SOCIAL SECURITY SCANDAL HITS FRG UNITY

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.

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EVERYBODY SINGING "NOT ME"
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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.

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WOHLERS BLAMES SANDOVAL WHO BLAMES WOHLERS
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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.

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WHO RUNS THE IGSS NOW
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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.

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COMMENT
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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