Global Policy Forum

The Pinochet Money Trial


By Timothy L. O'Brien and Larry Rohter

New York Times
December 12, 2004

Gen. Manuel Contreras is a religious man. A bas-relief of the Last Supper hangs on his dining room wall, not far from a thick, leather-bound Bible that rests on a table. As the former head of Gen. Augusto Pinochet's secret police in Chile, General Contreras is also a controversial man. A large silver plate, given to him by Argentina's intelligence services, sits on a shelf, a few feet from the Bible. The inscription on the plate reads June 1976, the same month and year that General Contreras and other South American intelligence chiefs, according to declassified United States intelligence documents, authorized assassinations of exiled political dissidents in a wide-ranging conspiracy known as Operation Condor. Although General Contreras denied the existence of such a plan in a recent interview in his hillside home here, the plot has been amply documented in the United States intelligence records.

General Contreras's past banking activities have been documented, too. According to a declassified 1979 State Department memo, he opened a "secret bank account" at Riggs Bank in Washington in 1966, when he was a young soldier based in the United States. The State Department report noted that General Contreras's balance at Riggs was as high as $26,000 in the mid-1970's. In the interview, he said he was sure he never kept more than $1,000 at Riggs and that it was common for members of the Chilean army who were based in the United States to have personal accounts at the bank.

But General Contreras was less certain about funds Riggs held for his former boss, General Pinochet, whose accounts are among those at the center of a sweeping money-laundering investigation of the bank. The sums involved - as much as $8 million, according to an assessment by the United States Senate - have left even General Pinochet's staunchest allies wondering about their origin. "The problem with Pinochet is that he got quite a lot," General Contreras said. Army wages were very low, he said, even for someone as senior as General Pinochet. Does he believe that the general accumulated his riches fairly? "I don't know," said General Contreras, shaking his head. "I don't know."

As Chile's strongman from 1973, when he overthrew Salvador Allende, an elected civilian president, to 1990, General Pinochet presided over a purge of political opponents and the creation of a police state. But he also laid the foundations for what has become Latin America's most stable and promising economy - all, as the general's supporters have claimed, without ever stealing a dime.

In the United States, however, Senate investigators published a lengthy report in July that detailed multimillion-dollar accounts that General Pinochet and his wife, Lucia, held at Riggs. The funds were disguised and moved around the globe for years with the cooperation of Riggs officials, said Senate investigators, even after he was detained in London in 1998 and held under house arrest on Spanish court accusations of human rights abuses and genocide. Regulators fined Riggs $25 million earlier this year for failing to comply with bank secrecy laws, and a criminal investigation of the bank and its executives for possible money laundering is under way at the Justice Department. No Riggs officials have been charged with wrongdoing, although a former executive is the subject of a grand jury investigation of possible bank fraud.

In Chile, the fact that General Pinochet secreted large sums of money in other countries has forced a reassessment of his legacy and prompted scathing headlines questioning his integrity. The Chilean Congress has established a commission to determine if the Riggs accounts contain stolen government funds, an investigation that is moving apace with a separate judicial inquiry and a tax evasion investigation.

"Let's not kid ourselves," said Juan Pablo Letelier, chairman of the Chilean congressional commission and son of Orlando Letelier, a former Chilean foreign minister who was assassinated in Washington as part of Operation Condor. "Obviously, no public servant, even one who is head of state and commander in chief of the army, amasses that kind of wealth in this country, based on public income only."

Exactly how the general supplemented his modest salary - never more than about $40,000 a year as president - with foreign bank accounts holding millions of dollars remains unknown. His financial adviser has told the Chilean press that the general's fortune could be as much as $15 million and that all of it was accumulated legally, through shrewd investing.

Chilean government officials have openly ridiculed that explanation. The general's own sworn financial statements, released in recent weeks by United States Senate investigators and approved by a senior Riggs executive, indicate that he received large "commissions from service and travel abroad" during his nearly 25 years as Chile's ruler and military chief.

The statements are based on documents that Riggs has furnished to federal regulators. They show, for example, that in 1976 General Pinochet received a $3 million payment stemming from official duties involving the United States. And from 1974 to 1997, according to the documents, General Pinochet received payments totaling at least $12.3 million in connection with official duties involving China, Brazil, Argentina, Paraguay, Spain and Britain. It is unclear from those documents exactly what or who were the sources of some of those payments. The Chilean president's office said late last week that the documents were stamped by the Chilean defense ministry but that the government is investigating their origin and authenticity to see if General Pinochet may have forged them.

Based on the examination of other documents, Chilean officials said in interviews that General Pinochet, now 89, participated in lucrative real estate deals and may have received some of his biggest riches as a result of a wave of industrial privatizations engineered by his administration. Those transactions benefited numerous members of General Pinochet's government, the Chilean military, a core group of businessmen who were his avid supporters and his former son-in-law.

Chilean authorities - like their counterparts in Russia, Argentina and other countries where a select group benefited disproportionately from privatization of formerly state-owned companies - are examining whether the general received kickbacks from insiders involved in the privatizations. "We have not yet uncovered proof" of bribes or kickbacks, in part because of missing records, said Carlos Montes, chairman of a Chilean congressional committee reviewing the privatizations. "But our hypothesis is the same that you hear repeated until exhaustion in the rest of Chilean society: that those who benefited the most from the privatizations were generous with General Pinochet."

FOURTEEN years after he stepped down as dictator and six years after he ceded his post as commander in chief of the Chilean military, General Pinochet, still inspires fervent devotion among his loyalists. Three former senior military leaders who strolled into General Contreras's home during the interview agreed that any cash General Pinochet held abroad were emergency reserves, not stolen funds.

Other sometime supporters, though, have had their faith in the former dictator shaken. General Contreras's wife complained in the interview that she and her friends sold their jewelry to help raise money for General Pinochet's legal defense in the late 1990's, only to learn through the Riggs investigation that he had much more money than they ever knew or even suspected. General Contreras, who said the secret police kept its own funds at the Bank of New York during the 1970's because "the C.I.A. told us that was a good bank," asserted that his former boss was "just one man" and that the entire Chilean military should not be suspected of financial improprieties simply because General Pinochet was now on the hot seat.

According to the 1979 State Department memo, American authorities initially examined General Contreras's account at Riggs Bank as part of their investigation into the murder of Mr. Letelier and his assistant, Ronni Karpen Moffitt, whose car was blown up by a bomb as it approached the Chilean Embassy in Washington. But the memo said that it was impossible to determine the source of General Contreras's funds because officials at Riggs had destroyed all the relevant records. Riggs declined to comment on the Contreras accounts.

MORE than two decades after those bank accounts were scrutinized, funds that Riggs maintained for General Pinochet are proving to be equally murky and difficult to trace. That the general held such funds is at odds with the Chilean military's own stated traditions. A 1989 financial disclosure form that General Pinochet gave Riggs said: "The honesty of public servants corresponds to one of the essential principles that applies to all institutions the members of the 'junta' represent."

As General Contreras himself said, his former boss's wealth appears to be quite large for a man who spent his entire professional life as a soldier and public official. General Pinochet's financial adviser, Oscar Aitken , said that he believes his client's $15 million fortune is the result of an unusual amount of high-level hand-holding. The general's accounts "were personally managed by Joseph Allbritton" Mr. Aitken told El Mercurio, a Santiago newspaper, in September, referring to Riggs's former chairman and chief executive.

Mr. Aitken described Mr. Allbritton, who remains the single largest shareholder of Riggs, as "Pinochet's biggest admirer in the banking world," and Senate investigators in the United States have found numerous examples of his intervening personally on the general's behalf over the years. Mr. Allbritton, Mr. Aitken said, "promised, and delivered, rates of return that doubled General Pinochet's capital every three years."

A Riggs spokesman said that Mr. Allbritton did not personally manage the general's accounts and that the two men met in person on only two occasions. "The comments published in the El Mercurio newspaper are fundamentally wrong and materially inaccurate," the spokesman said.

Riggs's own records indicate that most of the general's accounts were earning interest of only 2 percent or 3 percent. The general's lawyer, spokesmen for his nonprofit foundation and individual members of the foundation's board either declined interviews or did not respond to repeated requests for interviews about his finances.

"If a high-level public servant tells you he is going to accumulate $10 million to $15 million by the time he is 65 years old, you need to denounce him to the authorities, because most likely he is stealing," Nicolas Eyzaguire, Chile's finance minister, told reporters here recently. "The only way to have achieved those high rates of return," he added, would be "if Pinochet himself and his children were financial geniuses, something which is very doubtful."

In the United States, federal investigations of Riggs's management of the general's funds suggests that the bank was more interested in masking the existence of his accounts than in producing high-octane financial returns. Riggs, according to American investigators, did not inform regulators, as required, about the existence of the accounts when asked about them four years ago. Moreover, the bank, in a maneuver that it has conceded was improper, changed the names on the accounts of the general and his wife from "Augusto Pinochet Ugarte & Lucia Hiriart de Pinochet" to "L. Hiriart &/or A. Ugarte," ensuring that computer searches for Riggs accounts with the name "Pinochet" would not find them. While banking at Riggs, the general also went by the names Ramon Ugarte and Daniel Lopez, two of the aliases that General Pinochet's financial and legal advisers said he used.

General Pinochet became a Riggs client in 1985, according to bank records. Before that, he apparently used Citibank. "In 1964, my father opened an account at Citibank, which was closed in the 1980's," one of the general's sons, Marco Antonio, said in a recent interview with a Chilean newspaper. "In 1984, that bank asked him to close the account, saying that they no longer wanted to have him as a client." Citigroup, Citibank's parent company, declined to comment.

Riggs seemed less concerned about doing business with the dictator. When the bank reviewed the propriety of maintaining the general's accounts after his arrest in Chile in 2001, a memo prepared for Steven B. Pfeiffer, a Riggs board member, observed that the general's indictment "describes with excruciating detail in over 270 pages the facts and lists thousands of people who were assassinated, tortured or disappeared during Mr. Pinochet's tenure." Still, Riggs kept the accounts open.

Some of the Riggs funds, according to Senate records, were registered in the Bahamas under two corporate shells, the Althorp Investment Company and Ashburton Company Ltd. The mailing address for one of the general's Riggs accounts, it turns out, is a park in downtown Santiago, across the street from military headquarters.

WHILE Riggs threw various cloaks around the general's accounts, the spigots filling them have drawn renewed scrutiny in Chile. In addition to the outsized fees and honorariums that General Pinochet may have received from his activities abroad, Chilean officials are now examining whether the general expropriated large sums from government "reserved expenditure" accounts used to carry out covert operations and investigations. General Pinochet's supporters, including members of his own family, have suggested that the reserves may be legitimate sources of the Riggs funds, but others say no.

"If, as some have maintained, one source of Pinochet's wealth is reserved expenditure accounts of the army or the presidency, then we are facing an extreme irregularity," said Mr. Letelier, the head of the congressional commission. "Reserved expenditures have to do with policy actions, and in no case can the person in charge of the military or the presidency just stick that money in a drawer or in his own pocket. That is absolutely illegal."

The Chilean authorities are also focusing special attention on privatizations of former state-owned companies in sectors like steel, electricity, mining and telecommunications, with an eye to uncovering financial gains the general might have secured through those transactions. The most lucrative privatizations were from 1985 to 1990, when it was clear that the Pinochet government's days were numbered and when even some military officials questioned the wisdom of rapidly selling companies in industries vital to Chile's national security and economic well-being. Privatizations were largely controlled and overseen by a small group of senior Chilean military officials and civilian cabinet members and economic advisers, a number of whom later got shares and high-paying positions at the very companies they helped to privatize. Even the general's family rode the privatization wave.

When General Pinochet seized power on Sept. 11, 1973, Julio Cesar Ponce Lerou was just one of many ambitious young Chileans; he had just graduated from forestry school. Today, he is one of Chile's richest people and president of a mining company that controls the some of the world's largest deposits of nitrates, iodine and other minerals and chemicals. Mr. Ponce Lerou's rise to wealth and prominence has all the trappings of a Horatio Alger tale - with cozy family and government connections added to the mix. At the time of the coup, he was married to General Pinochet's daughter, Veronica, and at various times not long after, he was both president of the government agency that supervised the privatization of all state-owned companies and the military dictatorship's representative on the board of the company he now heads, called Soquimich.

Mr. Ponce Lerou led a group of investors who acquired Soquimich at what investigators now describe as a rock-bottom price. After the fall of the Pinochet dictatorship and the restoration of democracy in 1990, an inquiry conducted by the comptroller general's office concluded that the state had sold parts of the Soquimich conglomerate for less than a third of their fair market values at the time.

"It is obvious that Ponce Lerou's family ties and public posts helped him to put together the prosperous economic state that he enjoys today," said Maria Olivia Monckeberg, author of "The Looting of the Chilean State by the Economic Groups," a book that is a critical history of the Chilean privatizations. "He created a network of relatives and business partners that came to occupy the highest posts in some of the most important state companies, not just Soquimich, but also the state-owned copper and steel companies."

As a result, Mr. Ponce Lerou, who did not respond to repeated requests for interviews, is among 38 Pinochet relatives whose business activities are being investigated by Chilean authorities in connection with possible money laundering and tax evasion. Also among those under scrutiny are General Pinochet's five children, who have various business interests of their own; his wife, who controls two important charities; as well as grandchildren, siblings and cousins.

Mr. Ponce Lerou was first in the public eye in 1978, when he was 32. Despite his youth and inexperience, he was named president of a state-owned cellulose company that the military government planned to sell to private investors. Mr. Ponce Lerou guided the company through its privatization; thereafter, his rise was meteoric. In short order, he secured the presidency of two other major state-owned enterprises, and by 1983 was the general director of the agency in charge of supervising the privatization program.

Later that year, though, Mr. Ponce Lerou resigned from all of his public posts, including the presidency of the board of Soquimich, after Chilean authorities charged him with "illicit enrichment" in connection with the acquisition of ranches and animal herds. He spent the next three years fighting the charges and was eventually acquitted. He then returned to the business world in time to partake in Soquimich's 1988 privatization.

As head of Soquimich, Mr. Ponce Lerou has overseen the company's expansion into immensely profitable new lines of business. Other members of the various boards running the conglomerate include Mr. Ponce Lerou's brother; Gen. Guillermo Letelier Skinner, Mr. Ponce Lerou's former deputy at the state development agency; and Hernan Buchi Buc, who, as Chile's economic minister in the late 1980's, played the main role in determining which groups would be awarded control of state companies being privatized, including Soquimich. Today, Soquimich's shareholders include foreign investors like the Bank of New York and Citigroup. But the largest block of stock remains in the hands of a holding company called Pampa Calichera, which Mr. Ponce Lerou controls.

Mr. Montes, the Chilean congressman examining irregularities in the privatization process, said Soquimich was only one of several companies being investigated. Another privatization that Mr. Montes is reviewing involves one of Chile's largest companies - an electricity giant called Enersis, on whose board Mr. Ponce Lerou also served.

Chile privatized Enersis in 1988; a year later the company snapped up a large stake in another Chilean electricity concern, solidifying its presence in the electricity market. In 1997, a Spanish company, Endesa, paid $1.5 billion for 29 percent of Enersis - a sale that enriched the company's chief executive, Jose Yuraszeck Troncoso, and six other senior Enersis executives who, according to press accounts at the time, were collectively paid about $350 million for a special class of shares they owned. Other Chilean investors complained that Enersis executives ceded too much to Endesa in exchange for a lucrative payoff. El Mercurio labeled the transaction "the scandal of the century."

Mr. Yuraszeck had been involved in privatizing Enersis as a member of the Pinochet government before he secured Enersis shares for himself and joined the company. Public disapproval of the Endesa deal forced Mr. Yuraszeck to resign, and Chilean securities regulators initially fined him the modest sum of $34,000 for failing to adequately supervise the transaction. In July, however, he and others were fined $75 million, a penalty he is now appealing.

In an interview, Mr. Yuraszeck denied any wrongdoing and said he had made no donations to General Pinochet. His Enersis profits, he said, were entirely proper because the company's management had guided it through a large and successful expansion. "Everyone did well" as a result of the sale to Spanish interests, he said. "Some did better than others, but all shareholders prospered."

But Mr. Montes said government examiners believe that Enersis was originally sold to private owners, including Mr. Yuraszeck, at far below its market value and that the transaction was far from transparent.

MR. YURASZECK was not the only member of the Pinochet government to join Enersis. Carlos Caceres, a former senior minister in the government whose signature appears as a witness on General Pinochet's 1989 financial statement, served on the Enersis board in the late 1990's. Mr. Caceres, along with two other prominent Chilean businessmen, Hernan Guiloff and Hernan Briones, became important financial supporters of General Pinochet when he was arrested in Britain in 1998, according to The Financial Times.

Mr. Caceres, Mr. Guiloff and Mr. Briones declined to comment about their relationship with General Pinochet or the nature of the Chilean privatizations. Mr. Briones is the director of the Pinochet Foundation, a charitable body; Mr. Guiloff and Mr. Caceres are members of its board.

On its Web site, the foundation states that its mission is the promotion of the general's legacy and the preservation of Chilean culture and history. When the United States Senate released its report on Riggs in July, spokesmen for the Pinochet Foundation and the general's lawyers said that one source of the former dictator's wealth was "donations" from grateful businessmen. The businessmen's identities were not specified.

Mr. Montes said in an interview that he and his investigators face high hurdles in carrying out their examinations of the Pinochet-era privatizations. He and his team would not be the first to have such problems. In the early 1990's, after General Pinochet was forced to step down as president but while he still commanded the armed forces, the Chilean government began an inquiry into the privatization process. But that examination was quietly shelved after some investigators were beaten by assailants who were never identified and other investigators received threats over the telephone.

"I can't tell you the magnitude of what went on" in the privatization process, "because we do not yet have all the information we need to be able to determine that," Mr. Montes said. "Just to be able to get an organized investigation going is an achievement," given that vital records of the privatizations have yet to be found, he added. "They should exist," he said. "But if they do, they are scattered all over, so we have not yet been able to do even a basic inventory or a registry of what happened."

Whatever the challenges of the past, the scandal has given fresh impetus to those seeking a full accounting of the financial underbelly of the Pinochet era. Even the general's closest family members are not off limits, something that was unthinkable just a few years ago.

Some members of the Chilean Congress are calling for an investigation into two charitable groups, the Center for Mothers and the September Foundation. General Pinochet's wife, Lucia Hiriart, has headed both organizations. She also figures prominently in the investigation of possible money laundering at Riggs and is a Pinochet Foundation board member. Other members of Congress are demanding inquiries as to whether one of the general's daughters, also named Lucia, pressured the state insurance agency to steer contracts to companies associated with her and then diverted profits from those deals into an offshore account.

Another unresolved financial controversy involving the Pinochet family is known as the "Pinochecks scandal." In the last phase of the dictatorship, General Pinochet authorized government payments totaling more than $3 million to another son, Augusto Jr., to buy him out of a failing arms company - sparing the son from large financial losses. But when the civilian government that later came to power ordered a full investigation of the deal, military troops swarmed the streets and threatened a rebellion. Eventually, the inquiry was shelved and no action was taken against Augusto Jr.

Augusto Jr., who at one time trademarked his father's name for use on branded credit cards and wines called "Captain General" and "Don Augusto," was recently convicted of fraud in a case involving stolen cars.

For General Pinochet himself, the days when his name might have graced a fine bottle of wine have passed. Instead, his name is now more closely associated with a once prominent United States bank: Riggs.

"What's really interesting about it is that Pinochet said that what he did he did to save the country and he said he was not simultaneously looting the treasury; he said he was the honest dictator," said the writer Ariel Dorfman, a Chilean exile who is a professor at Duke University. "But looting, and hiding the loot, is deeply ingrained in dictatorships."

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