Mexico’s Original Sin: Corruption and the Power Pursuit of Wealth

For 71 years, from 1929 until Vicente Fox of the National Action Party (PAN) won the 2000 presidential election, a member of the Institutional Revolutionary Party (PRI) had ruled México. There was a 12-year hiatus for the PRI, as Felipe Calderón was victorious in the contentious 2006 presidential election, until 2012, when now former president Enrique Peña Nieto was elected. The return of the PRI to power was controversial, due to the party’s political record. It was over a period of 70 years that the PRI established an extensive culture of corruption integral to the function of government.

Peña Nieto was seen as a reformer and a “savior.” In the years that followed, Mexicans soured on the PRI and the corruption with which it was associated. Multiple scandals engulfed Peña Nieto’s administration and the PRI. The scandals range from the personal, where Peña Nieto’s former wife purchased a $7 million mansion owned by a government contractor associated with Mexico’s first high-speed rail project. Other scandals provided evidence that the PRI-financed electoral campaigns in 2015 through the diversion of resources from state governments and the cover-up of the 2014  kidnapping, torture and subsequent murder of 43 students in Iguala.

The scandals enforced the PRI’s reputation as crooked and power-hungry and held true to a popular Mexican saying, “Él que no transa no avanza,” or “He who doesn’t deal, doesn’t advance.”

Corruption at the State Level: The Duartes

Over the last few years top officials from party leaders to governors have faced serious corruption allegations. A recent New York Times report highlighted the extensive corruption of governors, whose power has “generated a level of audacity and absurdity…never seen in Mexico.” The culture of corruption that developed has allowed rampant embezzlement to be conducted by government officials.

Javier Duarte, former governor of the state of Veracruz, was accused of diverting millions designated for social programs into “an elaborate network of phantom companies.” Duarte, who began diverting funds upon his election in 2010, was accused of embezzling 3.2 billion pesos and creating a “reign of terror,” accused of being involved in the disappearance of several individuals.

Of the several examples, in 2012 Duarte granted 643 million pesos to 19 shell companies whose owners and shareholders were behind ASISMEX, a company that illegally financed the PRI during the 2012 elections. The organization had bankrolled the PRI for 15 million pesos after a five-year investigation conducted by Mexico’s National Electoral Institute (INE). The network was much larger, including 400 shell companies, according to an investigation conducted by Animal Político and Mexicans Against Corruption and Impunity (MCCI), where 57 of these companies were granted 3.6 billion pesos by Duarte during his six-year tenure as governor—money meant for children and the homeless.

As of March 2019, Duarte has experienced 26 preliminary inquiries and investigations into his conduct. The Office of the Attorney General (FGR) has opened these inquiries due to multiple complaints made by the Superior Audit Office (ASF) that has noticed a loss of 18 billion pesos to the public treasury, and, according to the Animal Político report, the unknown whereabouts of 62 billion pesos.

Duarte pleaded guilty to corruption, and after being on the run, was sentenced to nine years in prison, with the possibility of parole after three years. Duarte left behind a legacy of blatant corruption and violence that left the state of Veracruz in ruin.

***

César Duarte, the former governor of the state of Chihuahua, who is of no relation to the former governor of Veracruz, has been accused of embezzlement and misuse of public funds. As governor, César Duarte accrued a debt of 56 billion pesos ($3 billion). It was in 2012 that César and his wife obtained a trust in Banorte for 65 million pesos, which was then invested in the Unión de Crédito Progreso, which later became Banco Progreso. Documents later released by Animal Político showed the state of Chihuahua made 342 deposits totaling 80 billion pesos into Banco Progreso. The transactions were investigated by the Attorney General to determine if César had deposited public funds in his own bank.

César is also accused of aiding in the diversion of 250 million pesos ($12.75 million) through four companies that offered educational services. These services were never provided. The funds were instead, according to the Times, “turned into cash and returned to the PRI to be used for election campaigns.” The scheme included former governor Duarte of Veracruz, former governor Duarte of Chihuahua and former governor of the state of Tamaulipas Egido Torre Cantú (all members of the PRI).

Former officials of the government of Chihuahua implicated former governor Duarte, the Tax Administration Service (SAT), the Ministry of Finance and Public Credit (SHCP) of collusion for the triangulation of 250 million pesos. Officials had received assurance from the SAT that no audits of the shadow companies were to take place.

At the time, former Minister of Finance Luis Videgaray endorsed the diversion of those 250 million pesos, with the aid of the former president of the PRI, Manilo Fabio Beltrones. A denial from Beltrones has not removed doubt about the illicit nature of the alleged crimes committed, as he filed an injunction in Mexican federal court, to “temporarily suspend possible arrest warrants.”

Statements from Ricardo Yañéz Herrera, former secretary of Chihuahua’s Ministry of Education, Culture and Sports referenced a deep conspiracy. Yañéz Herrera spoke of meetings with the former director of the PRI’s National Executive Committee (CEN), Alejandro Gutiérrez Gutiérrez, where the deviation of resources was discussed. Gutiérrez, according to Proceso, has used companies to divert resources for alleged illicit activities.

A judge exonerated Gutiérrez in September 2018, finding that the Attorney General’s Office (PGR) had presented little evidence beyond accusations made by witnesses to prove the alleged crimes took place.

Taking From the Poor

An investigation conducted by Animal Político and MCCI reported on large-scale corruption conducted by the Mexican government, which diverted upwards of 7.7 billion pesos through 186 companies, according to the investigation, with assistance from several departments, including the Ministry of Social Development (SEDESOL). The diversion of resources has resulted in criminal complaints filed against 14 public universities, including the Autonomous University of the State of Mexico (UAEM) and Autonomous University of the State of Morelos (UAEMOR).

Another report from Animal Político and the MCCI found that SEDESOL engaged in irregular activities. In 2013, under the leadership of Rosario Robles, it had a budget of 555 million pesos (roughly $43 million) allocated for 500,000 packages of food and articles of clothing. However, only seven percent of the items purchased were distributed. There was evidence that SEDESOL paid for the services, because of agreements made between SEDESOL and the autonomous universities of the states of Mexico and Morelos.

There were 10 agreements made between 2013 and 2014 worth 2.3 billion pesos (roughly $114 million), to which the universities received 215 million pesos (roughly $10.6 million) as commission. The remaining 2 billion pesos were given to 20 companies. In total, the funds allocated for the National Crusade against Hunger resulted in a loss of 845 million pesos ($41.7 million).

Dealings with a particular company, ESGER Servicios y Construcciones SA de CV, were particularly irregular. According to tax declarations made in 2013 to the SAT and obtained by Animal Político and MCCI, ESGER claimed revenues of 408 million pesos and expenses of 407 million pesos. There was, however, a failure to report 698 million pesos that SEDESOL had given the company.

SEDESOL, while headed by José Antonio Meade, the former 2018 PRI presidential candidate, continued with the corruption. In 2015, SEDESOL had achieved budget increases of 12.65 billion pesos without the approval of Congress, but, rather through agreements with former Finance Minister Videgaray. With the budget increases destined for programs that were intended to serve impoverished indigenous elders and children, the population of these individuals were misrepresented. The budget increase to 23.576 billion pesos could serve nearly 3.4 million people, a figure 3.8 times higher than the true population of indigenous elders in Mexico. With the assumption that all those that needed services were given them, it still left nearly 2.5 million beneficiaries had not existed.

Meade was accused of diverting more than 500 million pesos as director of SEDESOL. The political coalition, Por México al Frente —made up of members of the PAN, the Party of the Democratic Revolution (PRD), and Citizens Movement (MC)— used three examples of the diversion of public funds.

The first, according to digital news site Aristegui Noticias, was a SEDESOL payment to the Polytechnic University of Chiapas for 400 million pesos, for services that lacked evidence to support such services were required. The second centered on the alleged use and falsification of public documents used for agreements with the universities of Nezahuacóyotl, Texcoco Polytechnic and the Southern Technological University of the State of México worth 611 million pesos. The third was a contract signed by SEDESOL and the University of Zacatecas in the amount of 70 million pesos, again, for services that were reportedly not provided.

Meade has denied that any irregular mismanagement of funds took place during his tenure at SEDESOL, stating in part: “The alleged deviations were committed… through agreements that federal government agencies signed with universities for services that, in turn, ended up subcontracting with other companies to avoid bidding controls and transparency…”

Widespread Corruption at PEMEX

PEMEX was complicit in similar transactions. From 2011 through 2014, the Mexican state-owned petroleum company diverted 3.58 billion pesos ($176.73 million) to 96 companies with six universities complicit in the agreements. The universities were left with a commission of 634 million pesos ($31.3 million) and immediately hired third-parties once the funds were received, with no ability to perform the services requested.

In 2011, PEMEX paid $9 million for the transportation of an oil rig from the United Arab Emirates to the Gulf of Mexico. However, the oil rig possessed the wrong equipment and was not located in the U.A.E., but in the Gulf of Mexico instead.

An extensive Reuters investigation found similar irregularities present in PEMEX contracts from 2003–2012. Of the $149 billion of contracts signed by PEMEX, Reuters identified irregularities in more than 100 contracts worth $11.7 billion, or eight percent of the total $149 billion.

PEMEX, despite recommendations from federal auditors and the Public Administration Ministry (SFP), an executive-branch watchdog, continued to conduct business with individuals and companies that were identified as dangerous. One such dangerous individual identified by the SFP was Francisco “Pancho” Colorado, whose company ADT Petroservicios was one of 40 companies banned by PEMEX’s internal SFP unit awarded $88.1 million in contracts from December 2006 to September 2013. As of 2015, congressional auditors recommended PEMEX pursue 274 instances of contract irregularities—three of the irregularities resulted in suspensions of five days to six months, 157 were dismissed by PEMEX’s internal SFP unit and 108 went unresolved.

PEMEX contracts continue to be under review, as recently as 2019. Current head of SENER, Rocío Nahle, has reviewed contracts awarded by PEMEX to Air Liquide México, GAZSUR and Linde Gas North America. Nahle indicated that PEMEX, to secure these contracts, sold hydrogen plants at Tula de Allende, Cadereyta Jiménez, and Ciudad Madero and granted use of the land, facilities and natural gas supplies to the private companies. In turn, PEMEX was required to pay monthly installments of $2.7 million USD with $1.47 million received by Air Liquide, $644,000 by GAZSUR, and $774,000 to Linde Gas North America.

The contracts were signed to reduce the number of unscheduled shutdowns. The refinery at Tula went from three unscheduled shutdowns in 2018 to 14 by the end of the year. The refinery at Cadereyta went from none, until after October 2018, when it experienced 15 unscheduled shutdowns. The Madero refinery contract was signed in April 2018, and then experienced 11 unscheduled shutdowns during that month.

Irregularities in contracts has drawn the ire of the SFP, which, as recently as March 2019, has initiated 15 audits of PEMEX due to an improper diversion of resources with 14 public universities.

Corruption at PEMEX also took on an international flare, with ties to Operation Car Wash, a huge corruption scandal that rocked Latin America, implicating officials in several governments, including the administration of Peña Nieto.

Emilio Lozoya Austin, a prominent member of Peña Nieto’s government and the former CEO of PEMEX (2012–2016) was implicated in the scandal. It was alleged by former director of Odebrecht in México Luis Alberto de Meneses Weyll that Lozoya Austin accepted $10 million in bribes in 2012. A report from MCCI, revealed that after a request for $5 million, PEMEX granted $18 billion worth of contracts to Odebrecht: $2.946 billion for refineries at Tula and Salamanca, and $15 billion for the construction of an oil pipeline from Nuevo León to San Luis Potosí.

The situation was further complicated when “friendly emails” between Lozoya Austin and Odebrecht executives including Weyll and former president of Odebrecht, Marcelo Odebrecht, were revealed, despite the denials. Bank documents revealed transfers made into Latin American Asia Capital Holding, a company linked to Lozoya Austin.

An MCCI report also found that Braskem, the petrochemical subsidiary of Odebrecht, transferred $1.5 million into Latin America Asia Capital. Former Braskem director, Carlos Fadigas, was recorded saying the company had full access to Peña Nieto and his campaign and to other members of the PRI.

The case has engulfed Mexico. The Congress blocked an extensive investigation into dealings with Odebrecht and the PGR has denied access to data and evidence related to the case. The National Institute of Transparency, Access to Information, and Protection of Personal Data (INAI) an autonomous body, has requested that the PGR release data regarding the Odebrecht case for the “public interest,” on six separate occasions.

Money Under the Table: Electoral Campaign Irregularities

Electoral law in Mexico has established clear distinctions in how public and private funding for political campaigns must be allocated. According to the National Electoral Institute (INE), public funding is determined by “annually multiplying the total number of citizens registered in the Electoral Roll in July every year by 65 percent of the minimum wage established for the Federal District.” From that calculation, 30 percent of funds are distributed equally to political parties represented in the legislature, and 70 percent according to the number of votes a party received in the previous congressional election. For private contribution, the financial cap is placed at ten percent of the campaign expenses of the previous presidential election. The strict regulation of campaign finance, even with strict limits and access to public funding, has not been a deterrent for illegal campaign contributions.

A report from MCCI titled “Dinero bajo la mesa” investigated the realm of campaign finance in Mexico. The report found that for each peso reported by political campaigns, 15 pesos were unreported. María Amparo Casar, MCCI’s executive president and co-author of the report, told the Associated Press: “the illegal campaign financing is the principle problem of electoral democracy… what it does is when one arrives to power, what you’re doing is buying benefits.” The electoral process in Mexico is riddled with illegal spending, as Amparo Casar noted, with Mexico’s central bank observing an increase in the circulation of cash five months prior to elections. For the 2012 presidential elections, the report found that the influx of cash resulted in a growth of $37.374 billion pesos ($2.18 billion USD), while during the 2015 midterm elections the increase amounted to $28.956 billion pesos ($1.47 billion USD).

With such an increase in cash circulating, anti-corruption organizations remained cautious, for example, when the three leading presidential candidates reported no direct private financial contributions, according to Reuters. Based on the candidate’s filings, none of Mexico’s 90 million registered voters made monetary contributions directly to the presidential campaigns of now president Andrés Manuel López Obrador, PRI presidential candidate Meade, and PAN presidential candidate, Ricardo Anaya.

The irregularities extend to budget increases for social welfare programs in election years. Bloomberg noted an unusually high increase in spending for anti-poverty program, Prospera. The report noted that subsidies paid out under the auspices of the program increased 35-percent in the first quarter of 2018, an increase of $12 billion pesos ($575 million USD), and 29 percent more than what was allocated by the congress.

The use of conditional cash transfers has proven to be effective during election years. With it, candidates exploit poverty-stricken individuals to garner votes, a problem endemic of the political system in Mexico. These vote-buying tactics include wooing potential voters with gift cards, washing machines, and cheap tortillas. Citizens Action Against Poverty, an anti-poverty organization, conducted a survey before the 2018 presidential election that found vote-buying was a prevalent tactic used by the major political parties in Mexico.

In the 2012 presidential election, the PRI was accused of distributing prepaid gift cards—a legal, albeit questionable practice. La Jornada wrote in 2012 of the PRI’s extensive vote-buying strategy, which focused in rural areas, leading to an increase in rural participation. The issue of vote-buying was so prevalent in 2012, a cloud loomed over Peña Nieto’s victory.

Vote-buying is a significant problem in México. The process is sophisticated and requires the allocation of an excessive amount of funds for such a purpose. The use of public funds for the purchase of votes was under close-eye of the Office of the Specialized Prosecutor for the Attention of Electoral Crimes (FEPADE) before the recent 2018 election. Even with such a focus, FEPADE concluded that the coercion and purchase of votes occurred in the past election.

Agents of the political parties, known as “mapaches” or “raccoons,” purchase votes for upwards of 500, 1,000 or 1,500 pesos. The purchase of votes is illegal, punishable by six months to 15 years in prison, yet, he PRI-led coalition was the recipient of 5.3 million complaints for vote-buying, and the coalition Por México al Frente was the recipient of 4.9 million complaints.

Waning Influence: The PRI’s Last Grasp at Power

With the election López Obrador, the PRI officially lost control of government. The PRI had governed with near impunity for six years during the Peña Nieto administration. In the months that preceded the election of López Obrador, the PRI had attempted to maintain a hold on power through questionable means.

The now-defunct firm, Cambridge Analytica, had offered the PRI assistance in the 2018 election. The PRI declined, but hired the firm to prevent the firm from assisting others. The PRI had also been found to spy on opponents, ranging from journalists, human rights advocates and opposition leaders. In one instance, the death of journalist Javier Valdez resulted in the attempted phishing of his colleagues with a spyware known as “Pegasus,” purchased by the Mexican government from an Israeli cyber arms dealer, NSO Group.

The complaints of activists and journalists were met with a strong denial by the office of Peña Nieto stating no proof existed of the alleged spying. In 2015, Reuters reported that authorities in México had increased surveillance efforts in order to combat crime, with little if any regulation.

Mexico had attempted to institute measures that reduced the effects of corruption. The creation of the Nation Anticorruption System (SNA), instituted due to a citizen initiative known as Ley3de3, was a mechanism designed to curb the influence of corruption. Peña Nieto signed the subsequent constitutional reforms into law in July 2016. However, the federal government was accused of blocking SNA’s efforts.

The SNA was seen as a major step forward to combat the problem of corruption that plagues Mexico. Analysis by the Washington Office on Latin America (WOLA) found that the SNA possessed the potential to address the “role of corrupt officials in facilitating and perpetrating violence and human rights abuses, and the effects of graft, embezzlement and corrupt business practices on economic growth and inequality.” The report further showcased an unwillingness on behalf of the federal government to implement the reforms signed into law by Peña Nieto.

***

The broad economic impact of corruption on the economy of Mexico based on estimates from the Mexican Institute for Competitiveness (IMCO) was five percent of Mexico’s GDP in 2015, or $890 billion pesos ($53 billion). In his first speech to Congress, López Obrador promised a “peaceful and orderly transition” and an end to “the corruption and impunity that prevent Mexico’s rebirth.” An anti-corruption furor resulted in López Obrador’s election, the culmination of a movement that started “a new revolution.”

In the aftermath of the 2018 election, the PRI lost considerable power and influence, losing all nine gubernatorial races. The waning influence of the PRI was evident before the election, as citizens looked for answers to combat growing corruption and poverty. Mexico’s anti-corruption efforts resulted in the López Obrador presidency, yet it remains to be seen if Mexico can be saved. In fact, the opposite question was asked by The Guardian in 2014, “Has Mexico’s moment finally arrived?” Raymundo Riva Palacio, a political analyst, said in response to economic and political reforms approved by Peña Nieto in 2014, “If things go well, Peña Nieto could go down in history as one of the great reformers of the past 100 years… if it does not, the failure will be monumental.”

It is safe to say that moment has not arrived.

***

Nathaniel Santos Hernández is a graduate of the University of Maine, Orono, with a degree in Anthropology. You can follow him on Twitter @saint_nate12.