San José, Costa Rica, since 1956

Is Corruption Business as Usual Here?

ARE “commissions” and “prizes” forgovernment contracts part of business asusual in Costa Rica, or a strange aberration?Does the primary responsibility forthe ongoing corruption scandals rest withthe government officials who allegedlyaccepted illegal payments, or the corporationsaccused of offering the funds?These are some of the questions troublingthe nation’s business community in the wakeof what one EFE wire service article called“Black October,” a month in which investigationsby the press and law-enforcementofficials revealed layer upon layer of business-related corruption allegations.With two former Presidents behind barsand funds from alleged illegal paymentsflowing into state coffers (see separate articles),the very public fight against corruptionwithin the government appears to bewell under way, but the implications of thescandals for Costa Rica’s business communityand for foreign businesses looking toinvest here are less clear.ÉDGAR Valverde, former managerfor Costa Rica of Paris-based globaltelecommunications firm Alcatel, put businessrepresentatives and government officialson the defensive when he impliedthat “prizes,” as they have come to beknown in the Costa Rican press, are a normalpart of doing business here.In his testimony before prosecutors onOct. 14, Valverde, who allegedly made illegalpayments to officials in connection witha government telecommunications contract,claimed that commissions are simply areality of contract negotiations with thestate-run Costa Rican Electricity Institute(ICE), the daily La Nación reported.Valverde and Alcatel vice-presidentfor Latin America Christian Sapsizianare accused of giving “prizes” to formerICE board members and ex-PresidentMiguel Ángel Rodríguez (1998-2002) inconnection with a lucrative contractawarded to Alcatel in 2001. Alcatelrecently fired them both (TT, Oct. 29).According to information leaked to LaNación, Valverde told prosecutors the paymentswere “almost a requirement” for thecontract.“IT was clear to Alcatel that if it didnot hand over the payments, the process ofimplementing the contract was going tofail,” he told prosecutors.Gonzalo Pardo, legal advisor to GeneralElectric – owner of Instrumentarium and itssubsidiary Datex-Ohmeda, implicated in ascandal involving the Costa Rican SocialSecurity System (Caja) – told the daily AlDía in October that commissions such as theone paid by Datex-Ohmeda are “normal,usual and natural.”The $9.2 million commission, whichrepresented 22% of the total Caja purchase,falls within “normal margins for distributors,”Pardo told the daily. “To those whodo not know how the medical trade works,it might seem high, but our products run thegamut and for some products, the margin fordistributors might reach 40%.”Unlike Valverde, however, Pardo deniedthe commissions are designed to buy supportfor the sale, and emphasized that thepayment made from Datex-Ohmeda to theCosta Rican firm Corporación Fischel,which helped carry out the government contract,was not intended for distribution togovernment officials.“It was a normal compensation for anexisting contract,” Pardo said, adding, “theworry we share is how it was distributed.”VALVERDE’S statements provokedthe ire of business representatives such asLynda Solar, general manager of the CostaRican-American Chamber of Commerce(AmCham).“Of course we’re concerned with statementslike the one Édgar Valverde made,but the fact of the matter is that there arelots of U.S. companies that still want to dobusiness with Costa Rica,” she told TheTico Times.Solar criticized Valverde for “passingthe buck like that and saying that the onlyway to do business in Costa Rica is throughbribery, when there are plenty of companiesthat do business here and don’t pay a dime(in bribes).”Eva Argueda, president of the CostaRican Chamber of Commerce, echoedsome of Solar’s sentiments.“Prizes are not requirements in CostaRica,” she said, adding that if there arepeople who formerly believed illegal paymentswere the norm, “after everythingthat has been happening here, they willrealize that in Costa Rica one must base(business dealings) on principles of transparencyand equality.”ICE spokeswoman Marcela Rodrígueztold The Tico Times via e-mail thatwhile ICE continues to take seriously allallegations of corruption, the institute“roundly and energetically rejectsValverde’s generalization that the prizesgiven to former ICE officials were ‘almosta requirement’ for the Alcatel contract.”“All ICE-Alcatel administrative contractprocess were completed faithfully inaccordance with the procedures and legaland technical requirements, and withICE’s own internal controls,” she said.In regards to Valverde’s claim that thealleged payments may have increased thetotal cost of the Alcatel contract,Rodríguez said determining the veracity ofthat statement is one of the goals of theongoing internal ICE investigation.FOR Mario Carazo, president ofTransparency International (TI) CostaRica, not enough attention is being paid tonecessary reforms outside Costa Rica –within the businesses accused of metingout the illegal funds.On Oct. 25, Carazo asked the governmentof France to investigate Alcatel,telling the wire service AFP it is the government’sresponsibility to follow throughon the request.“France participates in an agreement ofthe Organization for Cooperation andEconomic Development (OCDE) that obligesFrance to pursue its citizens who in someform have used French resources in acts ofcorruption, especially bribery,” Carazo said.He also told AFP he doubts that functionarieson a local level could havearranged commissions of almost $9 millionwithout superiors’ knowledge.“They should put these people in jail,”he said. “They have all the information here.Already (in Costa Rica) the people whoreceived money are in jail. Now they needto put those who gave the money in jail.”WITH the exception of Valverde andPardo, representatives of businesses withties to Costa Rica have remained reticentwith regards to the corruption cases.Officials from Alcatel Costa Rica, andfrom Datex-Ohmeda’s U.S. office, told TheTico Times they are no longer authorized tocomment on the cases, and that each companyhas only one designated official whocan speak about them – Alcatel’s in Spain,and Datex-Ohmeda’s in England.Even representatives of companiescompletely untouched by any allegation ofcorruption show reluctance to speak outabout the scandals.Annete Rosenow, finance manager forBayer, a pharmaceutical company entirelyunrelated to the investigations, told TheTico Times she was not able to comment.“We have to be neutral,” she said. “Wetrust what the Prosecutor’s Office is doing.Of course we have been through contractnegotiations, but we cannot provide details.”DESPITE the shadow cast upon CostaRica’s business culture by the suggestionsthat corruption is widespread, Solar andArguedas expressed optimism about thecountry’s future in the global marketplace,though both cited the need for the governmentand business community to learnfrom the current scandals.Solar said Costa Rica and its foreigninvestors “will weather the storm,” whileadmitting “internal reform in Costa Ricahas to take place. The private sector has toapply more pressure.”While Arguedas cited the punishmentsbeing meted out to alleged payment recipientsas a powerful deterrent, she, like Solar,said long-term reform must also take place.“We have to analyze what modificationswe need to make to our system,” she said.

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