Amid economic reforms, Cuba goes after corruption

Posted on Saturday, 11.19.11

Amid economic reforms, Cuba goes after corruption
By PAUL HAVEN
Associated Press

HAVANA -- Green-clad security agents swoop down on an upscale business
complex to shutter the offices of a Canadian car dealership. Top
executives at Cuba's famed cigar monopoly find themselves behind bars. A
former government minister trades his seat in power for a jail cell and
a 15-year term.

President Raul Castro is matching his free market economic changes with
a zealous battle against entrenched corruption on this Communist-run
island, much of it involving Cuban officials at major state-run
companies and ministries as well as the foreigners they do business with.

Cuba says the crusade is essential to save the socialist system. Others
wonder at the timing of a crackdown that has sent a chill through the
small foreign business community, just when the cash-strapped economy
needs international financing to push the reforms along.

Cuba has battled corruption before, even executing a former
revolutionary war hero on drug trafficking charges in 1989. But past
arrests have been largely limited to Cubans. Analysts say the current
crackdown seems different, with Canadian, French, Czech, Chilean and
English citizens jailed or sentenced for their alleged roles, and scores
of small South American and European companies kicked out of the country.

The sale of Korean cars and car parts slowed this year as two top
distributors, both Canadian, became ensnared. Meanwhile products like
Chilean wine, juice and tomato paste temporarily disappeared from
supermarket shelves, replaced after a few months by other brands.

One thing is clear. The rules of doing business in Cuba have changed
dramatically under Raul.

"This is not a campaign, what is happening in the fight against
corruption," Attorney General Dario Delgado told journalists this month.
"This is permanent. This is systemic. There is a will on the part of the
state ... that corruption cannot be permitted."

While the nonprofit Transparency International says Cuba ranks better
than average worldwide in a measure of corruption and is third best in
Latin America and the Caribbean, graft here can be more corrosive
because the state controls nearly the entire economy.

Companies wanting to do business with Cuba must present their cases
directly to midlevel government officials who may make about $20 a
month. There is no open bidding for contracts and decisions go
unexplained, which businessmen say opens the possibility of graft.

A South American importer with a decade of experience selling food
products to Cuba before he was expelled for alleged corruption in 2009
said the payoffs can take many forms: from the gift of a bit of gas
money, a free meal or a computer pen drive for a relatively junior
"international purchaser," to free trips abroad, computers, flat-screen
TVs or large deposits of cash in foreign bank accounts for senior officials.

"The forms of persuasion - let's call it that - are nearly infinite," he
said, adding that the system is so pervasive that "a businessman must
always have a wad of cash to stuff the pocket of a guayabera," the
loose-fitting traditional Cuban dress shirt.

Cuban officials have not said what impact the crackdown will have on the
island's economy, but they have warned repeatedly that widespread graft
has the potential to destroy it.

"The fight against corruption is vitally important," said Comptroller
General Gladys Bejerano, a stern, poker-faced official who is
spearheading the investigations. "It doesn't produce fatalities and
there are no bombs or blood ... but it is the only thing that can bring
down the revolution because it destroys our values and morality and it
corrodes our institutions."

Castro has thrown his full weight behind the project since taking over
from his ailing brother in 2006. In 2007, he signed a law imposing
stricter rules on public officials. When he put Bejerano in charge of
the Comptroller General's Office in 2009, he altered the chain of
command so that she would report directly to him and the Council of
State, Cuba's supreme governing body.

Even the Cuban leader has joked that Bejerano was not the most popular
at government parties.

"Comrade Gladys Bejerano was not well liked by some, and there was
always someone complaining" that her investigations are "demoralizing,"
Castro told legislators in a December 2010 speech. "They said 'Gladys is
very unforgiving, she can be very stern.' That is what we want. That is
what I constantly demand."

The arrests and raids also have sent a shudder through Havana's small
foreign business community, a collection of risk-takers who always have
accepted a high degree of uncertainty doing business with a Marxist
country that is subject to a 49-year U.S. trade embargo, and which has a
mixed track record of payment. Some now see themselves as targets.

Moves against them began in earnest in 2009 when more than 150 foreign
business owners and operators were expelled, according to businessmen
and a confidential Foreign Trade Ministry list obtained by The
Associated Press. But the pace of closures and number of arrests have
grown in recent months.

"It's like an earthquake," said a foreign business adviser who counsels
companies looking to enter the Cuban market. He said the crackdown is
coming just when Cuba is becoming more attractive because of Castro's
free-market opening, with rising demand for building supplies, car parts
and other products used by entrepreneurs and the state-run tourism
sector. Despite the arrests, he said, many new potential business
partners continue to visit Cuba in hopes of entering the market.

"It is a time of opportunity, but also great risk because of what is
happening: the arrests, the closures," he said, insisting on anonymity
out of fear that speaking publicly would damage his standing with the
government. "Everybody is nervous. Everybody is looking over their
shoulder to see who will be next, who is the next victim."

Authorities have acknowledged at least six sweeping corruption
investigations involving foreigners in the past two years, with at least
52 people sentenced to prison. And for every confirmed probe, rumors of
others abound. Cuba's state-controlled media seldom report on the
investigations, particularly those involving foreigners. Cubans are used
to the lack of transparency, which has turned Havana into a swirl of
whispers and intrigue.

Delgado defended the practice of giving few details on the investigations.

"There exists all the transparency in the world," he said. "But in Cuba
as in other countries, investigations have rules and details are given
when the moment is right."

Those whose arrests have been acknowledged include Alejandro Roca, a
former food industries minister who was sentenced in May to 15 years in
a case involving Rio Zaza, a Cuban-Chilean company run by Max Marambio,
a close friend of Fidel Castro who for years enjoyed access to the inner
circle of power.

The government has never revealed details of what Roca did, other than
to say he was sentenced for "continuous bribe-taking." Marambio, who
spent most of his time in Chile, was sentenced in absentia to 20 years.
A lawyer for Marambio declined to comment.

A separate case involving Marambio's brother, Marcel, ensnared 14
executives at Cuba's civil aviation authority and led to the firing of
its president, Rogelio Acevedo, a comrade-in-arms of the Castros since
their rebel days.

A dozen executives at cigar maker Habanos SA also have been jailed since
2010, including company vice president Manuel Garcia, according to three
sources close to the company, a joint venture between the Cuban
government and a subsidiary of England's Imperial Tobacco Group PLC. The
sources refused to be identified for fear of angering authorities.

In recent months there have been widespread reports of arrests at
national phone company Etecsa, which is run by the military, and of two
senior Telecommunications Ministry officials. A Western diplomat
confirmed the ministry arrests and two people close to Etecsa said
several senior executives were detained. The sources, who spoke on
condition of anonymity, said the case is linked to alleged corruption
involving a multimillion-dollar project involving Paris-based
Alcatel-Lucent and Cuban and Venezuelan state telecoms to lay an
undersea fiber-optic cable linking Cuba to Venezuela.

Officials boasted for months about the cable, which was expected to
increase Internet speed 3,000-fold. But the government fell silent as
its July launch date came and went, and there has been no appreciable
change in Internet speed. Etecsa and the government declined requests
for comment.

The government has given no information on probes of Tri-Star Caribbean
and Tokmakjian Group, the two car dealerships run by Canadians, as well
as investment firm Coral Capital Group, led by a Briton. The foreign
business adviser and another businessman who spoke on condition of
anonymity said all three cases sprang from a probe into graft at the Moa
nickel mine, where several Cuban officials and a Czech reportedly have
been detained. The project is a joint venture between Cuba and the
Canadian mining company Sherritt.

Tri-Star was shuttered in July and its president, Sarkis Yacoubian,
detained. Tokmakjian was raided in September, and president Cy
Tokmakjian placed under house arrest.

Tri-Star is listed on an Internet business registry as having an address
in Nova Scotia where a similarly named company, Tri-Star Industries, is
located. But the owner of the latter, Keith Condon, told AP there was no
corporate relationship between the two companies, though he did some
business with Yacoubian more than a decade ago. He said his company had
taken legal action.

Yacoubian's brother Greg in Toronto declined to comment. Several
messages were left for representatives of the Tokmakjian Group in Ontario.

A spokesman for the Canadian government, Jean-Francois Lacelle, said
Ottawa was "aware of the detention of two Canadian citizens" but would
not give details, citing privacy concerns.

Several foreign businessman applaud the crackdown, saying it is
important to level the playing field for honest companies, but even they
refused to speak on the record.

Their sentiment was echoed by Omar Everleny Perez, lead economist at
Havana University's Center for Cuban Economic Studies, who has argued
that the government must encourage foreign investment to keep the
reforms from foundering. Still, he said eradicating graft is vital even
if it discourages some investment.

"If you are going to undertake a profound change in the Cuban economy,"
he said. "You must take this problem on with great force."

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Associated Press writers Andrea Rodriguez and Peter Orsi contributed to
this report.

http://www.miamiherald.com/2011/11/19/v-fullstory/2509592/amid-economic-reforms-cuba-goes.html