's Maseca subsidiary has conquered two-thirds of the world market for corn flour tortillas. Maseca's explosive growth stems from government subsidies that accounted for one half of its 1995 revenue and a controversial twist in Mexico's age-old tortilla recipe.

Traditionalists make tortillas by grinding corn kernels into dough. Maseca, the world's leading producer of corn flour, made its billions by engineering a switch from dough to corn flour tortillas. This switch was not consumer driven. Connoisseurs say the taste difference between the old and new tortillas is as subtle as the one that distinguishes fresh corn from cardboard.

What the new tortillas lack in taste they carry in clout. In the early 1990s the Salinas administration implemented policies to deregulate and "modernize" the tortilla industry, channeling most of the corn in Mexico to González's corn flour industry. The nixtamaleros who made tortillas the old way found themselves subject to irregular supplies of an increasingly inferior grade of corn. The head of their trade association in Mexico City even went to jail in 1992 for resisting the industry modernization that made González Barrera tortilla king.

Future deals

The Zedillo administration is forging ahead with plans to privatize vast new sectors of the Mexican economy, even though recent privatization scandals have made such policies harder to sell to the public. Some of the plums coming down the pike include the petrochemical division of Pemex, the privatization of pension funds and the end of the telephone monopoly.

Billionaire Alberto Bailleres, who controls mining company Industrias Pénoles and Grupo Nacional Provincial (GNP) insurance, has an eye on the pension funds. Bailleres, whose GNP has 21 percent of Mexico's insurance market, is planning a joint venture with Chilean pension fund company AFP Provida to enter this market. Congress approved the creation of private Retirement Fund Administrators (AFORES) in December 1995 to manage some of the $4 billion in retirement accounts now handled by the government. The government plans to limit foreign companies to a 49 percent interest in the pension fund companies, leaving considerable room for Mexican billionaires such as Bailleres.

The billionaire family of Bernardo Garza Sada, which runs the diversified Grupo Alfa conglomerate, recently formed alliances to go head to head with the 800-pound gorilla of Mexican privatizations, Telmex. Southwestern Bell, France Telcom and Grupo Carso headed by Carlos Slim Helú acquired Telmex in 1990 for $1.76 billion. In just two years, this investment quintupled in value, thanks in part to the company's government-sheltered monopoly. Under rules requiring a majority of the new company be controlled by Mexicans, Slim purchased a 5 percent stake but received more than 50 percent of the voting shares in the new company. Forbes now puts his net worth above $6 billion.

Telmex's cash-cow long-distance monopoly opens to competition in January 1997. In what looks like a serious competitor, AT&T, GTE, Bancomer and Grupo Alfa announced in April 1996 that they would invest $1 billion over five years in a start up company to challenge the Telmex gorilla. Alfa, controlled by Bernardo Garza Sada, nephew of billionaire Dionisio Garza Medina, will have a 26 percent stake in the venture. Billionaire Eugenio Garza Laguera's Bancomer will have another 25 percent of the deal.

Oil Country Blowout

VILLAHERMOSA, MEXICO -- Thousands of Tabasco workers, peasants and indigenous people took over 60 installations of Petroleos de México (Pemex) in early 1996. Protesters clashed with security forces over plans to privatize the nationalized petrochemical industry and the state oil company's failure to compensate Tabasco for trashing the local environment.

As citizens of this state of fewer than 2 million people seized oil fields, Mexicans watched for the second time in as many years as the largely indigenous citizens of a southern state took the lead in militantly confronting issues that affect all Mexicans. Ruling Institutional Revolutionary Party (PRI) officials quickly mobilized troops to break up the protesters, whom it accused of acting illegally.

As the federal government pumped $130 billion worth of oil out of the state in the past 20 years, thousands of local people have petitioned Pemex for damages related to its environmental pollution. While Pemex employs about 5 percent of the state population, much of the rest of the population has been left to farm and fish diminishing returns from the state's polluted land and water, according to "Human Rights and Environment in Tabasco," a June 1996 Global Exchange report.

"In the wells where we get drinking water, there is a foam so thick on the surface that you have to remove it with your hand," said a Tabasco university researcher quoted in the report. In the past decade, leukemia has risen from the sixth leading cause of child mortality in Tabasco to the No. 3 spot. In 1991, 87 leukemia cases were registered in Tabasco counties with petroleum installations, compared with just six cases in counties lacking these installations, the report says. Yet, research into, and compensation for, these problems is rare.

Representative Julio Alvarez Santos of the leftist Democratic Revolutionary Party (PRD) took to the speaker's platform of the federal legislature in February 1996 to drop down copies of 7,000 rejected Pemex claims, which he said came from just one Tabasco municipality. The PRD has accused the administration of Roberto Madrazo Pintado of diverting 30 percent of the $46 million in compensation funds that Pemex has agreed to pay. Legislator Pedro Etienne says some of these funds were used to pave roads in an upscale Villahermosa neighborhood inhabited by top government officials.

For their part, PRI officials accused Tabasco PRD leader Andrés Manuel López Obrador of using the oil field takeovers as a springboard to his new national position as PRD president. López Obrador announced plans to nonviolently blockade oil well facilities at a January 1996 mass meeting. By February 6, when activists blockaded access to a petrochemical plant in Pemex City, the movement had blocked 60 parastatal oil installations. To take back the oil fields, state and federal security forces violently dispersed demonstrators.

On February 7, more than 1,000 security forces violently broke up the blockade at Sen oil field, the most important oil facility in the state. In the melee, 21 demonstrators were wounded, including López Obrador. The PRD leader was beaten when he asked to see the legal order authorizing the break up of the blockade. Instead, a police officer struck his head with a billy club, drawing blood.

Petrochemical privatizations

The Tabasquenos took over dozens of Pemex installations not only to protest environmental degradation, but also to denounce Mexican government plans to privatize the Pemex petrochemical division. In March 1996, the fifty-eighth anniversary of Mexico's nationalization of petroleum resources, thousands of Mexicans took to the streets to join the Tabasquenos' protest.

The anniversary of the lionized petroleum nationalization by one of Mexico's only popular presidents, Lázaro Cárdenas, was a delicate moment for his weak contemporary, Ernesto Zedillo. At the official commemoration in Ciudad del Carmen, just east of Tabasco, Zedillo gave lip service to the popular petroleum nationalization at a time when he is trying to sell the Mexican people on the privatization of the petrochemical division of that industry. Many Mexicans regard the proposed petrochemical privatization as the first sally of the wholesale privatization of Pemex, but Zedillo sought to allay these concerns. He promised that privatization of the petrochemical industry will yield "better attention to the legitimate interests of the populations where it operates" and "greater care with the environmental impact of its activities."

Zedillo's speech sidestepped the sensitive issue of Mexico's Constitution, which outlaws private concessions of Mexico's "petroleum and solid, liquid or gas hydrocarbons." Critics argue that Zedillo's petrochemical privatization plans are unconstitutional.

An unofficial Mexico City commemoration of Mexico's oil nationalization drew thousands of demonstrators, including 102 activists who were imprisoned for one month for the Tabasco Pemex blockade.

The protesters cheered López Obrador's proposal that Pemex assets be auctioned off in small shares to average Mexicans rather than to billionaires or multinational corporations. "The time has come to sell our farm animals, our unessential goods and properties to convert us all into owners of the petrochemical plants that the government is virtually giving away to foreigners," he said. Amalia Solórzano de Cárdenas, widow of the former president who nationalized Mexico's petroleum, donated a gold coin and $135 in cash to start a popular fund to buy in privatized Pemex assets.

Some Mexican academics have questioned the need to privatize Pemex's petrochemical sector, suggesting that Pemex itself could make the long neglected capital investment that the sector needs. Mexican economist John Saxe-Fernández says Pemex's petrochemical operations are comparable in size with those of Texaco. Abandonment of this sector would confine the Mexican state to crude exports, sacrificing the more lucrative, value-added petrochemical business, he says.

Multilateral agencies are prodding the Zedillo administration to forge ahead with the privatization. A late 1995 Organization of Economic Cooperation and Development report estimates that Mexico could earn approximately $13 billion over the next three years by selling off key parts of Pemex's petrochemical assets.

A "Memorandum of Economic Policies" that Mexico reached with the International Monetary Fund after the December 1994 peso crisis is more strongly worded. "The already initiated process of privatizing state enterprises (including ports, airports and petrochemical plants) will also be accelerated," the memorandum says. "The authorities pledge to realize privatization and concession operations that will generate $6 billion in 1995 and between $6 billion and $8 billion in the two following years."

Despite these IMF marching orders, Zedillo's petrochemical privatization plans have been indefinitely postponed in the face of widespread protests that spread across the country from the Tabasco oil fields. -- A.W.

No Limits

VILLAHERMOSA, MEXICO -- After federal prosecutors recently determined that Mexico's ruling party spent 33 times the legal campaign spending limit on the 1994 governor's race in the oil-rich state of Tabasco, Mexican President Ernesto Zedillo traveled 1,000 kilometers to hug the beneficiary of this abuse -- who faces no penalties.

"It is not possible to believe that someone can illegally spend 128 million pesos to win 600,000 votes ... and nothing is done to him," says Feliep Calderón, secretary-general of the conservative National Action Party (PAN).

Prosecutors found that Tabasco Governor Roberto Madrazo Pintado, who reported spending $1.8 million on the race, actually spent $38.8 million. At the time of Madrazo's 1994 race, California multimillionaire Michael Huffington set a record for the most expensive Senate race in U.S. history -- spending $10 million less than Madrazo.

While Huffington relied heavily on his personal funds, the source of Madrazo's money -- most of which was spent in the form of cash -- may never be determined. In an investigative anti-climax, federal prosecutors left it up to their state counterparts to assess Madrazo's responsibility for the campaign violations and the source of most of the money. Local prosecutors allied with Madrazo cleared his name in July 1996, "because of the absence of illegal acts." They declined to investigate the source of the excessive expenditure on the grounds that the statute of limitations for such a probe had expired. Madrazo dismisses the accusations against him as groundless and politically motivated.

Two weeks before Madrazo was absolved by his cronies, Zedillo visited Tabasco to show his support for the embattled governor through repeated photo-opportunity hugs. Although angry citizens blockaded all of the major roads along Zedillo's planned route, forcing him to get around the state by helicopter, the president concluded from his bird's-eye tour that Madrazo enjoyed the backing "of the majority of Tabasquenos."

Critics say that the hugs belied Zedillo's rhetoric in support of political reform. The group most disgusted by the hug was the left-leaning Democratic Revolutionary Party (PRD), which says Madrazo's fraud cheated PRD opponent Andrés Manuel López Obrador out of the governorship. López Obrador's leadership of defiant resistance to corruption in Tabasco paved the way to his July 1996 election as national head of the PRD. His election marked a dramatic change from his predecessor, Porfirio Múnoz Ledo, who advocated a conciliatory strategy intent on extracting gradual political reforms from the ruling party. -- A.W.

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