US embassy cable - 03GUATEMALA1465

C O N F I D E N T I A L SECTION 01 OF 02 GUATEMALA 001465 
 
SIPDIS 
 
TREASURY FOR OASIA: JOHN JENKINS AND BILL BLOCK 
PANAMA FOR TREASURY ATTACHE 
 
E.O. 12958: DECL: 06/03/2013 
TAGS: KCOR, EFIN, PGOV, GT 
SUBJECT: SOCIAL SECURITY SCANDAL HITS FRG UNITY 
 
REF: GUATEMALA 1388 
 
1. (SBU) SUMMARY:  Critics continue to pounce on the ruling 
FRG for the scandal over the plundering of an estimated $45 
million in funds from Guatemala's social security institute 
(IGSS).  President Portillo is rumored to have given the 
green light for a thorough investigation.  The President, 
Vice President Francisco Reyes, President of Congress Efrain 
Rios Montt, and those more directly involved in the scandal 
have shown incredible disunity as each passes the blame to 
someone else.  Few new details of the actual crime have 
emerged, though Attorney General Carlos de Leon keeps pushing 
the case (and accompanying headlines) along.  Former IGSS 
General Manager Cesar Augosto Sandoval turned himself in 
after an abortive attempt to seek witness protection and has 
implicated former IGSS President of the Board and FRG Deputy 
Carlos Wohlers as the intellectual author.  Arrest warrants 
have been issued for all former IGSS board members.  The 
Constitutional Court (CC) overturned the Vice President's 
order to intervene in the IGSS, so it remains technically 
independent.  In a blow to Reyes, Portillo named his close 
friend and former Foreign Ministry Vice Minister Jorge Perez 
as the new IGSS President.  END SUMMARY. 
 
-------------------------- 
EVERYBODY SINGING "NOT ME" 
-------------------------- 
 
2. (SBU) The IGSS scandal detailed in REFTEL has brought 
about an unprecedented amount of internal bickering among 
ruling party officials--unprecedented even by the standards 
of this notoriously fractured government.  Well-placed 
contacts argue that President Portillo feels he can 
successfully isolate himself from the scandal, so he has 
given the green light for a full investigation.  The 
implication is that either the Vice President or FRG members 
close to Efrain Rios Montt will be damaged.  FRG Deputy 
Haroldo Quej has frequently called press and opposition 
attention to the case a "political lynching" and has claimed 
that the FRG will come out clean.  Rios Montt and Vice 
President Reyes publicly disagreed over various aspects of 
the case and how well they each know Coban businessman and 
key figure in the alleged crime Gustavo Adolfo Herrera 
Castillo.  Newspaper headlines one day quoted Reyes saying he 
had forgotten that he had once dined at Herrera's house. 
Reyes also earned guffaws from commentators when he was 
quoted saying that the Guatemalan people were just as 
responsible as any public figure since they voted for this 
government. 
 
------------------------------------------ 
WOHLERS BLAMES SANDOVAL WHO BLAMES WOHLERS 
------------------------------------------ 
 
3. (C) The three most central figures in the scandal are FRG 
Deputy and "Riosmonttista" Carlos Wohlers, who served as 
President of the IGSS while the alleged thefts occurred; 
former IGSS General Manager Cesar Augosto Sandoval; and 
Gustavo Herrera.  Sandoval negotiated his surrender to 
authorities with Attorney General Carlos de Leon who 
allegedly promised Sandoval leniency under Guatemala's 
witness protection law.  In return, Sandoval promised to 
provide evidence proving that Wohlers was wholly responsible 
for the theft of funds.  In the end, the courts asserted that 
De Leon did not have the authority to place a suspected felon 
under witness protection and ordered Sandoval to prison. 
Wohlers has strongly denied involvement, with FRG (read Rios 
Montt) moral support, and counters he was unaware of 
Sandoval's activities.  However, a move to strip him of his 
congressional immunity proceeds.  Other members of the board 
have used the same defense. Herrera remains in the background 
as the figure most likely responsible for showing the others 
how to steal and launder the IGSS funds, although recent 
press reports indicate that the former Vice President of the 
IGSS board and close adviser to Rios Montt, Jorge Mario 
Nufio, also could have been the brains behind the scam. 
NOTE: Nufio was the congressional lead on the drafting of 
Guatemala's money laundering legislation and it's financial 
reform legislation.  He was also a member of the Monetary 
Board, which is responsible for setting monetary policy and 
supervision of the financial system.  END NOTE. 
 
--------------------- 
WHO RUNS THE IGSS NOW 
--------------------- 
 
4. (SBU) REFTEL reported that Reyes had almost immediately 
"intervened" in the IGSS after the scandal broke.  Critics 
quickly charged that the Vice President was leading a cover 
up and claimed that the executive had no authority to 
intervene in an independent agency.  Guatemala's umbrella 
business organization (CACIF) filed a case with the 
Constitutional Court, which ruled the intervention 
unconstitutional.  Reyes responded that he respects the 
courts decision even if he finds it very damaging to the 
country.  After the ruling, Portillo named his close personal 
friend and former Vice Minister of Foreign Relations Jorge 
Perez to be the new General Manager.  This is viewed by many 
to be a poke at Reyes given his poor relations with Perez. 
 
------- 
COMMENT 
------- 
 
5. (C) Little new information has been published on the IGSS 
scandal, but the opposition, press, and even FRG members have 
all been caught up in something of a food fight.  Even 
Attorney General Carlos De Leon has fallen into the scandal 
after it was revealed that he had been an adviser to another 
housing trust fund in which the IGSS had invested 
approximately $7.5 million.  The political ramifications are 
difficult to predict in a country accustomed to corruption 
scandals.  However, the quantity of money missing and the 
clear money trail revealed by money laundering investigators 
mean that someone will probably have to take a hard fall. 
Moreover, IGSS is Guatemala's social security, Medicare and 
Medicaid wrapped in one institution.  The populist leaning 
FRG will have a difficult time explaining to Guatemala's 
overwhelmingly poor population how it should not be held 
responsible for deteriorating service at the IGSS after its 
administration saw $45 million stolen from the people's 
savings. 
MCFARLAND