US embassy cable - 04TEGUCIGALPA2424

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 002424 
 
SIPDIS 
 
STATE FOR EB/IFD, WHA/EPSC, AND WHA/CEN 
TREASURY FOR DDOUGLASS, RWARFIELD 
STATE PASS AID FOR LAC/CAM 
 
E.O. 12958: DECL: 10/28/2014 
TAGS: EFIN, ECON, KCOR, ETRD, PGOV, PINR, KMCA, KJUS, HO 
SUBJECT: HONDURAS:  TAX SERVICE STRENGTHENS INTERNAL 
AFFAIRS UNIT TO CRACK DOWN ON CORRUPTION 
 
 
Classified By: Classified By: Economic Chief Patrick Dunn for reasons 1 
.4 (b) and (d). 
 
1. (C) Summary:  The tax authority,s internal affairs unit, 
known as the Transparency Unit, has mounted a vigorous effort 
over the last 18 months to investigate and combat corruption 
within the tax and customs services.  Anecdotal evidence 
suggests that the dismissals for corruption have had an 
appreciable impact in lowering the incidence of corruption 
within the organization. At Director Duarte,s request, 
Department of Treasury is providing technical assistance to 
strengthen this unit, equipping it with better investigative 
techniques.  Foremost among these will be investigating 
employees living champagne lifestyles on cheap-beer incomes. 
The GOH judiciary remains weak, and successfully prosecuting 
these cases in court continues to be an uphill battle at 
best.  Yet improved investigative techniques, a dedicated 
corps of agents, and a willingness to root out and fire 
corrupt officials strike us as excellent first steps. End 
Summary. 
 
2. (C) The Executive Revenue Directorate (DEI, the GOH 
equivalent of the USG,s Internal Revenue Service) Internal 
Affairs Unit, known as the Transparency Unit (TU), is charged 
with investigating fraud or corruption in the customs and tax 
services, as well as responding to complaints from taxpayers. 
 Divided into three units (taxes, customs, and complaints, 
respectively), the Transparency Unit was formed five years 
ago in an attempt to curb rampant corruption in the tax 
service.  Most agents were recruited from police departments, 
but were inexperienced in internal investigations techniques. 
 The unit got off to a slow start, until about 18 months ago 
when then-Director of the DEI, Mario Duarte, tasked them with 
mounting an anti-corruption investigation into the customs 
service.  That highly successful investigation led to the 
dismissal of over 20 customs inspectors for corruption. 
According to Department of Treasury representatives who have 
spoken with him, it is one of Transparency Unit Chief Carlos 
Gomez,s primary frustrations that, despite passing their 
investigatory findings to the prosecutor,s office, no 
suspects were convicted of a crime.  Nonetheless, the TU,s 
efforts appear to be having an impact, as anecdotal evidence 
indicates a sharp drop-off in corruption within the DEI. 
 
3. (SBU) To strengthen the TU, Duarte requested USD 35,000 in 
additional technical assistance from the U.S. Department of 
Treasury.  On October 17, three Treasury agents arrived for 
three weeks of intensive instruction of TU members.  The lead 
instructor comes from the Treasury Department,s Inspection 
General for Tax Administration, the Internal Affairs Unit for 
the U.S. IRS, where she is currently the director of training 
and formerly a special agent in charge.  She and her team 
will teach courses on internal security and technical skills 
(such as investigation and interrogation techniques), 
interview skills for auditors and tax collectors, and 
financial investigations related to employees.  This last 
class will be key in anti-corruption efforts, as it teaches 
the TU investigators to focus on employees with unexplained 
luxury lifestyles, far beyond the standard of living for the 
positions they hold in government. 
 
4. (C) The financial investigation approach to 
anti-corruption being adopted by the TU closely mirrors 
comments made by Vice Minister of Justice Luis Fernando Suazo 
in an October 18 conversation with EconChief.  Asked about 
the weak record of corruption prosecutions to date, Suazo 
lamented the difficulty of finding sufficient evidence of 
corruption to bring to court.  Firms, he said, are careful to 
ensure that their financial books are in order, and it is 
extremely difficult to find a record or receipt of a bribe or 
other corrupt practice.  To remedy this, he said, the GOH is 
considering, instead, requiring GOH employees with luxury 
lifestyles to justify their incomes.  Rather than corruption 
per se, officials that fail to explain the source of their 
wealth could be charged with illicit earnings. 
 
5. (C) Finally, Post has learned that the TU has reportedly 
been mounting an investigation into corruption by a senior 
DEI official in its San Pedro Sula office involving 
underpayment of customs fees on imports entering Honduras by 
land.  According to information provided to a Treasury 
representative active in fighting money laundering, the DEI 
TU attempted to collect conclusive evidence to prove its 
case, but was rebuffed in San Pedro.  The TU has reportedly 
now secured the cooperation of the prosecutor,s office, 
which is reportedly preparing for an October 21 raid on the 
suspect,s office. 
 
6. (C) Comment:  Post is encouraged by these concrete efforts 
to strengthen anti-corruption efforts within the DEI and is 
pleased to be supporting these initiatives via Treasury,s 
technical assistance.  We also welcome Vice Minister Suazo,s 
idea of improving results by attacking the same problem from 
a different angle.  The GOH judiciary remains weak, and 
successfully prosecuting these cases in court continues to be 
an uphill battle at best.  Yet improved investigative 
techniques, a dedicated corps of agents, and a willingness to 
root out and fire (if not send to jail) corrupt officials 
strike us as excellent first steps.  Post will continue to 
work with the DEI and encourage other parts of the GOH to 
deepen the fight against corruption.  End Comment. 
 
Palmer 
 
Palmer