Brazil & Southern Cone - June 2012 (ISSN 1741-4431)

“History repeats itself”, goes the saying. Corruption and power struggles have been a constant throughout political history and neither Latin America, nor Chile, have been has immune to either. An internal investigation carried out in March by Chile’s health ministry into Santiago’s metropolitan west healthcare service (SSMO) led Health Minister Jaime Mañalich to publicly denounce the existence of fraud against the state. To make matters worse, Mañalich has since hinted that the motives behind the case, which is now being investigated by the local prosecutor’s office, may have been political. The case raises the spectre of the so-called Mop-Gate scandal, which Chile only finally managed to close just two years ago.

On 3 May Mañalich announced that the March internal investigation had discovered significant irregularities dating back five or six years, related to payments made by the SSMO to ‘ghost’ service companies.

Mañalich described the situation as extremely worrying, noting, “we have yet to find proof that [any] services were provided”. He said that so far irregular payments to the tune of Ch$270m (US$560,000) had been discovered but admitted that this could be just the tip of the iceberg, given that the payments were made systematically over many years. They were hidden in small amounts paid by over a hundred cheques, endorsed by the SSMO, to be paid in cash to numerous ‘service companies’ representatives’.

Mañalich also said that they had found evidence that at least one ghost company, ‘Santa Elbita’, which had received some Ch$160m from SSMO, had also appeared on the books of other health provision centres in different regions of the country, including Tarapacá, Antofagasta, O’Higgins and Magallanes, all of which are now also under investigation. Given that, the health ministry promptly asked prosecutors to launch a criminal investigation into the case.

The authorities now estimate that the total amount of funds diverted through the scam could be as high as Ch$5.0bn (US$9.92m).

There are three primary suspects in relation to the deviation of funds at SSMO, the entity’s finance chief, Rigoberto García-Huidobro Contreras, its treasurer, Sergio Flores Fuentes, and the deputy director, Cecilia Mena Noriega. All three have been summarily sacked as part of the investigation. On 28 May the prosecutor in charge of the case, José Morales, formally requested Chile’s prosecutor general, Sabas Chahuán, to charge García-Huidobro and Flores Fuentes on eight counts of malfeasance of public funds. Mena Noriega has not yet been charged, but it is expected that she will be, possibly along with some other high ranking current and former directors, as the investigation continues. (see sidebar).

Opposition rejects Mañalich’s insinuations

Mañalich moved swiftly to publicly denounce he fraud as soon as his ministry had sufficient evidence of the wrongdoing. However he erred in getting ahead of himself by suggesting that the funds may have been diverted for political means.

The minister erred even further by insinuating that the case involved members of the opposition Partido Demócrata Cristiano (PDC). Revealing the results of the internal investigation to reporters for the first time, Mañalich said that the case “resembles others that the country has seen in the past, I am referring to the Mop-Gate”. The inference was clear; Mop-Gate was one of the biggest political corruption scandals in Chile’s recent history and seriously damaged the reputation of the previous governments led by the now-opposition Concertación coalition.

Mop-Gate involved a scheme at the ministry of public works (Mop) whereby officials deliberately overpaid for a number of contracts awarded to local firms, with some of the surplus money deviated to 129 public sector workers via a consulting firm, Gestión Administrativa y Territorial (Gate), which from 1997 was in charge of administering public funds to contracted private companies.

The irregularities were first discovered in 2000, and a seven year investigation determined that the state had been defrauded of some Ch$1.25bn as a result of the overvaluation of contracts (some of which were never executed), the concealment of costs and the overpayment of employees salaries. Damagingly for the Concertación government of the time, led by former president Ricardo Lagos (2000-2006), when Judge Gloria Ana Chevesich, who was put in charge of the case by supreme court in 2003, presented her final report in 2010 she sentenced 14 people, including top government officials such as the former Mop minister, Carlos Cruz, the former waterworks director, Eduardo Balbontín and even Lagos’s former cabinet chief, Matías de la Fuente, to suspended prison sentences for defrauding the state. These have been appealed and are still under consideration by the courts. While many applauded Judge Chevesich’s findings as a valiant attempt to root out corruption, some Concertación politicians described it as “a political witch hunt” as they believed that Judge Chevesich was too eager to go after high ranking government officials.

Although the Mop-Gate case has been largely resolved, it has never determined what the proceeds of the fraud were actually used for. There was speculation that the scheme was a way for Concertación politicians to finance their political campaigns, but this has never been proved.

Mañalich, clearly well aware of this, told reporters that he did not “discard the possibility that the ill-gotten funds had been used for past political campaigns”.

More controversially, the minister added, “It is highly probable that this case becomes political...the people involved in the operations are well-known militant Christian Democrats”. Mañalich’s remarks were highly incendiary and provoked a storm of criticism, led by the PDC and the rest of the Concertación, who said that Mañalich was too quick to make political accusations. Prosecutor Morales subsequently rejected outright the suggestion, noting that to date there were no indications of political motives behind the case.

Mañalich was forced to offer a public apology early on 8 May (see sidebar) before he was due to appear before the chamber of deputies’ health commission to present the details of the fraud at the SSMO. Concertación deputies on the committee had threatened to boycott the session in protest. The apology was not enough; the Concertación deputies complained that the apology was “convoluted”. A PDC deputy, Gabriel Silber, declared that the Concertación would not “listen to the minister until he apologises to all Chileans for the lies we have heard in these recent days” and all seven Concertación deputies walked out of the room. Relations between the Concertación and the government are already fraught and this incident will only increase tensions. A frustrated Mañalich said afterwards that the Concertación deputies had not given him the opportunity to explain himself; and that in the circumstances a new apology would not be forthcoming.

For Chile this is second major official corruption scandal in little over a decade. After the Mop-Gate scandal, the government introduced new norms aimed at ensuring transparency and probity in the administration of public funds, as well as new campaign financing rules; but the emergence of this new case suggests that these efforts were not entirely successful. While Mañalich behaved clumsily in making baseless accusations against some members of the opposition, the case does leaves some nagging questions about the record of the previous Concertación governments in addressing corruption.

• SSMO ex-director denies corruption

On 4 May the former director of Santiago’s metropolitan west health service (SSMO), Enrique Ayarza, denied that fraud had taken place on his watch and argued that it could only have begun from September or October 2010 and thus “entirely under Minster Mañalich and the authorities appointed by this government”. Ayarza added that SSMO has a tightly structured budget completely open to scrutiny and that irregularities would not have been missed. He added that he was in favour of a full investigation, stressing that he had “no evidence or precedent” for the malfeasance.

• Mañalich’s apology goes down like a lead balloon

Health Minister Mañalich told reporters that he had been “misinterpreted” and that his statements had been taken out of context, making it seem as though he had jumped to conclusions. Mañalich stressed that his ministry had “no evidence of any relation between the people involved in the case, who may have acted individually or collectively”. He added that if any political party had been offended by his remarks “this was not my intention and I offer my public apologies”.