Costa Rica Falls Victim to Corruption Clientelism

Paradise Lost: Costa Rica Falls Victim to Corruption and Clientelism

• The ‘Switzerland of the Western Hemisphere’ is being severely shaken by numerous allegations of political corruption.

• At least three former presidents have been accused of heavy involvement in bribery scandals, with possibly more to come if the 1970s and 80s are scrutinized.

• Current President Abel Pacheco and numerous other government officials are also under investigation.

On October 8, former Costa Rican president Miguel Angel Rodríguez resigned as Secretary-General of the Organization of American States (OAS) just three weeks after he had been installed in his new post. He stepped down after allegations surfaced accusing him of fraud while serving as Costa Rica’s president. Rodríguez’s downfall has sent shockwaves throughout the hemisphere, particularly in his native land, where an alarming trend of past corruption and scandal among the nation’s top officials has become evident in the last few months, although, in reality, widespread corruption has been infecting the country for years.

Smug Costa Rica has long been considered, perhaps quixotically, to be a model for the Western Hemisphere regarding its peaceful demilitarization, an extensive and efficient social service net, low levels of violence and exceptionally high literacy rates. As such, Cost Rica was thought to be far above the bribery and rampant corruption that have plagued its more venal neighbors. Yet the recent release of credible evidence that four presidents, as well as numerous high ranking administrators, have been involved in money laundering has done immense damage to this perception. If the litany of scandals continues, many believe that Costa Rica will run the risk of mortally damaging its squeaky-clean reputation and perhaps endanger some of its democratic institutions, not to mention the rapidly degrading image of the region in general. Former Guatemalan President Alfonso Portillo and former Honduran President Rafael Callejas both have been recently investigated for corruption. Additionally, former Guatemalan Vice President Francisco Reyes is currently imprisoned on corruption charges. Regional leaders are also surely keeping an eye on the developing crisis in Ecuador, where President Lucio Gutiérrez’s cabinet is rapidly dissolving as he faces possible dismissal for the alleged misappropriation of campaign funds. Finally, former Salvadorian President Francisco Flores—a candidate for the top post in the OAS—has been accused, but not yet charged, with fraud involving two banks (CREDISA and CREDICLUB), money laundering and defaulting funds from the National Administration of Aqueducts and Sewers—not small allegations against a would-be hemispheric leader.

Telecommunications Fraud
Meanwhile, allegations of corruption against Rodríguez first materialized last June during his confirmation as OAS Secretariat. Suspicions arose when José Antonio Lobo— Rodríguez’s protégé and a former director of the state electrical company, Instituto Costarricense de Electricidad (ICE)—was arrested in connection with a bribery scheme involving the French telecommunications company Alcatel. In an effort to improve Costa Rica’s cellular phone capabilities, contract bids were issued during Rodríguez’s term to a number of international telecommunications firms. Two firms in particular, Alcatel of France and Nokia of Finland, vied for this lucrative deal, with Alcatel eventually prevailing. However, in early 2004, details surfaced that Alcatel officials had been awarded the contract after successfully bribing Lobo with a $2.4 million “prize”. Lobo, now under house arrest, claims that he only accepted the sum after being advised to do so by Rodríguez. According to Lobo, Rodríguez not only encouraged the transaction, but also demanded that 60 percent of it be deposited into a Washington bank account under his wife’s name; he allowed Lobo to keep the remaining 40 percent.

Alcatel has a history of attempting to influence Costa Rican politicians. Connections going back to José María Figueres, another former president, forced him to step down from his position as second-in-command of the World Economic Forum in Geneva on October 29. His resignation came after accusations arose of a $900,000 bribe he received from the corporation during his years of public service in Costa Rica.

Alcatel supposedly had invested $800,000 in companies linked to Hernan Bravo, director of the ICE from 1998 through 2004. In return, Bravo saw to it that the company was awarded two more large contracts to develop cell phone lines, the most recent contract reportedly being worth $149 million. In a rather ironic twist, current Costa Rican President Abel Pacheco, the most vocal critic of Rodríguez during his abbreviated stint as OAS Secretary General, has yet to explain the undeclared $100,000 donation to his presidential campaign by Alcatel. In all, authorities believe that Alcatel has paid a total of $4.4 million to various Costa Rican officials, resulting in its being assigned a near monopoly of telecommunication services in the country.

Taiwan Connection
Perhaps the most prevalent of the current corruption charges swirling through Costa Rica involves Taiwan, a nation that has always had a very amicable, if well-greased relationship with this and other Central American and Caribbean countries (the smaller the better, as long as they have a vote in the OAS and UN). Rodríguez’s personal Panamanian-based investment company, Denisse, received two payments of $500,000 from the Friendship Company, which has strong ties to the Taiwanese government. In addition, as president, Rodríguez received $200,000 from Taiwan on two separate occasions—in 2001 from the Taiwanese foreign minister and again in 2002 from its embassy in San José. Last June, Rodríguez was questioned about several mysterious donations of up to $500,000 to his political party, the Social Christian Unity Party (PUSC), from companies with Taiwanese connections.

The Taiwanese government also has invested more than $4.8 million in Costa Rica, supposedly for development and tourism. These funds, however, actually went into 34 foreign ministry employees’ paychecks rather than being invested in the Costa Rican economy. Because of its diplomatic isolation brought on by Beijing’s aggressive foreign policy, Taiwanese officials chronically find it advisable to buy influence throughout the Caribbean basin by bribing venal local leaders and entering into sweetheart contracts with their officials, with the hope of bringing about diplomatic recognition of national sovereignty for the island.

Fraudulent “Plan Finland”
Another piece of chilling evidence has emerged to the embarrassment of former Costa Rican President Rafael Angel Calderón. Project Finland began as a component of a $39.5 million loan promised to Costa Rica by the Finnish government. The deal was intended to subsidize Costa Rica’s state-run Social Security System, Caja, by improving its medical technology. Apparently, Calderón received a large sum laundered through the Costa Rican pharmaceutical company, Corporación Fischel, whose funds originated from Project Finland. The Project Finland arrangement in turn was agreed to by Helsinki on the condition that the Central American country would purchase at least 50 percent of its medical equipment needs from Finland. Eliseo Vargas, the Caja executive who had pushed for Plan Finland in 2001, was arrested on October 3, 2004 for attempting to interfere with a government investigation. Meanwhile, Calderón, who previously was thought to have stood aloof from the Finnish deal while serving as president from 1990-1994, is now being investigated for his illicit receipt of $440,500. Though Calderón has admitted to having received the aforementioned funds, he sheepishly argues that the money was legitimately earned by him, comparing his revenues to that of a fortunate stockholder, rather than a defalcating head of state.

What Next?
These incidents have caused Costa Rica to suffer a plummet in its international prestige, as well as in its own self-image. In fact, serious talks about corruption go back to at least the middle of the 1970s, featuring the National Liberation Party (PLN) presidency and its leader, President Daniel Oduber. Perhaps most telling is the country’s significant decline on the Transparency International Corruption Perception Index (TICPI). While Costa Rica was ranked 22 in the world in 1997, it was ranked 41 as of Oct 21, 2004, still a relatively generous mark in light of the spate of recent allegations against the nation’s highest officials. Humiliating reports such as this may partially help explain Costa Ricans’ resolve to see that those responsible for such scandals are suitably punished, for failure to do so would further trash the country’s already savaged reputation. On October 12, thousands of indignant ticos marched in a peaceful demonstration in San José to protest the current sordid state of political affairs in the country. Costa Rica’s Congress also has taken action to ensure that scandals like these do not continue to escalate. Anti-corruption legislation recently has been passed and signed into law by President Pacheco. There is even discussion of additional legislation that would ban any country participating in such unscrupulous under-the-table deals from trading with Costa Rica for the next ten years. Taiwan would be a central focus for such a measure because of its extensive role in money laundering and for purchasing diplomatic influence in order to neutralize Beijing.

Costa Rica is currently one of only 26 countries that recognize Taiwan’s autonomy from China, but now there is a demand by many in the political opposition that all relations with Taipei be severed. Officials involved in these crimes cannot expect immunity, as exemplified by the swift action taken against two of its former presidents. Rodríguez was forced to return to Costa Rica after his disgraceful OAS exit, where he was summarily arrested and jailed on October 29 and is awaiting trial within the next six months. Calderón was also jailed at the end of October, but a judge has reduced his initial nine month sentence to two months and he can expect to be released on December 22. Perhaps such rapid punishment caused Figueres, who initially had promised to return to the country by December 1, to send a 15-page letter to the Costa Rican Congress on November 30, declaring his intention to remain in Geneva. His refusal to return indicates that the retribution process may be much slower than Costa Ricans would like.

Considering the initial shock that swept through the hemisphere in response to the continuing revelations surrounding malfeasance in office in Costa Rica, one could assume that an urgent message of alarm is being recorded there, as well as elsewhere in the region. Costa Rica, which has always thrived on its putative democratic bona fides, is now being seen as not particularly different from the other transgressor nations, but instead as a chronic victim of massive corruption. If the country’s ill-regarded judiciary and lackadaisical legislature can be used to effectively eradicate the systemic dishonesty from its current political system, Costa Rica may yet be able to offer a possible example to its neighbors of how to redress crooked governance.

This analysis was prepared by Emily Alves and Michael Johnson, COHA Research Associates.

Additional research provided by Alex Sanchez, COHA Research Fellow.

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