More than $430 million of misused federal funds, 128 fictitious or irregular companies and 50 government officials. They all form part of a huge embezzlement scheme, uncovered in a multi-part, multi-media Animal Político* and Mexicans against Corruption and Impunity (Mexicanos Contra la Corrupción y la Impunidad - MCCI) investigation. InSight Crime interviewed Tania Montalvo, the editor and general coordinator of the project, who told us about the investigation's major findings and how it was conducted.
Simply put, the scheme was massive. During 2013 and 2014, Mexico's federal government contracted nearly 7.7 billion pesos [$430 million] worth of public contracts. Of the 186 private companies that secured the bids, 128 were found to either not exist or have irregularities that should have barred them from any bidding process. The contracting processes also included eight public universities that were used as intermediaries for no apparent reason other than to collect a commission of between 10 and 15 percent. In the end, more than 3.4 billion pesos [over $190 million] simply disappeared.
IC: How did the investigation start?
TM: Every year, the Government Accountability Office [Auditoría Superior de la Federación - ASF] releases a report on last year's public expenditures. The auditor always raises some irregularities or red flags. For 2013 and 2014, the auditor pointed to irregular agreements between federal entities and public universities, saying that this started back in 2010. But the auditing body's powers are limited. They cannot probe the private entities to follow the funds' trail.
IC: How did you follow that trail then?
TM: We started going through the auditing reports to list the state entities and the 73 agreements signed with public universities in 2013 and 2014. And with this database, we picked up the money trail where the accountability office had left off, gathering information on all the companies involved. Then came the field work. We went and checked the addresses for these companies, found that some weren't where they say they were, others were officially registered to home addresses of people who had never heard of them, etc. [See video in Spanish below.]
But we could only find 3.4 billion pesos [$190 million] traced to these irregular companies, so around half of the total sum involved. We broadened our investigation, and discovered that roughly a billion pesos [$56 million] had landed in the universities [as] commissions. As for the rest, it appears to have financed certain services, but at an inflated price.
In total, building and analyzing the database, field work and redaction required nine or ten months.
Courtesy of Animal Político
IC: Did you encounter any form of pressure or face any issues collecting this information?
TM: In the field -- in Villahermosa, Tabasco, for example -- our reporters had to be cautious because the companies' headquarters were registered in violent areas. But we were never threatened or intimidated. Officials are denying everything, of course, but our investigation is rock-solid.
[The cabinet's body in charge of revising government activities -- Secretaría de la Función Pública -- published a press release on September 4, noting that the government had taken action in the past against certain state entities, and that it would consider any new information presented in the investigation by Animal Político and MCCI's investigation. The investigation's online platform also provides links to all replies from entities or individuals concerned in the case. Animal Político has replied to certain denials.]
IC: Coming back to the modus operandi of signing conventions with universities, is it legal?
TM: It is legal, but they are doing it illegally. The public procurement law states that public entities can sign contracts with one another. But the contracted entity must be fully capable of delivering the services and cannot subcontract more than 49 percent of the deal's total value. None of these two criteria are respected. The universities subcontract between 85 and 90 percent [of the work]. Weeks or days after signing the agreements, they declare themselves incapable of delivering the services, which isn't surprising, given that none of these [contracts] relate to education or research.
IC: Do we know who the owners of the 128 irregular companies are?
TM: We have identified them in several cases. The Pemex story is interesting in that regard because we discovered the use of front men. The companies are officially in the name of extremely poor people, mostly from Tabasco, who had no idea they were the owners of a multimillion [peso] company. A Tabasco prosecutor told us that the trafficking of false documents used to register a company was a problem in the state. What really happens is that people go to extremely poor households, and tell them, "Look, I'll you give you that much money and in exchange, you lend me your ID and your proof of residence." No one would tell us exactly how much they were given, and it's impossible to know who got what public monies in the process.
Courtesy of Animal Político
IC: How is the money laundered or "disappeared" once it is received by the companies?
TM: Via completely illegal transfers. One company, for example, received 700 million pesos [$40 million] from the Secretariat of Social Development [Secretaría de Desarrollo Social - SEDESOL] without a signed contract. Sure, the company is registered and pays taxes. But it never declared this $40 million as income. As we write in our case study of SEDESOL, this lack of oversight points to significant legal and institutional shortcomings.
IC: About the criminal structures: Are we talking about a single network of 50 officials, or various networks?
TM: These are different networks per institution using the same modus operandi with minor differences: A state entity signs a convention with a university, the latter declares itself incompetent while keeping a hefty commission, [and] subcontracts companies, at which point the money either vanishes or is spent on overpriced services.
IC: Were links established between the individuals involved?
TM: Yes. If you look at the Pemex case, the companies have been set up by former Pemex officials. And if you dig deeper, you'll see, for example, the company transferring the funds to another firm, owned by the former official's daughter, which then creates a joint venture with yet another company owned by a second daughter, [and the joint venture is set] to receive a separate government contract.
IC: Given that the scheme dates back to at least 2010, does that mean the criminal structures have been operating since Felipe Calderón's 2006 to 2012 administration?
TM: Certain conventions executed in 2013 were actually signed in 2012 or 2011, so during the Calderón administration. But the ASF said the scheme really started picking up speed in 2013, when it became institutionalized.
IC: What measures should the government or congress adopt to stop this type of corruption?
TM: The public procurements law should be reformed to require the head of the public institution to sign off on every contract [a measure pushed by the government's chief auditor. See interview video in Spanish below]. At the moment, these agreements are approved by mid-level officials. Like the chief auditor suggests, this signature would shift the responsibility to the head of the entity, who would think twice before spending the funds. [Right now], if anybody goes to prison, it will be a mid-level official, who didn't necessarily know he was embezzling funds, and could have simply followed a verbal order.
Courtesy of Animal Político
IC: What does your investigation tell us about broader criminal dynamics, especially as they relate to elites and organized crime?
TM: What we've uncovered so far for 2013 and 2014 appears to be the largest documented embezzlement scheme [in Mexican history]. And since 2010, approximately 2,000 agreements have been signed, whose total value we estimate at 31.5 billion pesos [nearly $1.8 billion]. We don't how much of that money was embezzled.
What we did realize is that this is only the tip of the iceberg of possible embezzlement schemes involving much larger sums, with a similar modus operandi.
*Animal Político is a partner organization of InSight Crime. We regularly translate and publish material produced by the outlet. This interview has been translated and edited for clarity and length.