Dirty money scandal makes waves in Chile

Patricio Navia

Buenos Aires Herald, January 14, 2015


A year after its worst electoral defeat since the restoration of democracy, Chile’s right-wing Alianza coalition has suffered a new setback. A campaign finance scandal involving prominent members of the Independent Democratic Union (UDI), the most conservative party in the country, has shifted attention away from the complications faced by President Michelle Bachelet’s ambitious reform package. Ironically, because the most significant opposition to her reforms come from within her centre-left New Majority (NM) coalition, the ongoing crisis in the UDI will not be of much immediate help to Bachelet — though it will delay the re-emergence of the right-wing coalition as a relevant political actor in Chile.


Prior to 2004, there was no campaign finance regulation in Chile and most spending was carried out under the table, following a “don’t ask, don’t tell” logic. A campaign finance scandal that broke in 2002, under centre-left President Ricardo Lagos (2000-2006), triggered legislation to regulate campaign contributions, establish spending limits and provide government funding for campaigns. Though the electoral financing laws introduced some transparency to the process, no enforcement mechanisms were introduced and no budget was allocated for the Electoral Service to ensure compliance with the new rules. Thus, some candidates continue to incur high expenses, knowing that they are unlikely to get caught. In addition, because the legislation allows for companies to privately donate to candidates, some candidates have access to vastly more resources than others. Though the system intended to create a firewall between donors and politians, since most candidates who receive secret contributions defend business-friendly policies, there are good reasons to doubt the effectiveness of the firewall and its aim of reducing the influence of business interests on politicians.


The current scandal involves Penta, a business conglomerate with interests in banking, healthcare and real estate. The two founding members and controlling shareholders, Carlos Alberto Délano and Carlos Eugenio Lavín have been indicted for tax evasion. As part of the investigation, the prosecutors’ office uncovered an illegal scheme, which was designed to channel funds to right-wing politicians’ electoral campaigns in 2013. So far, two UDI senators have been implicated — Senators Ena Von Baer and Iván Moreira’s public statements and their initial response denying any wrongdoing contradict recently-leaked emails that show both of them asking Penta’s owners for contributions. Another UDI politician, Pablo Wagner, a former undersecretary of mining in the right-wing Sebastián Piñera administration (2010-2014) has been indicted for bribery and other counts of tax fraud. Wagner has already resigned from the UDI, but his close links with UDI president, congressman Ernesto Silva, a business associate from one of the companies used to commit tax fraud, will haunt the conservative party. There is growing pressure on Silva to resign. Since Silva is also the nephew of Penta’s owner Carlos Délano, his position as UDI President looks untenable and it can only damage the party.


The scandal has affected people outside UDI as well though. Public Works Minister Alberto Undurraga, a Christian Democrat and a member of Bachelet’s Nueva Mayoría coalition, has also been named as a suspect, accused of receiving funds for a non-profit organization, set up in parallel to his failed senatorial campaign, to help pay some campaign advisors. Former presidential hopeful, Andrés Velasco, who lost to Bachelet in the coalition’s primaries in May, 2013, has also been named in the investigation. Both Undurraga and Velasco have denied any wrongdoing, but the fact that they are part of the prosecutor’s investigation threatens to expand the crisis beyond the UDI into other political parties.


Since the practice of financing campaigns under the table, through third parties, and reporting those funds as corporate expenditure seems to be widespread, some analysts predict that the scope of the scandal will likely spread other companies and implicate to other politicians.


So far, despite having a Cabinet member indirectly implicated, the government has managed to stay clear of the judicial case. Yet Bachelet’s ambitious legislative agenda has stalled in Congress, with all eyes on the politicians involved. Though the New Majority has a clear majority in both chambers, the fact is that the more moderate Christian Democratic Party (PDC) has effectively limited the scope of some of the government’s legislative reforms — including the long-aniticipated and long-debated educational reform — and will do the same with the recently introduced labour reform, which has transformed the PDC into a pivotal party in Congress. Without the PDC’s votes — particularly in the Senate — Bachelet does not hold a majority. As Alianza legislators will support practically any moderate amendments offered by the PDC with the intention of altering Bachelet’s more radical reforms, the government has been forced to concede to the PDC to secure legislative approval.


As Bachelet approaches her first anniversary in power, a sluggish economy and her falling presidential approval have eroded much of the political capital she earned winning the presidency in 2013 with a share of 62 percent of the vote. After having driven the New Majority to its largest election victory, Bachelet has been unable to enforce discipline within her coalition, securing support for the reforms she promised in the campaign. Thus, while the Alianza — and especially the UDI — struggle to overcome the growing campaign finance scandal, Bachelet seems unlikely to be able to capitalize on the political opportunity in front of her.